Proxy Statement and Annual Report 2021 March 19, 2021 To Our Stockholders: You are cordially invited to attend the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of SailPoint Technologies Holdings, Inc. (“SailPoint”) on April 29, 2021, at 12:30 p.m. Central Time, to be held in a live virtual meeting format in light of ongoing concerns relating to the public health impact of the coronavirus. The matters expected to be acted upon at the meeting are described in the accompanying Notice of Annual Meeting of Stockholders and proxy statement. You are entitled to vote at the Annual Meeting and any adjournments, continuations or postponements of the Annual Meeting only if you were a stockholder as of the close of business on March 1, 2021. Thank you for being a SailPoint stockholder. We look forward to seeing you at the Annual Meeting. Sincerely, Mark McClain Chief Executive Officer and Director Your vote is important. Whether or not you can attend the meeting, please read the enclosed proxy statement carefully, and then cast your vote as soon as possible over the Internet, by telephone, or by completing and returning the enclosed proxy card so that your shares are represented at the Annual Meeting. Your vote will mean that you are represented at the Annual Meeting regardless of whether you attend the virtual meeting. Returning the proxy does not deprive you of your right to attend the virtual meeting or to vote your shares electronically at the virtual meeting. SAILPOINT TECHNOLOGIES HOLDINGS, INC. 11120 FOUR POINTS DRIVE, SUITE 100 AUSTIN, TEXAS 78726 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Our Stockholders: NOTICE IS HEREBY GIVEN that the 2021 Annual Meeting of Stockholders of SailPoint Technologies Holdings, Inc. (the “Annual Meeting”) will be held on April 29, 2021, at 12:30 p.m. Central Time in a live virtual meeting format, to consider and vote upon the following proposals: 1. To elect two Class I directors to hold office until the 2024 Annual Meeting of Stockholders or until their successors are duly elected and qualified; 2. To ratify the selection by the Audit Committee of our Board of Directors of Grant Thornton LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2021; 3. To approve, on an advisory basis, our named executive officer compensation; and 4. Such other matters as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. Beginning on or about March 19, 2021, we will send to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) with instructions on how to access our proxy materials over the Internet and how to vote. The Notice also provides instructions on how to obtain paper copies if preferred. In light of the continued public health risks posed by the coronavirus, we have determined it is appropriate to hold the Annual Meeting virtually. To attend and participate in the Annual Meeting, you will need to register in advance at www.proxydocs.com/SAIL (the “Meeting Website”). You will be required to enter the control number found on your proxy card, voting instruction form or notice. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you to access the meeting and will permit you to submit questions during the meeting. We encourage you to log on 15 minutes prior to the start time of the meeting. If you have difficulty accessing the Annual Meeting through the Meeting Website, please call the technical support number provided in the registration email. Only stockholders of record at the close of business on March 1, 2021 are entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement thereof. You may vote and ask questions in advance of or during the Annual Meeting by following the instructions on your proxy card, voting instruction form or notice and available on the Meeting Website, as applicable. Whether or not you plan to attend the Annual Meeting, we urge you to vote and submit your proxy in advance of the Annual Meeting by one of the methods described in the proxy materials for the 2021 Annual Meeting. A list of the names of stockholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for examination by any stockholder for any purpose germane to the Annual Meeting between the hours of 9:00 a.m. and 5:00 p.m., Central Time, at our headquarters at 11120 Four Points Drive, Suite 100, Austin, Texas 78726. This list will also be available for such purposes during the Annual Meeting on the Meeting Website. By Order of the Board of Directors, Christopher G. Schmitt Secretary Austin, Texas March 19, 2021 Your vote is important. Whether or not you expect to attend the virtual meeting, please vote over the Internet, by telephone, or by completing and promptly returning the enclosed proxy card so that your shares may be represented at the meeting. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 29, 2021: THIS PROXY STATEMENT FOR THE 2021 ANNUAL MEETING OF STOCKHOLDERS AND OUR ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2020 ARE AVAILABLE AT WWW.PROXYDOCS.COM/SAIL. TABLE OF CONTENTS Page The Meeting ................................................................................................................................................................... 1 Proposal No. 1 – Election of Directors .......................................................................................................................... 4 Corporate Governance (including ESG) ........................................................................................................................ 7 Proposal No. 2 – Ratification of Appointment of Independent Registered Public Accounting Firm .......................... 16 Proposal No. 3 – Advisory Vote to Approve Named Executive Officer Compensation ............................................. 17 Executive Officers ....................................................................................................................................................... 18 Executive Compensation ............................................................................................................................................. 19 Director Compensation ................................................................................................................................................ 35 Certain Relationships and Related Party Transactions ................................................................................................ 36 Security Ownership of Certain Beneficial Owners and Management ......................................................................... 37 CEO Pay Ratio ............................................................................................................................................................ 39 Equity Compensation Plan Information ...................................................................................................................... 39 Audit Committee Report ............................................................................................................................................. 41 Delinquent Section 16(a) Reports ................................................................................................................................ 42 Submission of Stockholder Proposals.......................................................................................................................... 42 Other Business ............................................................................................................................................................. 42 Where You Can Find More Information ..................................................................................................................... 43 i SAILPOINT TECHNOLOGIES HOLDINGS, INC. 11120 FOUR POINTS DRIVE, SUITE 100 AUSTIN, TEXAS 78726 PROXY STATEMENT FOR THE 2021 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 29, 2021 THE MEETING The Board of Directors (the “Board”) of SailPoint Technologies Holdings, Inc., a Delaware corporation (“SailPoint,” the “Company” or “we”), is soliciting proxies for use at the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on April 29, 2021, at 12:30 p.m. Central Time in a live virtual meeting format. The Notice of Internet Availability of Proxy Materials was Notice of Internet Availability of Proxy Materials was first furnished to stockholders on or about March 19, 2021. Electronic copies of this Proxy Statement and our Annual Report to Stockholders for the year ended December 31, 2020 (our “2020 Annual Report”) are available at www.proxydocs.com/SAIL. Attending the Virtual Meeting In light of the continued public health risks posed by the coronavirus, we have determined that it is appropriate to hold the Annual Meeting virtually. To attend and participate in the Annual Meeting, you will need to register in advance at www.proxydocs.com/SAIL (the “Meeting Website”). You will be required to enter the control number found on your proxy card, voting instruction form or notice. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you to access the meeting and will permit you to submit questions in advance of and during the meeting. We encourage you to log on 15 minutes prior to the start time of the meeting. If you have difficulty accessing the Annual Meeting through the Meeting Website, please call the technical support number provided in the registration email. In accordance with the rules of conduct for the Annual Meeting, which you will find on the Meeting Website following registration, you may submit up to two questions during or in advance of the Annual Meeting, which questions may address no more than one topic each and must be relevant to the issues before the meeting. During the Annual Meeting, at the appropriate time, we will endeavor to provide oral responses to all questions so submitted. Because we believe it is important for stockholders to have the opportunity to submit questions both in advance of and during the meeting, we are requiring all questions to be submitted in writing. Whether or not you plan to attend the Annual Meeting, we urge you to vote and submit your proxy in advance of the Annual Meeting by one of the methods described in the proxy materials for the 2021 Annual Meeting. Voting Rights, Quorum and Required Vote Only holders of record of our common stock at the close of business on March 1, 2021 (the “Record Date”) will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, we had 91,960,710 shares of common stock outstanding and entitled to vote. Holders of our common stock are entitled to one vote for each share held as of the Record Date. Holders of our common stock do not have the right to cumulative voting. A quorum is required for our stockholders to conduct business at the Annual Meeting. The holders of a majority of the outstanding voting power of all shares of our common stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at the Annual Meeting. Abstentions and “broker non-votes” (described below) will be counted in determining whether there is a quorum. For Proposal No. 1 – Election of Directors, directors will be elected by a plurality of the votes of the shares of our common stock present in person or represented by proxy at the Annual Meeting and entitled to vote in the election of directors, which means that the two nominees receiving the highest number of “for” votes will be elected. Withheld votes and broker non-votes will have no effect on Proposal No. 1. 1 Proposal No. 2 – Ratification of Appointment of Independent Registered Public Accounting Firm requires the affirmative vote of the majority of voting power of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will count the same as votes against Proposal No. 2. Proposal No. 3 – Advisory Vote on our Named Executive Officer Compensation requires the affirmative vote of the majority of voting power of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions and broker non-votes will count the same as votes against Proposal No. 3. Voting Your Shares If you are a registered holder of our common stock, meaning that you hold our common stock directly (not through a bank, broker or other nominee), you may vote by telephone or electronically through the Internet by following the instructions included on your Notice of Internet Availability of Proxy Materials or your proxy card, or by completing, dating, signing and promptly returning your proxy card. All signed, returned proxies that are not revoked will be voted in accordance with the instructions contained thereon. Signed proxies that give no instructions as to how they should be voted on a particular proposal at the Annual Meeting will be counted as votes “for” the election of each of the Class I director nominees presented by the Board under Proposal No. 1, as votes “for” Proposal No. 2, and as votes “for” Proposal No. 3. If your shares of our common stock are held through a bank, broker or other nominee, you are considered the “beneficial owner” of those shares held in “street name.” You may be able to vote by telephone or electronically through the Internet (i.e., if those options are made available to you by your bank, broker or other nominee) in accordance with the voting instructions provided by that nominee. You may also vote by completing, dating, signing and promptly returning the voting instruction form sent by that nominee. You must obtain a legal proxy from the nominee that holds your shares if you wish to participate virtually at the Annual Meeting. If you do not provide voting instructions to your broker in advance of the Annual Meeting, New York Stock Exchange (“NYSE”) rules grant your broker discretionary authority to vote on “routine” proposals. Where a proposal is not “routine,” a broker who has received no instructions from its clients does not have discretion to vote its clients’ uninstructed shares on that proposal, and the unvoted shares are referred to as “broker non-votes.” For the Annual Meeting, Proposals No. 1 and No. 3 are not considered “routine” proposals, and therefore, brokers cannot exercise discretionary authority regarding such proposals for beneficial owners who have not returned voting instructions. Proposal No. 2 is considered a “routine” proposal, and therefore, brokers can exercise discretionary authority regarding this proposal for beneficial owners who have not returned voting instructions. In the event that sufficient votes in favor of the proposals are not received by the date of the Annual Meeting, the Chairman of the Annual Meeting may adjourn the Annual Meeting to permit further solicitations of proxies. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly. Stockholders voting via the telephone or Internet should understand that there may be costs associated with telephonic or electronic access, such as usage charges from telephone companies and Internet access providers, which must be borne by the stockholder. Expenses of Solicitation The expenses of any solicitation of proxies to be voted at the Annual Meeting will be paid by the Company. Following the original distribution of the proxies and other soliciting materials, the Company and its directors, officers and other employees (for no additional compensation) may also solicit proxies in person, by telephone or e- mail. Following the original distribution of the proxies and other soliciting materials, the Company will request that banks, brokers and other nominees forward copies of the proxy and other soliciting materials to persons for whom they hold shares of common stock and request authority for the exercise of proxies. We will reimburse banks, brokers and other nominees for reasonable charges and expenses incurred in forwarding soliciting materials to their clients. 2 Revocability of Proxies Any person who validly submits a proxy has the power to revoke it prior to the Annual Meeting or at the Annual Meeting prior to the vote. A proxy may be revoked by a writing delivered to the Company stating that the proxy is revoked, by a subsequent proxy that is submitted via telephone or Internet or by a subsequent proxy that is signed by the person who signed the earlier proxy and is delivered before or at the Annual Meeting. If you are a beneficial owner and wish to change any of your previously provided voting instructions, you must contact your bank, broker or other nominee directly. Electronic Delivery of Proxy Materials to Stockholders Beginning on or about March 19, 2020, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials with instructions on how to access our proxy materials over the Internet and how to vote. If you received such Notice and would prefer to receive paper copies of the proxy materials, or if you received paper copies of the proxy materials and would prefer to receive a notice for future annual meetings, you may notify us by telephone, e-mail or mail at the respective telephone number, e-mail address or mailing address provided on the Notice. Delivery of Documents to Stockholders Sharing an Address Because many stockholders hold shares of our common stock in multiple accounts or share an address with other stockholders, stockholders may receive duplicate mailings of proxy materials. Stockholders may avoid receiving duplicate mailings as follows: (cid:120) Stockholders of Record. If your shares are registered in your own name and you are interested in consenting to the delivery of a single set of proxy materials, you may contact Mediant Communications, Inc. (“Mediant”) by telephone at 1-866-648-8133, by Internet at www.investorelections.com/SAIL, or by email at paper@investorelections.com. (cid:120) Beneficial Stockholders. If your shares are not registered in your own name, the bank, broker or other nominee that holds your shares may have asked you to consent to the delivery of a single set of proxy materials if there are other SailPoint stockholders who share an address with you. If you currently receive more than one copy of the proxy materials at your household and would like to receive only one copy in the future, you should contact your nominee. If you consent to the delivery of a single set of proxy materials but later decide that you would prefer to receive a separate copy of the proxy materials for each stockholder sharing your address, then please notify Mediant or your nominee, as applicable, and they will promptly deliver the additional proxy materials. If you wish to receive a separate copy of the proxy materials for each stockholder sharing your address in the future, you may also contact Mediant by telephone at 1-866-648-8133, by Internet at www.investorelections.com/SAIL, or by email at paper@investorelections.com if you are a stockholder of record, or you may contact your broker nominee if you are a beneficial stockholder. 3 PROPOSAL NO. 1 – ELECTION OF DIRECTORS The Board is presently comprised of seven members, who are divided into three classes, designated as Class I, Class II and Class III. One class of directors is elected by the stockholders at each annual meeting to serve a three- year term. Class I directors consist of Mark D. McClain and Tracey E. Newell; Class II directors consist of Cam McMartin, Heidi M. Melin and James M. Pflaging; and Class III directors consist of William G. Bock and Michael J. Sullivan. Class I directors standing for re-election at the Annual Meeting are Mr. McClain and Ms. Newell. Class II directors will stand for re-election at the 2022 Annual Meeting of Stockholders, and Class III directors will stand for re-election at the 2023 Annual Meeting of Stockholders. Each of the nominees for election to Class I is currently a director of the Company. If elected at the Annual Meeting, each of the nominees would serve for three years and until his or her successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. Each of the nominees has indicated his or her willingness to serve as a member of the Board, if re-elected. If any of the nominees is unable to serve or will not serve (a contingency which the Board does not expect to occur), the proxies will be voted for a substitute nominee chosen by the Board. In the alternative, the stockholders may vote for just the remaining nominees, leaving a vacancy that may be filled at a later date by the Board, or the Board may reduce the size of the Board. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the number of nominees named in this Proxy Statement (which is two). The names of the nominees for election as Class I directors at the Annual Meeting and of the incumbent Class II and Class III directors, and certain information about them, including their ages as of the Record Date, are included below. Name Director Nominees Mark D. McClain Tracey E. Newell Continuing Directors William G. Bock Cam McMartin Heidi M. Melin James M. Pflaging Michael J. Sullivan Class Age Position Current Term Expiration Expiration of Term for which Nominated I I III II II II III 58 54 70 64 55 58 56 Chief Executive Officer and Director Director Chairman of the Board Director Director Director Director 2021 2021 2023 2022 2022 2022 2023 2024 2024 — — — — — Nominees for Election as Class I Directors Mark D. McClain co-founded SailPoint in December 2005 and has served as our Chief Executive Officer and on our Board since that time. He has more than 20 years of experience developing and leading innovative technology companies that have operated in the identity management market. In 2000, he founded Waveset Technologies (“Waveset”), a pioneer in the identity management market. Following the acquisition of Waveset by Sun Microsystems (“Sun”) in 2003, Mr. McClain served as Vice President of Software Marketing for Sun. His career also includes experience in international sales and marketing with HP (NYSE: HPQ) and IBM Tivoli Systems. Mr. McClain holds a B.A. in Economics from Point Loma Nazarene University and an M.B.A. from the University of California, Los Angeles. The Board believes that Mr. McClain’s industry expertise and his daily insight into corporate matters as our Chief Executive Officer qualify him to serve as a director. Tracey E. Newell has served on our Board since March 2019. She served as President of Global Field Operations at Informatica LLC (“Informatica”), an enterprise cloud data management company, from July 2018 until her retirement in January 2021, during which time she was responsible for worldwide field sales, alliances, channels and sales operations and customer success. In December 2020, Ms. Newell joined the board of directors of Sumo Logic, Inc. (NASDAQ: SUMO) and previously served as a member of the Informatica board of directors from June 2016 to June 2018. Prior to joining Informatica, Ms. Newell was Executive Vice President of global field operations at Proofpoint, an enterprise security software and solutions company, from August 2013 until June 2018. 4 Before Proofpoint, from July 2011 to August 2013, Ms. Newell was Executive Vice President, Global Sales at Polycom. She has also held sales leadership positions at Juniper Networks and at Cisco WebEx. Ms. Newell holds a B.A. in Business Economics from the University of California, Santa Barbara. The Board believes that Ms. Newell’s management and extensive industry experience as well as her prior board experience qualify her to serve as a director. Continuing Directors William G. Bock has served on our Board since 2011. Mr. Bock has served on the board of directors of Silicon Laboratories Inc. (NASDAQ: SLAB) (“Silicon Labs”), a provider of silicon, software and solutions for the Internet of Things, internet infrastructure, industrial, consumer and automotive markets, since 2011. In addition, he has served on the board of directors of SolarWinds (NYSE: SWI) since October 2018 and was appointed as chairman of its board in August 2020. From 2013 to his retirement in 2016, Mr. Bock served as the President of Silicon Labs. He also served Silicon Labs as Senior Vice President of Finance and Administration and Chief Financial Officer from 2006 to 2011. Prior to joining Silicon Labs, Mr. Bock participated in the venture capital industry, principally as a partner with CenterPoint Ventures, and previously held senior executive positions with various venture-backed companies. Mr. Bock began his career with Texas Instruments (NASDAQ: TXN). Mr. Bock holds a B.S. in Computer Science from Iowa State University and an M.S. in Industrial Administration from Carnegie Mellon University. The Board believes that Mr. Bock’s extensive financial and industry experience as well as his prior board experience qualify him to serve as a director. Cam McMartin has served on our Board since January 2020 and previously served as our Chief Operating Officer from May 2019 until his retirement in December 2019 and as our Chief Financial Officer from 2011 to May 2019. In January 2021, he joined the board of directors of Thoma Bravo Advantage (NYSE: TBA), a special purpose acquisition company. Mr. McMartin formerly served as Managing Director and Chief Financial Officer for CenterPoint Ventures, a $425 million venture capital group. Before CenterPoint Ventures, Mr. McMartin held senior financial management positions with a number of corporations, including Chief Financial Officer at Convex Computer (NYSE: CNX) and Senior VP, Operations at Dazel. Mr. McMartin holds a B.A. in Business Administration from Trinity University and an M.B.A. from the University of Michigan. The Board believes that Mr. McMartin’s extensive industry and Company experience, along with his financial and cybersecurity expertise, qualify him to serve as a director. Heidi M. Melin has served on our Board since January 2019. She served as the Chief Marketing Officer of Workfront Inc., a cloud-based company that develops enterprise work management software, from February 2018 until January 2021 when Workfront was acquired by Adobe. From June 2013 to January 2018, Ms. Melin served as the Chief Marketing Officer of Plex Systems, Inc., a cloud Enterprise Resource Planning (“ERP”) technology company that delivers plant floor‑focused ERP to manufacturers. From May 2012 to March 2013, Ms. Melin served as Senior Vice President and Chief Marketing Officer at Eloqua, Inc., a provider of innovative marketing automation and revenue performance management solutions that was later acquired by Oracle Corporation. She served as Executive Vice President and Chief Marketing Officer at Taleo Corporation, a cloud‑based talent management platform, from May 2011 to April 2012. From September 2007 to February 2011, Ms. Melin served as Senior Vice President and Chief Marketing Officer at Polycom, Inc., a global leader in voice and video collaboration solutions. From June 2005 to June 2007, Ms. Melin was the Chief Marketing Officer at Hyperion Solutions Corporation. She also previously served on the board of directors and the human resources committee of Accelrys, Inc., a public reporting company prior to its acquisition by Dassault Systèmes SA, from July 2013 to April 2014. Ms. Melin holds a B.A. in Political Science and Organizational Psychology from Willamette University. The Board believes that Ms. Melin’s extensive marketing and industry experience as well as her prior board experience qualify her to serve as a director. James M. Pflaging has served on our Board since January 2015. Mr. Pflaging is the sole Managing Partner at Cynergy Partners Inc. (“Cynergy Partners”), a cybersecurity advisory firm he founded in March 2018, where he works closely with technology companies and investors to identify, acquire, and build companies and advises boards of directors and executives on assessing risk and improving their cyber governance. Currently, he serves on the board of directors of several private technology companies. Prior to founding Cynergy Partners, from January 2012 to March 2018, Mr. Pflaging was employed by The Chertoff Group, a security advisory firm that provides risk management, business strategy and merger and acquisition advisory services. While employed by The Chertoff Group, from April 2014 until March 2018, Mr. Pflaging was a Principal, a member of its Operating Committee and 5 responsible for its strategy practice, and, beginning in 2017, he assumed leadership for its technology vertical. Mr. Pflaging has over 30 years of Silicon Valley experience, including 15 years as CEO of cybersecurity and data management companies. Mr. Pflaging holds a B.S. in Commerce with dual concentrations in Finance and Marketing from the University of Virginia. The Board believes that Mr. Pflaging’s management and extensive industry experience qualify him to serve as a director. Michael J. Sullivan has served on our Board since November 2017. He served as the Chief Financial Officer at Ping Identity (NYSE: PING), an identity security company, from March 2013 until his retirement in December 2016, and his tenure there culminated in the successful sale of Ping Identity to Vista Equity Partners. Prior to joining Ping Identity, Mr. Sullivan spent 12 years as the Executive Vice President and Chief Financial Officer of IHS Inc. (now IHS Markit Ltd.) (“IHS”), a business information services company (NASDAQ: INFO, formerly NYSE: IHS), which he helped take public and where he worked closely with the audit committee of its board of directors. Prior to joining IHS, Mr. Sullivan spent three years with the Coors Brewing Company (NYSE: TAP), a consumer-packaged goods company, directing the corporate accounting function and leading corporate planning and analysis efforts. He began his career with Price Waterhouse, LLP in New York and Denver, managing the firm’s participation in more than 30 domestic and international mergers and acquisitions, working with a variety of financial and strategic buyers. Mr. Sullivan also served in Price Waterhouse’s audit practice, managing financial audits and audit committee representation for both public and private companies. In addition, Mr. Sullivan has served on the boards of directors and chaired the audit committees of two private equity-backed portfolio companies: Vertafore (a SaaS company), from April 2011 to December 2013, and SNL Financial (a business information services company), from December 2011 to April 2014. Mr. Sullivan holds a B.A. in Business Administration and Accounting from the University of Iowa. The Board believes that Mr. Sullivan’s extensive management, financial and industry experience as well as his prior board and audit committee experience qualify him to serve as a director. Vote Required The two nominees who receive the greatest number of “FOR” votes will be elected as Class I directors. Any shares that are not voted, whether by abstention, broker non-votes or otherwise, will not affect the election of directors. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is given, then “FOR” the election of the nominees named in this Proposal No. 1. The Board recommends a vote “FOR” the election of each of the director nominees. 6 Composition of the Board CORPORATE GOVERNANCE In accordance with our charter and bylaws, the Board is divided into three classes with staggered three-year terms. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. Our charter provides that the authorized number of directors will be fixed by the affirmative vote of the directors then in office, and newly created directorships and vacancies may be filled by the Board. Director Independence The Board has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, the Board has determined that none of our directors (other than Messrs. McClain and McMartin) have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of our directors (other than Messrs. McClain and McMartin) is “independent” as that term is defined under the listing standards of the NYSE. In making these determinations, the Board considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances the Board deemed relevant in determining their independence and eligibility to serve on the committees of the Board, including the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.” Leadership Structure of the Board of Directors The offices of Chairman of the Board and Chief Executive Officer are presently separated. Our bylaws and corporate governance guidelines, which do not require the separation of our Chairman of the Board and Chief Executive Officer positions, allow the Board to determine the board leadership structure that is appropriate for us at any given point in time, taking into account the dynamic demands of our business, our senior executive personnel and other factors. The Board believes that the separation of the Chairman of the Board and Chief Executive Officer roles currently provides the most efficient and effective leadership model for the Company as it encourages free and open dialogue regarding competing views and provides for strong checks and balances. Specifically, the balance of powers among our Chief Executive Officer and Chairman of the Board facilitates the active participation of our independent directors and enables our Board to provide more effective oversight of management. Pursuant to our corporate governance guidelines, if the offices of Chairman of the Board and Chief Executive Officer are combined, the Board shall have a lead director (the “Lead Director”) designated by the independent directors to provide, in conjunction with the Chairman of the Board and Chief Executive Officer, leadership and guidance to the Board. The Lead Director would serve as a liaison between the Chairman of the Board and the independent directors and preside at all meetings of the Board at which the Chairman of the Board is not present, unless the other directors determine otherwise. Additionally, the Lead Director would coordinate the nature, quality, quantity and timeliness of, and have the authority to approve, information sent to the Board in advance of meetings, would also have the authority to approve the agendas for meetings and would have such other responsibilities as are described in our corporate governance guidelines and as designated from time to time by the Board. Communications by Stockholders and Other Interested Parties with the Board Stockholders and other interested parties may contact any individual director, the Lead Director (if any), the Chairman of the Board, the Board as a group, or a committee or subset of the Board by sending mail to: Board of Directors, SailPoint Technologies Holdings, Inc., 11120 Four Points Drive, Suite 100, Austin, Texas 78726, Attention: Corporate Secretary; by e-mail at investor@sailpoint.com; or by telephone at (512) 664-8916. All such concerns will be forwarded to the appropriate director or directors for review and will be simultaneously reviewed and addressed by the Company’s Corporate Secretary. The status of all outstanding concerns will be reported to the Board on a quarterly basis. The Board or the Audit Committee may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them. The Company will not take any adverse action, and will not tolerate any retaliation, against any person for asking questions or 7 making good faith reports of possible violations of law, Company policy or the Company’s code of business conduct and ethics. Board Committees The Board has established four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Cybersecurity Committee. The composition, duties and responsibilities of each of these committees are described below. Each of these committees reports to the Board as provided in the applicable committee charter, as they deem appropriate and as the Board may request. The Board may establish such other committees as it deems appropriate from time to time. The following table provides information on the Board’s current committee memberships. Name William G. Bock Cam McMartin Heidi M. Melin Tracey E. Newell James M. Pflaging Michael J. Sullivan Compensation Committee X Chair X Audit Committee X X Chair Nominating and Corporate Governance Committee Cybersecurity Committee X Chair X X X Chair X Our corporate governance guidelines, along with our code of business conduct and ethics and the charters for our Audit, Compensation, Nominating and Corporate Governance and Cybersecurity Committees, are available on our website at investors.sailpoint.com/leadership-and-governance/governance-documents. Stockholders may also obtain copies of these documents upon written request to SailPoint Technologies Holdings, Inc., Attn: Investor Relations, 11120 Four Points Drive, Suite 100, Austin, Texas 78726 or by e-mail to investor@sailpoint.com. Audit Committee Each member of the Audit Committee is financially literate, as required by the NYSE listing standards. In addition, the Board has determined that Messrs. Bock, McMartin, Pflaging and Sullivan each qualifies as an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Board has also determined that Messrs. Bock, Pflaging and Sullivan each meets the additional independence standards of the NYSE and the Securities Exchange Commission (the “SEC”) applicable to members of audit committees. The Audit Committee, which operates under a written charter that satisfies the applicable rules and regulations of the SEC and the listing standards of the NYSE, is, among other things, responsible for: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; helping to ensure the independence and performance of the independent registered public accounting firm; discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent registered public accounting firm, our interim and year- end operating results; developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; reviewing our policies on risk assessment and risk management; reviewing related party transactions; and 8 (cid:120) approving or, as required, pre-approving, all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm. Compensation Committee The Board has determined that each member of the Compensation Committee meets the additional independence standards of the NYSE and SEC applicable to members of compensation committees. The Compensation Committee, which operates under a written charter, is, among other things, responsible for: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) reviewing and approving the goals and objectives relating to the compensation of our executive officers, including any long-term incentive components of our compensation programs; evaluating the performance of our executive officers in light of the goals and objectives of our compensation programs and determining each executive officer’s compensation based on such evaluation; assessing and advising the board of directors regarding succession planning for the CEO, and consulting with the CEO on succession planning for our executive officers; reviewing the operation and efficacy of our executive compensation programs in light of their goals and objectives; reviewing and assessing risks arising from our compensation programs; reviewing and recommending to the board of directors the appropriate structure and amount of compensation for our directors; reviewing and approving, subject, if applicable, to stockholder approval, material changes in our employee benefit plans; reviewing and providing guidance to the Board and management about the Company’s policies, programs, and initiatives for diversity and inclusion; and (cid:120) establishing and periodically reviewing policies for the administration of our equity compensation plans. The Compensation Committee has complete authority to retain and terminate outside counsel, compensation consultants, or other experts or consultants, as it deems appropriate, including complete authority to approve their fees and other retention terms. However, the Compensation Committee may only select such outside counsel, compensation consultants, or other experts or consultants after taking into consideration all factors relevant to that entity or person’s independence from management, including the factors enumerated in the applicable exchange rules. The Compensation Committee has retained Compensia, Inc. (“Compensia”) to provide independent compensation consulting support. Compensia has provided market information on compensation trends and practices and makes compensation recommendations based on competitive data of a peer group of companies. Compensia is also available to perform special projects at the Compensation Committee’s request. Compensia provides analyses and recommendations that inform the Compensation Committee’s decisions but does not decide or approve any compensation actions. As needed, the Compensation Committee may also consult with Compensia on other compensation-related matters. Compensia reports exclusively to the Compensation Committee and does not provide any additional services to the Company. The Compensation Committee has assessed the independence of Compensia pursuant to applicable SEC and NYSE rules and concluded that Compensia’s work for the Compensation Committee does not raise any conflict of interest. The Compensation Committee may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Compensation Committee. The Compensation Committee may delegate to one or more executive officers the authority to make grants of equity-based compensation to eligible individuals who are not executive officers and to administer the Company’s equity-based compensation plans. Any executive 9 officer to whom the Compensation Committee grants such authority must regularly report to the Compensation Committee grants so made and the Compensation Committee may revoke any delegation of authority at any time. Nominating and Corporate Governance Committee The Board has determined that each member of the Nominating and Corporate Governance Committee meets the independence standards of the NYSE. The Nominating and Corporate Governance Committee, which operates under a written charter, is, among other things, responsible for: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) identifying, evaluating and recommending qualified nominees to serve on the Board; considering and making recommendations to the Board regarding the composition of the committees of the Board; instituting plans or programs for the continuing education of the Board and orientation of new directors; developing and making recommendations to the Board regarding corporate governance guidelines and matters; periodically reviewing, assessing and discussing with management the Company’s policies and programs concerning corporate social responsibility, including environmental, social and governance matters; and overseeing periodic evaluations of the Board’s performance, including committees of the Board and management. Cybersecurity Committee The Cybersecurity Committee, which operates under a written charter, is, among other things, responsible for reviewing and advising on the following matters: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) the effectiveness of our cybersecurity programs and our practices for identifying, assessing and mitigating cybersecurity risks across our products, services and business operations; our controls, policies and guidelines to prevent, detect and respond to cyber attacks or data breaches involving our products, services and business operations; our security strategy and technology planning processes; the safeguards used to protect the confidentiality, integrity, availability and resiliency of our products, services and business operations; our cyber crisis preparedness, security breach and incident response plans, communication plans, and disaster recovery and business continuity capabilities; our compliance with applicable information security and data protection laws and industry standards, including our ISO 27001 Certification and SOC 2 Type 2 Report; new or updated legal implications of security, data privacy and/or other regulatory or compliance risks to us or our products, services or business operations; and our cybersecurity budget, investments, training and staffing levels to ensure they are sufficient to sustain and advance successful cybersecurity and industry compliance programs, including company-wide information and security training. Risk Oversight The Board is responsible for overseeing our risk management process. The Board focuses on our general risk management strategy and the most significant risks facing us and oversees the implementation of risk mitigation 10 strategies by management. The Board, including through its committees, is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters and significant transactions. The Board does not have a standing risk management committee, but rather we administer this oversight function directly through the Board as a whole. In particular, the Board is responsible for monitoring and assessing strategic risk exposure. Such responsibility is facilitated in part by the Audit Committee, which receives reports from management, the internal audit team, and the Company’s independent registered public accounting firm; the Compensation Committee, which assesses and monitors whether any of our compensation policies and programs have the potential to encourage unnecessary risk-taking; the Nominating and Corporate Governance Committee, which monitors the effectiveness of our corporate governance guidelines; and the Cybersecurity Committee, which oversees our policies, plans and programs relating to cybersecurity and data protection risks associated with our products, services and business operations. Our management is responsible for day-to-day risk management. This oversight includes identifying, evaluating and addressing potential risks that may exist at the enterprise, strategic, financial, operational, compliance or reporting levels. Code of Business Conduct and Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers and other employees, including our principal executive officer, principal financial officer, principal accounting officer and controller (or persons performing similar functions). We have posted a current copy of the code on our website at investors.sailpoint.com/leadership-and-governance/governance-documents. In addition, we intend to post on our website all disclosures that are required by law or the NYSE listing standards concerning any amendments to, or waivers from, any provision of the code. Director Recommendations Director Qualification Standards and Selection Criteria The Nominating and Corporate Governance Committee, in recommending director candidates, and the Board, in nominating director candidates, will evaluate candidates in accordance with the qualification standards set forth in our corporate governance guidelines. Pursuant to our corporate governance guidelines, directors should possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of our stockholders. They also should be intelligent, inquisitive and objective in thought and have practical wisdom and mature judgment and a willingness to gain an understanding of the Company, its competitive position in its industry and its business strategy. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serving on the Board for an extended period of time. Along with the selection criteria described above, some of the other qualifications that the Nominating and Corporate Governance Committee considers include, without limitation, independence, diversity, skills, education, expertise, business experience, length of service, understanding of the Company and industry and other commitments. While we do not have a formal diversity policy for directors, the Nominating and Corporate Governance Committee generally considers the diversity of director candidates in terms of knowledge, geography, age, gender, ethnicity, experience, background, skills, expertise and other demographic factors. Stockholder Nominations The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders in the same manner it considers other candidates, but it has no obligation to recommend such candidates. A stockholder that wants to recommend a candidate for election to the Board should send a recommendation in writing to SailPoint Technologies Holdings, Inc., c/o Corporate Secretary, 11120 Four Points Drive, Suite 100, Austin, Texas 78726. Such recommendation should describe the candidate’s qualifications and other relevant biographical information and provide confirmation of the candidate’s consent to serve as director. Stockholders may also nominate directors at an annual meeting by adhering to the advance notice procedure described under “Submission of Stockholder Proposals” elsewhere in this Proxy Statement. 11 Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee in 2020 was an officer or employee of the Company in 2020, nor have they ever been an officer or employee of the Company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on the Board or Compensation Committee. Family Relationships There are no family relationships among any of our directors or executive officers. Board and Annual Meetings The Board meets on a regularly scheduled basis during the year to review significant developments affecting the Company and to act on matters requiring their approval. It also holds special meetings when important matters require action between regularly scheduled meetings. During 2020, the Board held seven meetings. The Audit Committee held six meetings, the Compensation Committee held four meetings, the Nominating and Corporate Governance Committee held five meetings, and the Cybersecurity Committee held four meetings in 2020. Each incumbent director attended at least 75% of the aggregate number of meetings held by the Board and the committees of the Board for the period for which such director served on the Board or committee(s), if applicable, during 2020. The Board regularly holds executive sessions of the non-management directors. If independent, the Chairman of the Board presides over such executive sessions. If the Chairman of the Board is not independent, the Lead Director presides over such executive sessions. Such executive sessions do not include employee directors. The Board held at least one executive session during 2020 that included only independent directors, consistent with NYSE rules. The Company’s directors are encouraged to attend our annual meetings of stockholders, but we do not currently have a policy relating to directors’ attendance at these meetings. Each member of the Board attended our 2020 Annual Meeting of Stockholders. Corporate Responsibility We believe that operating our company in an environmentally and socially responsible manner will help drive long-term value for our stockholders. Consistent with this belief and our core values (Innovation, Integrity, Impact and Individuals), we recognize that we have a meaningful opportunity to provide value to all of our stakeholders, including through maintaining good governance practices and oversight, promoting a safe, positive, diverse and inclusive environment for all of our crew members to work in, investing in and supporting our communities and being mindful of our impact on the environment. Governance and Oversight We believe that good corporate governance provides a strong foundation for operating our business in a manner that is fair, ethical and responsible and is therefore essential to the long-term success of our company. Our Board and its committees help set the tone for our company in this regard, as they regularly review and, as appropriate, update various corporate governance and other key policy documents in light of current regulations and best practices. They are focused on and devote substantial attention to matters of corporate responsibility, including environmental, social and governance (“ESG”) matters, and pursuant to its charter, our Nominating and Corporate Governance Committee has oversight over the Company’s ESG efforts. Our Corporate Governance Guidelines emphasize the importance of considering potential director candidates’ diversity, including geographic, age, gender, and ethnic diversity, among other factors, and the Compensation Committee of our Board routinely reviews and provides guidance to the Board and management about SailPoint’s policies, programs, and initiatives for diversity and inclusion. As mentioned above, you can find certain of our governance documents on our website at investors.sailpoint.com/leadership-and-governance/governance- documents. Since our initial public offering in 2017, three directors affiliated with our former equity sponsor rolled off our Board and have been replaced by three new directors, including two women. Half of our Board committees are 12 chaired by women, and the average tenure of directors from the time we went public through the Record Date is 2.6 years. As reflected in the following graph, we believe that our directors represent a wide range of skills and experiences, which allows them to offer a variety of perspectives in fulfilling their responsibilities on the Board: B O A R D S K I L L S & E X P E R I E N C E Accounting Business Development and M&A Executive Management Finance 3 International Government, Legal and Regulatory Human Capital Risk Management Sales and Marketing Technology Industry 5 5 5 7 7 7 6 6 6 # of Directors with relevant skill or experience (out ot 7 total) People Our people are our greatest asset, and each of our core values is designed to support this foundational tenet of our business model, because we recognize that each crew member’s unique characteristics and talents are what make us the company we are today. We think team member engagement is critical to maintaining a positive culture, and our annual team member engagement survey helps us evaluate our efforts in light of our core principles. In our annual global employee engagement survey, our overall team member satisfaction has exceeded 90% for each of the last 4 years. And over the last 10 years, we’ve been consistently recognized as a “best place to work” by various organizations such as Austin Business Journal, Fortune and Glassdoor. We believe that each individual has value and is important and should be treated respectfully, no matter their background, culture, ability, age, ethnicity, gender identification, race, sexual orientation, religious belief, or veteran’s status. We strive to foster an inclusive and diverse work environment and culture that helps enable all of our employees to achieve and contribute, and we put that philosophy into action by: (cid:120) Constantly striving to improve inclusion and equity indicators in our talent funnel, hiring, retention and promotions; (cid:120) Conducting pay equity reviews during our merit and equity planning process; (cid:120) Focusing enablement and holding company-wide interactive trainings on recognizing and reducing unconscious bias, including in our interviewing and selection process; (cid:120) Shifting toward a distributed talent model that facilitates global hiring, broadening the diversity of our talent pool; (cid:120) Strengthening relationships with diversity-focused talent acquisition vendors and recruiting at historically Black and Latinx colleges and universities (HBCUs); (cid:120) Partnering with organizations that advance racial justice in our communities; and (cid:120) Encouraging the creation of and participation in employee groups that help our crew members engage with and support one another. The health and safety of our crew members and their families is of paramount importance, as is the welfare of our customers, partners and visitors. Our response to the COVID-19 pandemic demonstrated our commitment to 13 health and safety of our team, as we acted swiftly in accordance with our Business Continuity and Disaster Recovery Plan and with oversight by and collaboration with our Board to take decisive, informed action to ensure the safety of the SailPoint community and continuity of our business. For example, we implemented the following measures: (cid:120) We acted quickly to support (and continue to support) remote work for all SailPoint employees; (cid:120) We shifted all customer events and the provision of services to a virtual format; (cid:120) We suspended non-essential travel to certain countries in accordance with recommendations by public health officials; (cid:120) We reduced participation in large events and gatherings; (cid:120) We introduced programs to facilitate balance and wellness for our crew members, including specific initiatives to assist crew members in their adjustment to a primarily virtual workplace; (cid:120) We accommodated the scheduling needs of our crew members whose families were impacted by COVID- 19 illness and pandemic restrictions, including through our flexible leave policy; (cid:120) We took deliberate steps to ensure that our shift to a primarily virtual workplace did not have a negative impact on our employee engagement; (cid:120) We developed a phased re-entry plans for each of our office locations, in compliance with local regulations and guidelines; (cid:120) We have reimagined and redesigned our workspace and protocols to make it as safe and healthy as possible for those of our crew members who choose or otherwise need to come to the office; and (cid:120) We are following and encouraging employees and visitors to follow recommendations from the World Health Organization and Centers for Disease Control and Prevention, including practicing good hygiene, implementing social distancing and, most importantly, staying home if they feel sick or have a sick family member at home. We also strive to attract and retain our top talent by offering a competitive compensation and benefits package, which includes competitive base salaries, comprehensive health, welfare, income protection and long-term savings benefits, the opportunity to participate in our employee stock purchase plan, and incentive equity compensation and incentive cash plans for eligible crew members. Our headquarters and some of our other office locations are equipped with fitness centers and ergonomic standing desks. Our headquarters has been redesigned into a modern workspace, where we utilize a “hoteling” strategy that allows for social distancing and appropriate levels of sanitization during the pandemic, while also promoting crew member engagement and collaboration and accommodating flexible work arrangements, which we believe helps us maximize productivity. Community Involvement We are passionate about being good citizens in the communities where we live and work, and we have a long history of philanthropic giving. In 2020, we formally established the SailPoint Gives Back Foundation to enable a legacy of giving, both by SailPoint and by individual crew members. Initially seeded by SailPoint and our CEO and Founder, Mark McClain, the SailPoint Gives Back Foundation allows for consistent and meaningful contributions to our communities through a thoughtful giving strategy and enables individual crew members to have their philanthropic contributions stretch even farther with donor matching. In addition to other traditional forms of philanthropic giving, we also sponsor an annual event where we invite local non-profits to make a “pitch” for their cause, and our crew members decide how to allocate SailPoint-sponsored financial contributions to the winning organizations. We also recognize that giving back can involve more than donating money to various philanthropic organizations and events. In addition to providing long-term financial support to a number of organizations in our communities, we encourage and give our crew members the opportunity to give back through “sweat equity,” providing meaningful service to worthwhile causes. For example, our crew members have recently donated time and services to help build homes for those in need, harvest produce for an organization that provides food aid in the local community, assembled hygiene kits for a women’s shelter, sponsored a food drive, delivered meals to frontline healthcare workers during the height of the COVID-19 pandemic, and provided meaningful mentoring to minority and low-income high school students who enter and excel in STEM (science, technology, engineering and math) undergraduate majors and careers. 14 Environment We believe that it is important to be mindful of how our behaviors impact the environment and seek opportunities to promote more sustainable business practices. One way that we strive to do this is through energy efficient practices and facilities. Our headquarters is located in a LEED certified facility, which features intelligent design for energy efficiency, water conservation, improved indoor air quality, waste reduction and smarter materials selections. We regularly use efficient LED lights and adopt environmentally friendly technologies when purchasing new equipment. We purchase recycled materials when feasible, utilize recycling collection bins for batteries, aluminum, plastic and paper in our offices, recycle toner cartridges, computer equipment and cell phones where possible and practicing responsible disposal when needed. We allow, and in many cases, encourage telecommuting, utilizing web conferencing and teleconferencing technologies and the issuance of company laptops to all crew members, thereby allowing employees to work from home and avoid the pollution and energy consumption resulting from commuting by car. We also emphasize efficient space utilization, which results in lower electricity and heating requirements for our offices, and we distribute our product documentation and literature in electronic format, use electronic signature technology and utilize the SEC’s “notice and access rules” for proxy distribution to help reduce the volume of paper consumed. Modern use of our headquarters space through a free-desking, or “hoteling” strategy, the implementation of which has been accelerated by COVID-19, allows us to promote collaboration and facilitate project-based work. Coupled with our flexible work arrangement policy, this allows us to maximize our use of the square footage at our headquarters, thereby minimizing our carbon footprint. 15 PROPOSAL NO. 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has selected Grant Thornton LLP (“Grant Thornton”) to be the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021, and recommends that the stockholders vote for ratification of such appointment. Grant Thornton has been engaged as our independent registered public accounting firm since 2010. As a matter of good corporate governance, the Audit Committee has requested the Board to submit the selection of Grant Thornton as the Company’s independent registered public accounting firm for fiscal year 2021 to the Company’s stockholders for ratification. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. We expect representatives of Grant Thornton to be present at the Annual Meeting. They will have the opportunity to make a statement at the Annual Meeting if they desire to do so and will be available to respond to appropriate questions. Audit and Related Fees The following table sets forth the aggregate fees billed for various professional services rendered by Grant Thornton: Audit Fees (1) .............................................................................................................................. Audit-Related Fees ...................................................................................................................... Tax Fees ...................................................................................................................................... All Other Fees ............................................................................................................................. Total Fees .................................................................................................................................... $ $ $ $ $ 2020 2019 1,395,596 — — — 1,395,596 $ $ $ $ $ 2,021,560 — — — 2,021,560 (1) Consists of fees for the annual audit and quarterly reviews and financial reporting consultations. For fiscal year 2019, this category also includes fees for services incurred in connection with our offering of convertible senior notes. Pre-Approval Policy The charter of the Audit Committee requires that the Audit Committee review the estimated fees of Grant Thornton’s audit, audit-related, tax and other permitted non-audit services and requires that the Audit Committee, or a member thereof with designated authority, pre-approve any services provided to the Company by Grant Thornton. All of the services listed in the above table for fiscal year 2020 were approved in accordance with the charter and policies of the Audit Committee. Vote Required Approval of this proposal requires the affirmative vote of a majority of voting power of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions will count the same as votes against this Proposal No. 2. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is given, then “FOR” the ratification of the appointment of Grant Thornton LLP in this Proposal No. 2. The Board recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP. 16 PROPOSAL NO. 3 – ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION Pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and consistent with the overwhelming support of our stockholders at our 2020 Annual Meeting of Stockholders to hold such vote annually, we are providing our stockholders with the opportunity to cast a non-binding advisory vote on a resolution to approve the compensation of our Named Executive Officers as disclosed in this Proxy Statement. Stockholders are being asked to vote on the following resolution: RESOLVED, that the stockholders approve the compensation of SailPoint’s Named Executive Officers as disclosed in its Proxy Statement for the 2021 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and other executive compensation disclosures. The Compensation Discussion and Analysis section of this Proxy Statement and the accompanying tables and narrative provide a comprehensive review of our executive compensation program, objectives, factors and rationale. We urge you to read this disclosure before voting on this non-binding proposal. As described in detail in such disclosure, our executive compensation program is designed to attract and retain highly competent, motivated executives and reward them for superior performance, consistent with creating long-term stockholder value. The Compensation Committee believes that our executive compensation program, with its balance of guaranteed salary, performance-based cash bonuses and time-vesting equity awards promote retention and reward sustained performance that is aligned with long-term stockholder interests. While this vote on executive compensation is non-binding and solely advisory in nature, the Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program. We expect that the next stockholder advisory vote to approve Named Executive Officer compensation will occur at our 2022 Annual Meeting of Stockholders. Vote Required Approval of this proposal requires the affirmative vote of a majority of voting power of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. Abstentions and broker non- votes will count the same as votes against this Proposal No. 3. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is given, then “FOR” this Proposal No. 3. The Board recommends a vote “FOR” the resolution approving, on a non-binding advisory basis, our named executive officer compensation. 17 (cid:40)(cid:59)(cid:40)(cid:38)(cid:56)(cid:55)(cid:44)(cid:57)(cid:40)(cid:3)(cid:50)(cid:41)(cid:41)(cid:44)(cid:38)(cid:40)(cid:53)(cid:54)(cid:3) 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(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:179)(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:180)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) 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(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85) (cid:55)(cid:76)(cid:87)(cid:79)(cid:72) (cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:48)(cid:70)(cid:38)(cid:79)(cid:68)(cid:76)(cid:81) (cid:45)(cid:68)(cid:86)(cid:82)(cid:81)(cid:3)(cid:53)(cid:72)(cid:68)(cid:80) (cid:48)(cid:68)(cid:87)(cid:87)(cid:3)(cid:48)(cid:76)(cid:79)(cid:79)(cid:86) (cid:45)(cid:88)(cid:79)(cid:76)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:53)(cid:76)(cid:93)(cid:78)(cid:68)(cid:79)(cid:79)(cid:68)(cid:75) (cid:11)(cid:20)(cid:12) (cid:38)(cid:75)(cid:85)(cid:76)(cid:86)(cid:3)(cid:54)(cid:70)(cid:75)(cid:80)(cid:76)(cid:87)(cid:87) (cid:42)(cid:85)(cid:68)(cid:71)(cid:92)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:72)(cid:85)(cid:86) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85) (cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:58)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:41)(cid:76)(cid:72)(cid:79)(cid:71)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15) (cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87) (cid:11)(cid:20)(cid:12) (cid:48)(cid:86)(cid:17)(cid:3)(cid:53)(cid:76)(cid:93)(cid:78)(cid:68)(cid:79)(cid:79)(cid:68)(cid:75)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3)(cid:40)(cid:68)(cid:85)(cid:79)(cid:76)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:86)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3) Executive Summary 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(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:38)(cid:39)(cid:9)(cid:36)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:17)(cid:3) Executive Compensation Program Overview (cid:50)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:80)(cid:82)(cid:87)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) 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(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:87)(cid:16)(cid:85)(cid:76)(cid:86)(cid:78)(cid:15)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:182)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:17) (cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:68)(cid:85)(cid:72)(cid:29) (cid:51)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86) Base Salary(cid:3) Annual Cash Incentive(cid:3) (cid:50)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3) (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:87)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3) (cid:36)(cid:81)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3) (cid:83)(cid:85)(cid:72)(cid:16)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:69)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:11)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3) (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:12)(cid:17)(cid:3) Long-Term Equity Incentive(cid:3) (cid:36)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:76)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:72)(cid:79)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) (cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:20)(cid:28) time. The long-term incentive approach currently consists of a combination of restricted stock units (“RSUs”) and stock options vesting over time. Ownership and holding requirements are based on a designated multiple of each executive’s base salary. Compensation Program Design and Governance Policies In addition to our three primary components of executive compensation, our executive compensation program includes other features that we believe are consistent with strong governance practices, including: What We Do • Simple and Transparent Compensation Program: Maintain a simple and transparent executive compensation program that is understandable both to stockholders and employees and that is not overly complex or subject to constantly changing features • Significant At-Risk, Variable Compensation Aligned with Performance: A significant percentage of annual compensation is at-risk, variable and performance-based • Rigorous Target Setting: Rigorous performance • Multi-Year Equity Vesting: Four-year vesting for targets for new bookings all executive equity awards • Balanced Mix of Compensation: Balance of short- term performance-based cash compensation and long-term equity awards • Balanced Mix of Equity Awards: Named Executive Officers are granted a mix of RSUs and stock options vesting over time • Independent Compensation Consultant: Engagement by the Compensation Committee of an independent compensation consultant to assist with the Compensation Committee’s regular review of our executive compensation program • Stock Ownership Guidelines: Executive stock ownership guidelines and holding requirements What We Do Not Do • No Gross-Ups: No tax gross-ups upon a change in • control No Perquisites: We generally do not offer any supplemental executive perquisites • No Repricing Options: We have never repriced stock options and will not reprice stock options without stockholder approval • No Dividends Paid on Unvested Equity: No prospective payment of dividends on unvested equity awards • No Hedging or Pledging Stock: Insider Trading Policy that prohibits, among other things, hedging and pledging transactions relating to our stock 2020 Executive Compensation Pay Mix As shown in the chart below, targeted direct compensation for our CEO in 2020 was 92% at-risk and variable compensation that is aligned with our performance, while targeted direct compensation for our other Named Executive Officers in 2020 was 86% at-risk and variable compensation that is aligned with our performance. These percentages include actual base salary for the year, targeted annual cash incentives for 2020 (calculated as described below) and the grant date value of the RSU and stock option awards granted to our Named Executive Officers in 20 2020. The stock option award portion of these figures is inherently performance-based because they only provide value to the recipients if the price of our stock increases following the date of grant of the awards. 2020 Direct Compensation Components - CEO 2020 Direct Compensation Components – Average of Other NEOs (1) 8% 8% 84% 14% Target LTIP (%) 9% Target AIP (%) Base Salary (%) Target LTIP (%) Target AIP (%) Base Salary (%) 77% (1) Based on annualized compensation amounts and targets for NEOs who did not serve for the full year in 2020. 2020 Executive Compensation Program Changes In 2020, as part of its annual process, the Compensation Committee reviewed our executive compensation program to ensure it continues to achieve the goals of the program and remains competitive. Based on its review, the Compensation Committee approved a change in the relative mixture of equity awards to the Company’s executive officers from 50% RSUs and 50% stock options to 65% RSUs and 35% stock options, which change became effective beginning with the grants made in 2020 (for other employees the relative mixture remains either 25% stock options and 75% RSUs or 100% RSUs). In connection with its general review of our equity program, the Compensation Committee determined that the change to an increased percentage of RSU awards would have the effect of better attracting, retaining and incentivizing our executive officers to grow the business in a way that increases stockholder value. The Compensation Committee also approved a change in the performance metrics associated with our annual cash incentive, or corporate bonus, plan. Historically, payout under our corporate bonus plan was based on a combination of non-GAAP operating income and new bookings. The Compensation Committee determined to base payout under the 2020 corporate bonus plan on new bookings only, as new bookings performance represents a better measure of the Company’s success while we shift toward placing a greater emphasis on subscription-based arrangements, and due to revenue recognition rules, focusing on operating income could result in misalignment with that business objective. The Compensation Committee did not make any material changes to the 2021 executive compensation program. However, certain changes, discussed below, were made to the peer group to be used to inform 2021 compensation. In connection with our 2020 Annual Meeting of Stockholders, our stockholders voted in favor of an annual advisory vote to approve our executive compensation. Consistent with that vote, we have determined that it is advisable to conduct the advisory vote on executive compensation on an annual basis. We expect that the results of such advisory vote this year and going forward will be one of the factors that we consider on an annual basis when determining the design of our compensation program for our Named Executive Officers. Executive Compensation Philosophy and Objectives Our executive compensation program is designed to reward our executive officers for their overall contribution to company performance, including the achievement of specific annual goals. The executive compensation program also seeks to align executive officers’ interest with those of our stockholders by rewarding performance that meets 21 or exceeds established goals, with the ultimate objective of increasing long-term stockholder value. Specifically, the program is designed to: (cid:120) Retain and attract a highly competent, motivated team of employees appropriately aligned with the long- term interests of our stockholders; (cid:120) Encourage behavior that will enhance both current year performance and long-term growth of stockholder value; (cid:120) Provide as part of our total compensation base salary, the opportunity for a cash incentive and the opportunity for a mix of RSUs and stock options with four-year vesting schedules; (cid:120) Require achievement of minimum performance thresholds prior to any cash incentive compensation being earned; (cid:120) Provide competitive programs of health, welfare and retirement benefits to all employees on an equivalent basis; and (cid:120) Make equity ownership and retention guidelines for executives and directors a key component to ensure alignment with long-term stockholder interests. Setting Executive Compensation for 2020 and Establishing Our 2020 Peer Group The Compensation Committee retained Compensia as its independent compensation consultant to review and provide advice and recommendations with respect to the Company’s executive officer compensation program and assist the Compensation Committee in determining whether any elements or amounts of the existing compensation program should be modified from time to time. Consistent with Compensia’s recommendation, the 2020 equity award mixture for our senior officers (including our Named Executive Officers, with the exception of Mr. Summers) was 35% stock options and 65% RSUs (based on value rather than number of shares). For these Named Executive Officers, a targeted dollar amount was established for the 2020 awards. The number of RSUs to be granted was determined by using 65% of such aggregate award value divided by the 30-trading-day average closing stock price from the date of grant. The number of stock options granted was determined by dividing 35% of the aggregate award value by the 30-trading-day average price of stock from the date of grant and then multiplying by 2. The equity granted to Mr. Summers in 2020 consisted of 100% RSUs, consistent with current practices for executive officer new hires, and was calculated by dividing the award value by the 30-day average closing price of stock from the date of grant. In October 2019, Compensia proposed a peer group for use in the comparisons discussed above for the 2020 compensation year. The Compensation Committee reviewed and evaluated the proposed peer group in adopting a peer group consisting of the following 18 companies in our industry with comparable revenues and market capitalization: Peer Group Used for Determining 2020 Compensation (cid:120) 8 x 8 Inc. (cid:120) Alarm.com Holdings, Inc. (cid:120) Paylocity Holding Corp. (cid:120) Q2 Holdings, Inc. (cid:120) Appian Corp. (cid:120) Qualys, Inc. (cid:120) Benefitfocus, Inc. (cid:120) Rapid7, Inc. (cid:120) BlackLine, Inc. (cid:120) SPS Commerce Inc. 22 (cid:120) Five9, Inc. (cid:120) Talend S.A. (cid:120) LivePerson Inc. (cid:120) Varonis Systems Inc. (cid:120) MobileIron, Inc. (cid:120) Workiva Inc. (cid:120) New Relic, Inc. (cid:120) Yext, Inc. In November 2020, the Compensation Committee reviewed the peer group used for 2020 compensation decisions and made certain changes effective for compensation decisions made in 2021. Benefitfocus and MobileIron were removed because their respective market capitalization was below the target range deemed to be comparable to our market capitalization, and they were replaced with Ping Identity Holding Corp. and Tenable Holdings, Inc. Key Elements of Our 2020 Executive Compensation Program The following table highlights the key elements of our 2020 executive compensation program and the primary purpose of each element. Each element set forth in the table below is discussed in further detail in this CD&A. Element Objectives and Basis Key Features Base Salary (cid:120) Competitive base salaries are established at a level necessary to retain the individual executive’s services, and to reward and motivate individual performance. Annual Cash Incentive (cid:120) Focus our executives on achievement of pre-established annual financial targets. (cid:120) Align executive officers’ interests with those of our stockholders by promoting strong annual results. (cid:120) Retain executive officers by providing competitive compensation. (cid:120) Varies by executive based upon individual skills, experience, responsibilities of the position, performance and other factors. (cid:120) Cash incentive based on achievement of new bookings targets. (cid:120) Actual payout can vary from 0% to 150% of the annualized target amount. Long-Term Equity Incentive (cid:120) Link a significant portion of each (cid:120) Utilizes RSUs and stock options. executive officer’s compensation to longer term performance achievement and stockholder returns. (cid:120) Provide ownership opportunities which promote retention and enable us to attract and motivate our executive officers. (cid:120) Retain executive officers through multi-year vesting of equity grants. (cid:120) RSUs granted in 2020 vest 25% after one year and then 6.25% per quarter over a four-year period of continued service. (cid:120) Stock options vest 25% after one year and then 1/48 per month for the following 36 months. The Compensation Committee has the authority to use its business judgment to provide for discretionary bonuses to the extent individual performance would warrant additional amounts. Base Salary Each Named Executive Officer’s base salary is a fixed component of annual compensation for performing specific job duties and functions. The Board makes adjustments to the base salary rates of the Named Executive 23 Officers upon consideration of any factors that it deems relevant, including but not limited to: (i) any increase or decrease in the executive’s responsibilities, (ii) the executive’s job performance, and (iii) the level of compensation paid to executives of other companies with which we compete for executive talent, as estimated based on publicly available information and the experience of members of the Board and our Chief Executive Officer. Base salaries are reviewed annually by our Compensation Committee, taking into account peer group comparisons and guidance from Compensia. The Compensation Committee assesses the individual skills, performance, experience, responsibilities and time in position of each Named Executive Officer. This assessment is typically conducted mid-year, with changes effective July 1 of that year. Below are the 2020 annual base salaries for our Named Executive Officers. Base salaries for 2019 and 2020 are reported as of December 31 of each year. Name 2020 Annual Base Salary 2019 Annual Base Salary Base Salary Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers $ $ $ $ $ $ 450,000 380,000 400,000 320,000 320,000 380,000 $ $ $ $ $ $ 400,000 350,000 375,000 286,000 290,000 — Annual Incentive Compensation and Process for Setting Performance Objectives Our Compensation Committee establishes performance targets on an annual basis with respect to our Named Executive Officers. As in prior years, the target bonus amounts (“target”) under our incentive plans for 2020 awards were based on a percentage of each executive’s base salary for 2020. Each of our Named Executive Officers participate in our corporate bonus plan. The Compensation Committee asked Compensia to compare the target annual incentive potentially payable to our executive officers to the target (and maximum) annual incentive bonus of similarly situated executives within our peer group. The Compensation Committee reviewed the target (and maximum) annual incentive bonus of our Named Executive Officers, taking into account Compensia’s comparison, and adjusted their target (and maximum) annual incentive bonuses as they deemed appropriate. For 2020, the Compensation Committee established a target bonus amount of 100% of base salary for each of Messrs. McClain and Mills, 60% of base salary for each of Messrs. Ream and Summers and 45% of base salary for each of Ms. Rizkallah and Mr. Schmitt. For participants in the corporate bonus plan, the Compensation Committee established a threshold level of 50% of their target levels and a maximum level of 150% of their target level. Actual payout is calculated by multiplying the participant’s actual base salary by the participant’s bonus target percentage, and then by the performance payout multiple achieved for the year. Where changes to base salary or bonus target percentage are made mid-year, the pre-change base salary is multiplied by the pre-change bonus target percentage, and that is added to the post-change base salary multiplied by the post-change bonus target percentage, the sum of which is multiplied by the applicable performance payout multiple. For 2020, new bookings determined 100% of the total bonus that could be potentially earned within the corporate bonus plan. The definition of new bookings for purposes of our annual bonus plans is inclusive of bookings for (a) license agreements, both perpetual and term, and the related initial maintenance and (b) SaaS agreements. New bookings does not include (x) maintenance and SaaS renewal agreements and (y) professional services. Term license and SaaS agreements are generally multi-year arrangements. Our new bookings target assumed a three-year contract duration for all term licenses and SaaS agreements. The new bookings attainment calculation is based on the actual duration of contracted term license and SaaS agreements (but capped at three years for purposes of the attainment calculation). In addition, the initial maintenance portion of our new bookings target is based on an assumed ratio of standard and premium maintenance bookings, based on the historical mix of agreements. The actual attainment is based on the realized mix which can vary based on customer preferences in a given period. In setting the new bookings target, minimum and maximum thresholds for the corporate bonus plan for 2020, the Compensation Committee established a target that was greater than the new bookings necessary to achieve the Company’s target revenue for 2020. 24 The following table provides the 2020 target multiple, as well as potential payments that could have been made upon the achievement of a threshold, target or maximum level of performance, calculated as described above, for each of our Named Executive Officers: 2020 Target Annual Incentive Opportunities 2020 Target Award (% of Base Salary) 2020 Threshold: 50% of Target Award 2020 Target: 100% of Target Award 2020 Maximum: 150% of Target Award 100 60 100 $ $ $ 45 (1) $ 45 (1) $ $ 60 212,500 109,500 193,750 64,600 65,000 81,918 $ $ $ $ $ $ 425,000 219,000 387,500 129,200 130,000 163,836 $ $ $ $ $ $ 637,500 328,500 581,250 193,800 195,000 245,754 Name Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers (1) Increased from 40% effective July 1, 2020 as part of the Compensation Committee’s annual compensation review. The bonuses for 2020 were paid following a year-end review by the Compensation Committee of the applicable performance criteria. The actual bonus amounts paid to each Named Executive Officer for 2020 were based on a 150% payout, calculated as described above (and with respect to Mr. Summers, reflecting his start date in April), in accordance with the 2020 corporate bonus plan, as reflected in the table below. Additionally, in February 2020, the Compensation Committee determined that it was in the best interests of the Company and its stockholders to pay a one-time retention bonus, pursuant to the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (the “LTIP”), to the executive officers, and in the amounts, set forth in the table below. While the 2019 non-executive officer corporate bonus plan funded at 110% and the threshold bookings amount under the 2019 executive officer corporate bonus plan was exceeded, the Company narrowly missed the threshold operating income figure that was required for payout under that plan, and as a result, no 2019 annual incentive bonuses were paid to the executive officers who were subject to that plan, as disclosed in our 2020 proxy statement. In light of the highly competitive environment that the Company operates in, and in an effort to motivate and retain the Company’s executive officers, the Board determined that it was prudent to give each of the executive officers listed below a one-time retention bonus, which did not exceed the lowest possible payout applicable to such executive officer under the 2019 plan. Name 2020 Bonus Plan Payout 2020 Retention Bonus Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers $ $ $ $ $ $ 637,500 $ 328,500 $ 581,250 $ 193,800 $ 195,000 $ 245,754 $ 200,000 58,973 — (1) 57,200 — (2) — (2) (1) Mr. Mills was subject to the 2019 sales incentive plan and received a payout in accordance therewith, as reported in the Company’s 2020 proxy statement. (2) Messrs. Schmitt and Summers were not executive officers during 2019. Long-Term Equity-Based Awards We intend for a significant portion of the total compensation provided to our executive officers to consist of equity-based compensation, and the LTIP provides for the grant of a variety of equity-based awards. The LTIP is intended to promote our long-term success and increase long-term stockholder value by attracting, motivating and retaining our non-employee directors, officers and other employees. Additionally, to better align our executive officers’ long-term interests with those of our stockholders, the LTIP does not allow for the repricing of stock options after they are awarded unless approved by our stockholders. 25 Following our initial public offering, we began granting RSUs, for which no purchase price is paid. RSUs granted in 2020 vest and will be settled in shares of our common stock over a four year period. Stock options also vest over a four-year period. One-fourth of the RSUs and stock options vests on the one-year anniversary of the date of grant, or thereabout (the first vesting date for RSUs may be slightly longer than a year after the one-year anniversary to provide for vesting on dates likely to be in an open trading window to allow for transactions in vesting awards to cover any tax withholding), and the remainder of the RSU awards vest in substantially equal quarterly installments, while the remainder of the option awards vest in substantially equal monthly installments, over the remaining three-year period. As indicated above, with the exception of Mr. Summers, in 2020 the Named Executive Officers were granted equity based on a specified dollar amount, where 65% of the grant date amount consisted of RSUs and 35% consisted of stock options. The number of RSUs awarded to these Named Executive Officers was calculated by dividing 65% of the overall award value by the 30 day average closing price of stock from the date of grant, and the number of Options issued was calculated by dividing 35% of the overall award value by the 30 day average closing price of stock from the date of grant and then multiplying that amount by 2. The equity granted to Mr. Summers in connection with his hiring in 2020 consisted of 100% RSUs, consistent with current practices for executive officer new hires, and was calculated by dividing the award value by the 30 day average closing price of stock from the date of grant. At the direction of the Compensation Committee, Compensia conducts an annual market analysis of peer company executive compensation, which is then supplemented with additional market information specific to each executive officer’s role and responsibilities. In setting target equity compensation levels for 2020, the Compensation Committee considered pay practices of a group of peer companies (i.e., the peer companies identified above) that were selected based on relative annual revenue, market capitalization and industry, among other criteria. In addition to reviewing and analyzing competitive market data, for incumbent officers, the Compensation Committee considered then-current values of unvested equity (with the objective of ensuring it is sufficient to retain executives in a highly competitive market), the relationship of annual target compensation among external and internal peers, individual performance over the prior year and expected impact of each individual over the vesting period of the new grant. For officers who were hired during 2020 (i.e., Mr. Summers), the Compensation Committee considered the competitive market data, the relationship of annual target compensation among internal peers and the equity value necessary to attract and retain the officers. The target equity award value set for each Named Executive Officer for the 2020 year is as follows: Name Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers 2020 Equity Award Target Value $ 4,500,000 $ 1,800,000 $ 1,800,000 900,000 $ $ 900,000 $ 4,000,000 Stock Ownership Guidelines and Holding Requirements The Compensation Committee has adopted stock ownership guidelines pursuant to which covered persons (including our Named Executive Officers) are prohibited from selling or disposing of any shares of our common stock unless and until the covered person holds an aggregate value of our common stock (or equivalents recognized under our policy) equal to, in the case of Mr. McClain, three times his annual base salary, and, in the case of our other Named Executive Officers, one times their annual base salary. Our guidelines also apply to our non-employee directors who are required to hold an aggregate value of our common stock (or equivalents recognized under our policy) equal to three times their annual cash retainer. Common stock owned directly or indirectly is considered for calculation purposes under our guidelines, but unexercised stock options and unvested RSUs do not count towards ownership requirements. Covered persons may sell shares to pay the exercise price under stock options or satisfy tax withholding obligations with respect to equity awards generally without violating our guidelines. Covered persons 26 are allowed five years to achieve their respective ownership requirements and are not prohibited from selling shares that would cause them to fall below their applicable threshold until that period has lapsed. Each of our Named Executive Officers is still within the five-year transition period. Insider Trading Policy; Prohibitions Against Hedging and Pledging In addition to addressing other customary topics, our Insider Trading Policy prohibits company employees, including officers, and directors from engaging in certain transactions, including transactions in company or subsidiary debt securities, short sales of company securities, publicly-traded options, any hedging transactions (generally, any transaction that will hedge or offset, or is designed to hedge or offset, any decrease in the market value of our common stock) and margin accounts and pledged securities. This policy does not allow for any exception to the above provisions. Other Benefits Retirement and Health and Welfare — We offer the same types of retirement, health and welfare benefits to all of our employees, including to our executive officers as part of our total executive compensation package. Our programs are designed to be competitive and cost-effective. It is our objective to provide core benefits, including medical, retirement, life insurance, and paid time off to all our employees and executive officers. Benefits programs are reviewed on a periodic basis by comparing against companies with which we directly compete, reviewing published survey information, and obtaining advice from various third-party benefits consultants. We currently maintain a retirement plan intended to provide benefits under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), where employees, including our Named Executive Officers, are allowed to contribute portions of their base compensation to a tax-qualified retirement account. We do not provide profit-sharing contributions under the plan, but in 2021 we began offering matching under our 401(k) plan at the rate of 50% of the first 3% of employee contributions. Employee Stock Purchase Plan — In addition to the LTIP, we sponsor an Employee Stock Purchase Plan (the “ESPP”). The ESPP provides eligible employees with the opportunity to purchase shares of our common stock conveniently through periodic payroll deductions at a reduced price. The ESPP is generally intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code and, therefore, is open to employees generally. Severance Pay Plan — In 2018, our Board adopted the Severance Pay Plan pursuant to which our senior leadership team, as identified by the Compensation Committee and including the Named Executive Officers, is eligible to receive certain severance benefits upon a qualifying termination of employment. Additional information regarding the Severance Pay Plan is set forth below under “Potential Payments upon Termination or Change in Control.” Prior to our IPO, Mr. McClain had received a Senior Management and Restricted Stock Agreement, which contained certain provisions governing his employment and potential severance benefits. Following our adoption of the Severance Pay Plan, we amended Mr. McClain’s individual agreement in order to remove any provisions that were duplicative or inconsistent with the Severance Pay Plan. The potential severance benefits that Mr. McClain could receive upon certain qualifying terminations will not be solely governed by the Severance Pay Plan. Perquisites — It is our policy, generally, to not grant perquisites to our named executive officers as a matter of good practice, although the Compensation Committee reserves the right to grant perquisites in the future if it finds that doing so furthers its compensation goals and objectives. Tax Deductibility of Certain Executive Compensation Section 162(m) of the Internal Revenue Code limits the tax deductibility of annual compensation paid to certain executives to $1 million. During fiscal year 2020, our annual incentive compensation and equity awards were not subject to the deduction limitations of Section 162(m) of the Internal Revenue Code due to a transition period applicable to issuers that have recently completed an initial public offering, therefore the deductibility of our executive compensation program was not a significant factor in our decisions for the 2020 year. This transition period expires in connection with the Annual Meeting. 27 Compensation Risk Assessment In accordance with the requirements of Item 402(s) of Regulation S-K, to the extent that risks may arise from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on us, we are required to discuss our policies and practices for compensating our employees (including our employees that are not Named Executive Officers) as they relate to our risk management practices and risk-taking incentives. We have determined that our compensation policies and practices for our employees, including our Named Executive Officers, are not reasonably likely to have a material adverse effect on us. Our Compensation Committee routinely assesses our compensation policies and practices and takes this consideration into account as part of its review. Compensation Committee Report The following report of the Compensation Committee of the Board does not constitute soliciting material and should not be deemed filed or incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate this report by reference. The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and contained in this Proxy Statement. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. THE COMPENSATION COMMITTEE Heidi M. Melin, Chair William G. Bock Tracey E. Newell Important Note Regarding Compensation Tables The following compensation tables have been prepared pursuant to SEC rules. Although some amounts (e.g., salary and non-equity incentive plan compensation) represent actual dollars paid to an executive, other amounts are estimates based on certain assumptions about future circumstances (e.g., payments upon termination of an executive’s employment) or they may represent dollar amounts recognized for financial statement reporting purposes in accordance with accounting rules, but do not represent actual dollars received by the executive (e.g., dollar values of stock awards and option awards). The footnotes and other explanations to the Summary Compensation table and the other tables herein contain important estimates, assumptions and other information regarding the amounts set forth in the tables and should be considered together with the quantitative information in the tables. 28 (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:55)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86) (cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86) (cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3) 2020 Summary Compensation Table (cid:49)(cid:68)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:51)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:78)(cid:3)(cid:48)(cid:70)(cid:38)(cid:79)(cid:68)(cid:76)(cid:81)(cid:15)(cid:3) Chief Executive Officer (cid:45)(cid:68)(cid:86)(cid:82)(cid:81)(cid:3)(cid:53)(cid:72)(cid:68)(cid:80)(cid:3) Chief Financial Officer (4) (cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:58)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:41)(cid:76)(cid:72)(cid:79)(cid:71) (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) (4) (cid:45)(cid:88)(cid:79)(cid:76)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:53)(cid:76)(cid:93)(cid:78)(cid:68)(cid:79)(cid:79)(cid:68)(cid:75)(cid:3) Chief Marketing Officer (4) (cid:60)(cid:72)(cid:68)(cid:85) (cid:21)(cid:19)(cid:21)(cid:19) (cid:7) (cid:21)(cid:19)(cid:20)(cid:28) (cid:3) (cid:7) (cid:21)(cid:19)(cid:20)(cid:27) (cid:7) (cid:3) (cid:21)(cid:19)(cid:21)(cid:19) (cid:7) (cid:21)(cid:19)(cid:20)(cid:28) (cid:3) (cid:7) (cid:3) (cid:54)(cid:68)(cid:79)(cid:68)(cid:85)(cid:92) (cid:11)(cid:7)(cid:12)(cid:3) (cid:23)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19) (cid:7) (cid:23)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) (cid:7) (cid:22)(cid:26)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:7) (cid:3) (cid:22)(cid:25)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19) (cid:7) (cid:20)(cid:28)(cid:25)(cid:15)(cid:27)(cid:26)(cid:24) (cid:7) (cid:37)(cid:82)(cid:81)(cid:88)(cid:86) (cid:11)(cid:7)(cid:12)(cid:11)(cid:20)(cid:12)(cid:3) (cid:7) (cid:21)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19) (cid:178)(cid:3) (cid:3) (cid:7) (cid:178) (cid:7) (cid:3) (cid:3) (cid:7) (cid:3) (cid:7) (cid:3) (cid:24)(cid:27)(cid:15)(cid:28)(cid:26)(cid:22) (cid:178)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86) (cid:11)(cid:7)(cid:12)(cid:11)(cid:21)(cid:12) (cid:21)(cid:15)(cid:28)(cid:25)(cid:25)(cid:15)(cid:28)(cid:28)(cid:26) (cid:20)(cid:15)(cid:25)(cid:28)(cid:28)(cid:15)(cid:24)(cid:26)(cid:25)(cid:3) (cid:7) (cid:3) (cid:7) (cid:178) (cid:7) (cid:3) (cid:20)(cid:15)(cid:20)(cid:27)(cid:25)(cid:15)(cid:26)(cid:27)(cid:23) (cid:20)(cid:15)(cid:19)(cid:24)(cid:20)(cid:15)(cid:21)(cid:21)(cid:28) (cid:7) (cid:7) (cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81) (cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86) (cid:11)(cid:7)(cid:12)(cid:11)(cid:21)(cid:12)(cid:3) (cid:49)(cid:82)(cid:81)(cid:16)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81) (cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:11)(cid:7)(cid:12)(cid:11)(cid:22)(cid:12)(cid:3) (cid:20)(cid:15)(cid:26)(cid:21)(cid:25)(cid:15)(cid:27)(cid:19)(cid:20) (cid:7) (cid:20)(cid:15)(cid:23)(cid:24)(cid:28)(cid:15)(cid:21)(cid:20)(cid:24)(cid:3) (cid:7) (cid:178) (cid:7) (cid:3) (cid:25)(cid:28)(cid:19)(cid:15)(cid:26)(cid:20)(cid:27) (cid:7) (cid:27)(cid:26)(cid:21)(cid:15)(cid:27)(cid:22)(cid:28) (cid:7) (cid:55)(cid:82)(cid:87)(cid:68)(cid:79) (cid:11)(cid:7)(cid:12) (cid:24)(cid:15)(cid:28)(cid:24)(cid:25)(cid:15)(cid:21)(cid:28)(cid:27) (cid:22)(cid:15)(cid:24)(cid:24)(cid:27)(cid:15)(cid:26)(cid:28)(cid:20) (cid:25)(cid:19)(cid:22)(cid:15)(cid:28)(cid:23)(cid:24) (cid:25)(cid:22)(cid:26)(cid:15)(cid:24)(cid:19)(cid:19) (cid:7) (cid:178)(cid:3) (cid:7)(cid:3) (cid:21)(cid:21)(cid:27)(cid:15)(cid:28)(cid:23)(cid:24) (cid:7) (cid:22)(cid:21)(cid:27)(cid:15)(cid:24)(cid:19)(cid:19) (cid:7) (cid:178)(cid:3) (cid:7)(cid:3) (cid:21)(cid:15)(cid:25)(cid:21)(cid:28)(cid:15)(cid:28)(cid:26)(cid:24) (cid:21)(cid:15)(cid:20)(cid:21)(cid:19)(cid:15)(cid:28)(cid:23)(cid:22) (cid:21)(cid:19)(cid:21)(cid:19) (cid:3) (cid:7) (cid:7) (cid:21)(cid:19)(cid:20)(cid:28) (cid:22)(cid:27)(cid:26)(cid:15)(cid:24)(cid:19)(cid:19) (cid:7) (cid:20)(cid:21)(cid:22)(cid:15)(cid:23)(cid:22)(cid:27) (cid:7) (cid:178)(cid:3) (cid:3) (cid:7) (cid:178) (cid:7) (cid:20)(cid:15)(cid:20)(cid:27)(cid:25)(cid:15)(cid:26)(cid:27)(cid:23)(cid:3) (cid:20)(cid:15)(cid:25)(cid:22)(cid:28)(cid:15)(cid:28)(cid:21)(cid:28) (cid:3) (cid:7) (cid:7) (cid:25)(cid:28)(cid:19)(cid:15)(cid:26)(cid:20)(cid:27)(cid:3) (cid:7) (cid:20)(cid:15)(cid:22)(cid:20)(cid:19)(cid:15)(cid:26)(cid:23)(cid:28) (cid:7) (cid:24)(cid:27)(cid:20)(cid:15)(cid:21)(cid:24)(cid:19)(cid:3) (cid:7)(cid:3) (cid:25)(cid:21)(cid:15)(cid:24)(cid:19)(cid:19) (cid:7) (cid:21)(cid:15)(cid:27)(cid:23)(cid:25)(cid:15)(cid:21)(cid:24)(cid:20) (cid:22)(cid:15)(cid:20)(cid:22)(cid:25)(cid:15)(cid:25)(cid:20)(cid:25) (cid:3) (cid:21)(cid:19)(cid:21)(cid:19) (cid:3) (cid:3) (cid:3) (cid:7) (cid:3) (cid:22)(cid:19)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19) (cid:7) (cid:3) (cid:3) (cid:24)(cid:26)(cid:15)(cid:21)(cid:19)(cid:19) (cid:3) (cid:3) (cid:3) (cid:7) (cid:3) (cid:3) (cid:3) (cid:24)(cid:28)(cid:22)(cid:15)(cid:22)(cid:26)(cid:28) (cid:3) (cid:7) (cid:3) (cid:22)(cid:23)(cid:24)(cid:15)(cid:22)(cid:24)(cid:21) (cid:7) (cid:3) (cid:20)(cid:28)(cid:22)(cid:15)(cid:27)(cid:19)(cid:19) (cid:7) (cid:20)(cid:15)(cid:23)(cid:28)(cid:21)(cid:15)(cid:26)(cid:22)(cid:20) (cid:21)(cid:19)(cid:21)(cid:19) (cid:3) (cid:7) (cid:22)(cid:19)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19) (cid:7) (cid:178)(cid:3) (cid:3) (cid:7) (cid:24)(cid:28)(cid:22)(cid:15)(cid:22)(cid:26)(cid:28)(cid:3) (cid:3) (cid:7) (cid:22)(cid:23)(cid:24)(cid:15)(cid:22)(cid:24)(cid:21)(cid:3) (cid:7) (cid:20)(cid:28)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3) (cid:7)(cid:3) (cid:20)(cid:15)(cid:23)(cid:22)(cid:27)(cid:15)(cid:26)(cid:22)(cid:20) EVP, General Counsel (4) (cid:42)(cid:85)(cid:68)(cid:71)(cid:92)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3) EVP, Product (4) (cid:3) (cid:21)(cid:19)(cid:21)(cid:19) (cid:3) (cid:3) (cid:3) (cid:7) (cid:3) (cid:21)(cid:26)(cid:22)(cid:15)(cid:23)(cid:27)(cid:24) (cid:7) (cid:3) (cid:3) (cid:3) (cid:3) (cid:178) (cid:7) (cid:3) (cid:3) (cid:3) (cid:3) (cid:22)(cid:15)(cid:28)(cid:21)(cid:24)(cid:15)(cid:25)(cid:21)(cid:23) (cid:3) (cid:7) (cid:3) (cid:178) (cid:7) (cid:3) (cid:21)(cid:23)(cid:24)(cid:15)(cid:26)(cid:24)(cid:23) (cid:7) (cid:23)(cid:15)(cid:23)(cid:23)(cid:23)(cid:15)(cid:27)(cid:25)(cid:23) (cid:11)(cid:20)(cid:12) (cid:36)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:82)(cid:81)(cid:88)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:17) (cid:11)(cid:21)(cid:12) 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(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:54)(cid:56)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:49)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:3) (cid:21)(cid:28) Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) Name Mark McClain Grant Date Threshold ($) Target ($) Grant Type Annual Cash Bonus Stock Option Grant 2/5/2020 RSU Grant 2/5/2020 — $ 212,500 $ 425,000 $ — — — — Maximum ($) 637,500 — — Jason Ream Annual Cash Bonus Stock Option Grant 2/5/2020 RSU Grant 2/5/2020 — $ 109,500 $ 219,000 $ — — — — Matt Mills Annual Cash Bonus Stock Option Grant RSU Grant — $ 193,750 $ 387,500 $ — — — — Juliette Rizkallah Annual Cash Bonus — $ Stock Option Grant 2/5/2020 RSU Grant 2/5/2020 64,600 $ 129,200 $ — — — — Chris Schmitt Annual Cash Bonus — $ Stock Option Grant 2/5/2020 RSU Grant 2/5/2020 65,000 $ 130,000 $ — — — — 328,500 — — 581,250 — — 193,800 — — 195,000 — — All Other Stock Awards: Number of Shares of Stock or Units (2) All Other Option Awards: Number of Securities Underlying Option (#) — — — 125,698 $ 116,719 — 46,687 — 46,687 — 23,343 — 23,343 50,279 $ 50,279 $ 25,139 $ 25,139 $ Exercise or Base Price of Option Awards ($) Grant Date Fair Value of Stock and Option Awards (3) — 25.42 $ $ 25.42 $ $ 25.42 $ $ 25.42 $ $ 25.42 $ $ — 1,726,801 2,966,997 — 690,718 1,186,784 — 690,718 1,186,784 — 345,352 593,379 — 345,352 593,379 Grady Summers Annual Cash Bonus — $ RSU Grant 4/13/2020 81,918 $ 163,836 — — 245,754 — — 232,423 — 3,925,624 $ (1) (2) (3) The amounts reported represent the minimum, target, and maximum bonus amounts for each applicable Named Executive Officer under our corporate bonus plan for 2020, calculated as described above. For more information about our corporate bonus plan, see “Annual Incentive Compensation and Process for Setting Performance Objectives” and “2020 Target Annual Incentive Opportunities.” The stock options and RSU awards were granted pursuant to the LTIP. Options and RSUs generally vest over a four-year period. Options generally expire after a period of ten years from grant date. The Named Executive Officer must remain employed with us throughout each vesting period. For more information about our LTIP, see “Long-Term Equity-Based Awards.” The amounts reported represent the aggregate fair value of each stock option and RSU awarded to the Named Executive Officers during 2020. These amounts have been calculated in accordance with ASC Topic 718. The assumptions we used to value these awards are described in Note 13 “Stock-Based Compensation” in our consolidated financial statements included in our 2020 Annual Report and do not necessarily correspond to the actual economic value that may be recognized by the Named Executive Officer. Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table Our annual incentive plans are described in greater detail above in our CD&A. With respect to our annual incentive plans, the treatment of awards, in the event of certain terminations of employment and/or upon the occurrence of a change in control, is described below under “Potential Payments Upon Termination or Change in Control.” 30 2020 Outstanding Equity Awards at Year End The following table reflects information regarding outstanding equity-based awards held by our Named Executive Officers as of December 31, 2020. Option Awards Stock Awards Number of Securities Underlying Unexercised Options Exercisable (#)(1) Number of Securities Underlying Unexercised Options Unexercisable (#)(2) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#)(3) Market Value of Shares or Units of Stock That Have Not Vested ($)(4) 154,166 52,088 — — 29,899 — — 46,652 — — 40,850 5,729 17,311 54,600 11,285 — — 12,153 11,285 — — — 45,834(5) 61,558 125,698 — 74,832 50,279 — 102,636 50,279 — —(5) 1,563 7,557 16,233 13,338 25,139 — 13,368(5) 13,338 25,139 — $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12.00 11/16/2027 2/7/2029 29.92 2/5/2030 25.42 — — 17.56 25.42 — 6/10/2029 2/5/2030 — 21.97 25.42 — 9/3/2029 2/5/2030 — 8/19/2025 2.42 2/2/2027 3.17 9/27/2027 3.49 12.00 11/16/2027 2/7/2029 29.92 2/5/2030 25.42 — — 12.00 11/16/2027 2/7/2029 29.92 2/5/2030 25.42 — — — — — 184,336 (6) — — 91,585 (7) $ $ — — 102,670 (8) $ — — — — — — 41,430 (9) $ — — — 39,867 (10) $ — — — 9,814,049 — — 4,875,985 — — 5,466,151 — — — — — — 2,205,733 — — — 2,122,519 — — — 232,423 (11) $ 12,374,201 Name Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers (1) Stock options reported in this column were fully vested and exercisable by the Named Executive Officer as of 12/31/2020. (2) (3) Except as noted in Note 5, below, the stock options reported in this column are subject to time-based vesting schedules where 25% of the total award becomes vested on the one-year anniversary of the initial grant date. The remaining vesting takes place at the rate of 1/48 of the total award vesting each month for the remaining 36 months. The stock awards reported in this column are subject to time-based vesting conditions. The treatment of these awards upon certain termination and change in control events is described below under “—Additional Narrative Disclosure—Potential Payments upon Termination or Change in Control.” (4) Calculated based on the closing price of our common stock on December 31, 2020, which was $53.24 per share. (5) (6) (7) (8) Represents stock options granted in connection with our initial public offering, vesting in substantially equal monthly installments (of 1/48th of the original award) through November 16, 2021. 25,000 shares are RSUs granted in connection with our initial public offering that will vest on November 20, 2021; 42,617 shares vest one- third annually in substantially equal amounts beginning February 28, 2021; and 116,719 shares vest 25% on February 28, 2021 and 6.25% quarterly thereafter for 12 quarters. 44,898 shares vest one-third annually in substantially equal amounts beginning May 20, 2021; and 46,687 shares vest 25% on February 28, 2021 and 6.25% quarterly thereafter for 12 quarters. 55,983 shares vest one-third annually in substantially equal amounts beginning August 20, 2021; and 46,687 shares vest 25% on February 28, 2021 and 6.25% quarterly thereafter for 12 quarters. 31 (9) 8,854 shares are RSUs granted in connection with our initial public offering that will vest on November 20, 2021; 9,233 shares vest one- third annually in substantially equal amounts beginning February 28, 2021; and 23,343 shares vest 25% on February 28, 2021 and 6.25% quarterly thereafter for 12 quarters. (10) 7,291 shares are RSUs granted in connection with our initial public offering that will vest on November 20, 2021; 9,233 shares vest one- third annually in substantially equal amounts beginning February 28, 2021; and 23,343 shares vest 25% on February 28, 2021 and 6.25% quarterly thereafter for 12 quarters. (11) These shares vest 25% on May 28, 2021 and 6.25% quarterly thereafter for 12 quarters. 2020 Option Exercises and Stock Vested The table below sets forth information regarding the option exercises and the vesting of outstanding awards under our LTIP during 2020 for each of our named executive officers. Option Awards Stock Awards Name Mark McClain Jason Ream Matt Mills Juliette Rizkallah Chris Schmitt Grady Summers Number of Shares Acquired on Exercise (#)(1) Value Realized on Exercise ($)(2) Number of Shares Acquired on Vesting (#) (1) Value Realized on Vesting ($) (2) — 15,000 — 49,500 32,209 — — 461,850 — 1,531,694 655,791 — 39,206 14,967 18,661 11,932 10,369 — 1,455,446 334,363 719,382 466,006 397,499 — (1) (2) The number of shares acquired is reported on a gross basis. We withheld the necessary number of shares of common stock in order to satisfy withholding taxes from stock option exercises and stock awards, thus the Named Executive Officers actually received a lower number of shares of our common stock than the numbers reported in this table. The value realized on exercise or vesting is calculated based upon the applicable closing market price of the number of shares acquired (on a gross basis) on the applicable vesting date for each award. It does not represent cash amounts received. No Pension Benefits or Nonqualified Deferred Compensation Plan We do not sponsor or maintain any plans that provide for specified retirement payments or benefits, such as tax-qualified defined benefit plans or supplemental executive retirement plans nor a nonqualified deferred compensation plan. Potential Payment Upon Termination or Change in Control Our Named Executive Officers are entitled to payments, benefits, and accelerated vesting of certain equity awards upon a termination of employment under certain circumstances and, in certain limited cases, additional equity may vest if such termination is following a change in control. These potential payments and benefits are provided pursuant to the terms of our Severance Pay Plan. We believe our Severance Pay Plan is an important retention for us as a component of our overall executive compensation program. It helps attract and retain skilled professionals in our industry, and allows management to focus its attention and energy on our business without any distractions regarding the effects of any potential change in control. We do not provide tax gross-ups upon a change in control. The following paragraphs describe the termination entitlements under the terms of our Severance Pay Plan that were applicable to all Named Executive Officers as of December 31, 2020. The subsequent tables quantify the future potential benefits payable pursuant to our Severance Pay Plan upon qualifying terminations. Upon a termination without “Cause” or, in the case of Mr. McClain, a resignation for “Good Reason,” that does not occur during the “Protection Period,” a participant in the Plan will be eligible to receive the following benefits: (cid:120) a lump sum cash payment equal to 50% of such person’s annual base salary (or 100% of annual base salary for Mr. McClain); and 32 (cid:120) continuation coverage for the individual and his or her spouse and eligible dependents under our group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, for six months (or twelve months for Mr. McClain) at active employee rates, unless such coverage is earlier terminated in accordance with the terms of the Plan. Unless otherwise specified in an individual participation agreement, upon a termination without Cause or a resignation for Good Reason during the period beginning three months prior to a “Change in Control” and ending on the one-year anniversary following such Change in Control (the “Protection Period”), then the participant will be eligible to receive the following benefits (cid:120) (cid:120) (cid:120) a lump sum cash payment equal to 100% of such person’s annual base salary (or 150% of annual base salary for Mr. McClain); continuation coverage for the individual and his or her spouse and eligible dependents under our group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, for twelve months (or eighteen months for Mr. McClain) at active employee rates, unless such coverage is earlier terminated in accordance with the terms of the Plan; and accelerated vesting of all outstanding equity compensation awards, with performance-based awards vesting at the greater of actual performance as of the date of the termination of employment or target performance. “Cause” means a termination following a vote of either the Board for Mr. McClain or the Compensation Committee for our other Named Executive Officers to dismiss the employee due to his or her (a) conviction of a felony; (b) engagement in any other act of fraud, intentional misrepresentation, moral turpitude, misappropriation or embezzlement, illegality or unlawful harassment which would materially adversely affect our business or reputation or would expose us to a risk of material civil or criminal legal damages, liabilities or penalties; (c) repeated willful failure to follow the reasonable directives of the Board in connection with our business affairs; (d) material breach or violation of any material agreement with us or our policies; or (e) willful and deliberate non-performance of duty; provided, however, that any termination under clauses (c), (d) or (e) will be subject to a thirty-day cure period. “Good Reason” means that, after complying with certain notification and cure periods, the employee resigns from employment after we, without the employee’s prior written consent, either: (a) reduce the employee’s base salary in any material respect (other than certain across-the-board salary reductions); (b) fail to pay any material incentive compensation to which the employee is actually entitled under a written agreement; (c) make a material reduction in the employee’s job responsibilities so as to constitute a de facto demotion (other than a mere change in title or reporting relationship in connection with a change in control); or (d) relocate the employee’s principal place of work outside of a 25-mile radius of the employee’s current principal place of work without the employee’s prior written approval. “Change in Control” means (a) the acquisition of more than 50% of the total fair market value or total voting power of the Company by any person or group; (b) the acquisition of 30% or more of the total voting power of the Company by any person or group or a change in the majority of the members of our Board, in each case, in any 12- month period; or (c) the acquisition of 40% or more of the total gross fair market value of all the assets of the Company by any person or group in any 12-month period. The Severance Pay Plan incorporates the definition of Change in Control used in our LTIP, which definition is intended to constitute a change in the ownership, effective control or substantial portion of our assets within the meaning of Section 409A of the Internal Revenue Code. Potential Termination and Change in Control Benefits Table The following table illustrates an estimated amount of compensation or other benefits potentially payable to each of our Named Executive Officers as of December 31, 2020 that could be triggered upon termination of such executive’s employment under various scenarios. We have assumed that all salary payments or any expenses the executive may be due have been paid currently. Any amount ultimately received will vary based on a variety of factors, including the reason for such executive’s termination of employment, the date of such executive’s termination of employment, and the executive’s age upon termination of employment. The amounts shown assume that such termination was effective as of December 31, 2020, and, therefore, are estimates of the amounts that would 33 have been paid to such executives upon their termination. Actual amounts to be paid can only be determined at the time of such executive’s termination from the company. No Change in Control Change in Control (1) Voluntary Termination ($) For Cause Termination ($) Mark McClain Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total Jason Ream Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total Matt Mills Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total Juliette Rizkallah Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total Chris Schmitt Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total Grady Summers Cash Severance (3) Unvested Equity (4) Medical Benefits (5) Estimated Total $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Termination Without Cause or for Good Reason (2) ($) $ 450,000 $ 0 $ 6,706 $ 456,706 $ 190,000 $ 0 $ 14,543 $ 204,543 $ 200,000 $ 0 10,170 $ $ 210,170 $ 160,000 0 $ $ 14,543 $ 174,543 $ 160,000 $ 0 $ 14,543 $ 174,543 $ 190,000 $ 0 $ 13,479 $ 203,479 For Cause Termination ($) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Termination Without Cause or for Good Reason ($) $ 675,000 $16,636,694 $ 13,413 $17,325,107 $ 380,000 $ 8,944,753 $ 29,086 $ 9,353,839 $ 400,000 $10,074,340 20,339 $ $10,494,680 $ 320,000 $ 3,885,591 $ 29,086 $ 4,234,677 $ 320,000 $ 3,724,092 $ 29,086 $ 4,073,177 $ 380,000 $12,374,201 $ 26,958 $12,781,159 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Death ($) Disability ($) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (1) As provided by the Severance Pay Plan, all unvested equity-based awards vest in connection with a change in control only if the Named Executive Officer is terminated within the Protection Period without Cause or for Good Reason. (2) Only Mr. McClain is entitled to benefits upon a termination for Good Reason outside of the Protection Period. (3) Calculation of benefits for various termination scenarios is described in the narrative preceding this table. (4) Values are calculated based on the closing price of our common stock of $53.24 on December 31, 2020. The value for the acceleration of stock option awards is calculated as the difference between the closing price of our common stock of $53.24 on December 31, 2020 and the exercise price per share of the award multiplied by the number of shares vesting. (5) Calculated based on the premiums payable to elect benefit continuation coverage by the Named Executive Officer pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, (COBRA) for six or twelve months, as applicable, and for the actual level of group medical, dental and vision coverage in effect as of December 31, 2020. 34 2020 Director Compensation Program DIRECTOR COMPENSATION The Compensation Committee is responsible for recommending to the Board the form and amount of compensation for non-employee directors. For 2020, our non-employee directors were entitled to receive a cash retainer and committee and chairmanship fees payable in cash on a quarterly basis and an annual award of RSUs as provided below: Annual cash retainer Additional annual cash retainer for the Chairman of the Board Additional annual cash retainer for Chairman of the Audit Committee Additional cash retainer for members of the Audit Committee Additional cash retainer for the Chairman of the Compensation Committee Additional annual cash retainer for members of the Compensation Committee Additional annual cash retainer for Chairman of the Nominating and Corporate Governance Committee Additional cash retainer for members of the Nominating and Corporate Governance Committee Annual cash retainer for Chairman of the Cybersecurity Committee Annual cash retainer for members of the Cybersecurity Committee Annual equity retainer of RSUs 30,000 $ 20,000 $ 20,000 $ 10,000 $ 12,000 $ 6,000 $ 7,500 $ 3,750 $ 10,000 $ $ 5,000 $ 180,000 We also reimburse all reasonable out-of-pocket expenses incurred by directors in connection with the performance of their duties as directors, including travel expenses relating to their attendance at meetings of the Board or any committee thereof and up to $5,000 per year for director education expenses. As described above, the Compensation Committee has adopted stock ownership guidelines pursuant to which covered persons, including our non-employee directors, are prohibited from selling or disposing of any shares of our common stock unless and until the covered person holds an aggregate value of our common stock (or equivalents recognized under our policy) equal to, in the case of our non-employee directors, three times their annual cash retainer for service on the Board. Common stock owned directly or indirectly is considered for calculation purposes under our guidelines but unvested RSUs do not count toward the ownership requirement. Covered persons are allowed five years to achieve the ownership requirement and are not prohibited from selling shares that would cause them to fall below their applicable threshold until that period has lapsed. The following table reflects information regarding our director compensation for the year ended December 31, 2020. William G. Bock Cam McMartin Heidi M. Melin Tracey E. Newell James M. Pflaging Michael J. Sullivan Name Fees Earned or Paid in Cash ($) Unit Awards (1) Total ($) $ $ $ $ $ $ $70,702 $ $35,000 $ $46,500 $ $43,188 $ $53,750 $ $55,000 $ 201,334 $ 256,605 $ 201,334 $ 201,334 $ 201,334 $ 201,334 $ 272,036 291,605 247,834 244,521 255,084 256,334 (1) Reflects the aggregate grant date fair value of the 10,948 RSUs granted to each of the non-employee directors on May 5, 2020, computed in accordance with ASC Topic 718, determined without regard to forfeitures. Such awards represent the non-employee directors’ only outstanding stock awards as of December 31, 2020 and will become vested and nonforfeitable on May 5, 2021, subject to the director’s continued service. Also includes 2,342 RSUs granted to Mr. McMartin on January 1, 2020, representing a pro-rated award for service from the time he joined the Board through the 2020 Annual Meeting of Stockholders, valued at the grant date fair value. This pro-rated award vested on May 5, 2020. See Note 1 to our audited consolidated financial statements in our 2020 Annual Report for a discussion of the assumptions used in determining the ASC Topic 718 grant date fair value of these awards. 35 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Since January 1, 2020, other than the compensation arrangements, including employment, termination of employment and change in control arrangements, discussed in the sections titled “Executive Compensation” and “Director Compensation,” there have been no transactions in which: (cid:120) we have been or are to be a participant; (cid:120) (cid:120) the amount involved exceeded or is expected to exceed $120,000; and any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. Policies and Procedures for Related Party Transactions The Board has adopted a formal written policy providing that the Audit Committee will be responsible for reviewing “related party transactions,” which are generally transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) to which we are a party, in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has, had or will have a direct or indirect material interest. For purposes of this policy, a related person is defined as a director, executive officer, nominee for director or greater than 5% beneficial owner of our capital stock, in each case since the beginning of the most recently completed year, and any of their immediate family members. In determining whether to approve or ratify any such transaction, the Audit Committee will take into account, among other factors it deems appropriate, (i) whether the transaction is on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances and (ii) the extent of the related party’s interest in the transaction. 36 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our common stock, as of the Record Date, for: (cid:120) (cid:120) (cid:120) (cid:120) each of our Named Executive Officers; each of our current directors; all of our current directors and executive officers as a group; and each person known by us to be the beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares of common stock and sole voting and no investment power with respect to all shares of unvested restricted stock that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act. We have based our calculation of the percentage of beneficial ownership on 91,960,710 shares of our common stock outstanding as of the Record Date. We have deemed shares issuable pursuant to RSUs that vest within 60 days of the Record Date and shares of our common stock subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date to be outstanding and to be beneficially owned by the person holding the restricted stock unit or stock option for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o SailPoint Technologies Holdings, Inc., 11120 Four Points Drive, Suite 100, Austin, Texas 78726. Name of Beneficial Owner Named Executive Officers and Directors Mark McClain (1) ................................................................................................ Jason Ream (2) ..................................................................................................... Matt Mills (3) ....................................................................................................... Juliette Rizkallah (4) ............................................................................................ Chris Schmitt (5) .................................................................................................. Grady Summers .................................................................................................... William G. Bock (6) ............................................................................................. Cam McMartin (7) Heidi M. Melin (8) .............................................................................................. Tracey E. Newell (9) ............................................................................................ James M. Pflaging (10) ........................................................................................ Michael J. Sullivan (11) ....................................................................................... All directors and executive officers as a group (11 people) ................................ Other 5% Stockholders BlackRock, Inc. (12) ............................................................................................ The Vanguard Group (13) .................................................................................... HMI Capital Management, L.P. (14) .................................................................... SoMa Equity Partners, LP (15) ............................................................................ Shares of Common Stock Beneficially Owned Number Percentage 1,753,369 59,696 73,757 151,175 72,931 — 73,347 38,249 3,800 7,008 153,999 8,255 2,244,411 10,698,586 8,453,097 5,572,172 5,300,000 1.9% * * * * * * * * * * * 2.4% 11.6% 9.2% 6.1% 5.8% * Represents beneficial ownership of less than 1% of the outstanding shares of our common stock. (1) Consists of 874,322 shares of common stock, 0 shares of common stock issuable pursuant to RSUs that vest within 60 days of the Record Date and 269,053 shares of common stock subject to stock options that are currently exercisable or 37 exercisable within 60 days of the Record Date held directly by Mr. McClain, 495,994 shares of common stock held by the McClain Charitable Remainder Unitrust, 38,000 shares of common stock held by the McClain RHD 2015 Trust, 38,000 shares of common stock held by the McClain ADM 2015 Trust and 38,000 shares of common stock held by the McClain GMM 2015 Trust. Mr. McClain is a co-trustee for each of the McClain Charitable Remainder Unitrust, McClain RHD 2015 Trust, McClain ADM 2015 Trust and McClain GMM 2015 Trust. As such, Mr. McClain may be deemed to have shared voting and investment power with respect to all of the shares of common stock held by such trusts. (2) Consists of 20,156 shares of common stock, 0 shares of common stock issuable pursuant to RSUs that vest within 60 days of the Record Date and 39,540 shares of common stock subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Ream. (3) Consists of 0 shares of common stock, 0 shares of common stock issuable pursuant to RSUs that vest within 60 days of the Record Date and 73,757 shares of common stock subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Mills. (4) Consists of 11,384 shares of common stock, 0 shares of common stock issuable pursuant to RSUs that vest within 60 days of the Record Date and 139,791 shares of common stock subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Ms. Rizkallah. (5) Consists of 8,914 shares of common stock, 0 shares of common stock issuable pursuant to RSUs that vest within 60 days of the Record Date and 64,017 shares of common stock subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Schmitt. (6) Consists of 73,347 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Bock. (7) Consists of 38,249 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. McMartin. (8) Consists of 3,800 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Ms. Melin. (9) Consists of 7,008 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Ms. Newell. (10) Consists of 9,551 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Pflaging and 144,448 shares of common stock held by the MMJ Living Trust. Mr. Pflaging is a co-trustee of the MMJ Living Trust. As such, Mr. Pflaging may be deemed to have shared voting and investment power with respect to all of the shares of common stock and shared voting power but no investment power with respect to all of the shares of restricted stock held by the MMJ Living Trust. (11) Consists of 8,255 shares of common stock and 0 shares of common stock issuable pursuant to RSUs that vest or subject to stock options that are currently exercisable or exercisable within 60 days of the Record Date held directly by Mr. Sullivan. (12) Pursuant to a Schedule 13G/A filed on February 5, 2021, by BlackRock, Inc. (“BlackRock”), BlackRock has sole voting power with respect to 10,588,654 shares, sole dispositive power with respect to 10,698,586 shares, shared voting power with respect to 0 shares and shared dispositive power with respect to 0 shares. The address for BlackRock is 55 East 52nd Street, New York, New York 10055. (13) Pursuant to a Schedule 13G/A filed on February 10, 2021, by The Vanguard Group (“Vanguard”), Vanguard has sole voting power with respect to 0 shares, sole dispositive power with respect to 8,175,818 shares, shared voting power with respect to 204,114 shares and shared dispositive power with respect to 277,279 shares. The address for Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. (14) Pursuant to a Schedule 13G/A filed on February 17, 2021 by HMI Capital Management, L.P. (“HMI Capital”), HMI Capital has sole voting power with respect to 0 shares, sole dispositive power with respect to 0 shares, shared voting power with respect to 5,572,172 shares and shared dispositive power with respect to 5,572,172 shares. HMI Capital’s Schedule 13G/A also reported that HMI Capital Partners, L.P. (together with HMI Capital, “HMI”) has sole voting power with respect to 0 shares, sole dispositive power with respect to 0 shares, shared voting power with respect to 5,123,679 shares and shared dispositive power with respect to 5,123,679 shares. The address for HMI is 555 California Street, Suite 4900, San Francisco, California 94104. (15) Pursuant to a Schedule 13G/A filed on January 8, 2021, by SoMa Equity Partners, LP (“SoMa”), SoMa has sole voting power with respect to 5,300,000 shares, sole dispositive power with respect to 5,300,000 shares, shared voting power with respect to 0 shares and shared dispositive power with respect to 0 shares. The address for SoMa is 44 Montgomery Street, Suite 3710, San Francisco, California 94104. 38 CEO PAY RATIO We believe executive pay should be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and our Compensation Committee monitors the relationship between the pay that our executive officers receive and the pay that our non-managerial employees receive. The Compensation Committee reviewed a comparison of Chief Executive Officer total compensation to that of our median employee. The compensation for our Chief Executive Officer in 2020 was approximately 23 times the compensation of our median employee. Because there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact our pay ratio disclosure, consistent with applicable rules we have compared our Chief Executive Officer’s compensation against the median employee who we identified in 2019. We identified the median employee by examining the 2019 base salary (which we believe is a consistently applied compensation measure) for all individuals, excluding our Chief Executive Officer, who were employed by us on December 31, 2019. We included all employees, whether employed on a full-time or part-time basis and including our employees located outside the U.S. For employees located outside the U.S., we converted salary amounts from local currency to U.S. dollars using currency conversion rates effective on December 31, 2019. We also annualized the compensation for any employees that were not employed by us for all of 2019. With the exception of the foregoing, we did not make any other assumptions, adjustments, or estimates with respect to determining base salaries. After identifying the median employee using base salary, we calculated annual total compensation for such employee using the same methodology we use for our Named Executive Officers as set forth in the “Summary Compensation Table,” above. The total compensation during 2020 for our Chief Executive Officer, Mark D. McClain, as set forth above in the Summary Compensation Table, was $ 5,956,298. The total compensation during 2020 for our median employee, using the same methodology, was $253,866. This results in a ratio of our Chief Executive Officer’s annual total compensation to our median employee’s annual total compensation of approximately 23:1. For additional information concerning Mr. McClain’s compensation, see “Executive Compensation—Executive Compensation Tables—2020 Summary Compensation Table.” EQUITY COMPENSATION PLAN INFORMATION The following table reflects, as of December 31, 2020, information regarding compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance. Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders (2) Total Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights (1) Number of securities remaining for future issuance under equity compensation plans — $ 4,955,472 (3) 4,955,472 $ $ — 22.09 22.09 — 14,699,531 (4) 14,699,531 (1) The weighted-average exercise price does not take into account restricted stock units because restricted stock units do not have an exercise price upon vesting. (2) Consists of shares issued and issuable pursuant to four plans: the LTIP, the ESPP, our Amended and Restated 2015 Stock Option and Grant Plan (the “2015 Option Plan”) and our 2015 Stock Incentive Plan (the “2015 Incentive Plan” and, together with the 2015 Option Plan, the “2015 Plans”). The LTIP and ESPP were adopted by the Board and our stockholders prior to and in connection with our initial public offering in November 2017. A description of the material terms of the LTIP, ESPP and 2015 Plans is available in our prospectus dated November 16, 2017, filed with the SEC pursuant to Rule 424(b)(4) of the Securities Act under the heading “Executive Compensation—Additional Narrative Disclosure” and in Note 8 to the Unaudited Consolidated Financial Statements. The 2015 Plans are materially consistent with the LTIP, except that the 2015 Option Plan permits the issuance of options only and the 2015 Incentive Plan, which is an omnibus plan similar to the LTIP, allows for the issuance of options to eligible participants in Israel compliant with Section 102 of the Israeli Tax Ordinance, and is currently used primarily for that purpose. 39 (3) Includes 1,865,766 shares of common stock issuable upon exercise of outstanding stock options and 3,089,706 restricted stock units settleable in shares of the Company’s common stock. (4) Of these shares, 2,606,061 shares remained available for issuance under the ESPP, 11,097,947shares remained available for issuance under the LTIP, 645,396 remained available for issuance under the 2015 Option Plan and 350,127 remained available 2015 Incentive Plan. These shares are in addition to the shares reserved for issuance pursuant to outstanding awards included in the first column. 40 AUDIT COMMITTEE REPORT The following report of the Audit Committee of the Board does not constitute soliciting material and should not be deemed filed or incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate this report by reference. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Grant Thornton LLP (“Grant Thornton”), the Company’s independent registered public accounting firm, is responsible for expressing opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles. The Audit Committee has reviewed and discussed with management and Grant Thornton the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2020. The Audit Committee has also discussed with Grant Thornton the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). The Audit Committee also received the written disclosures and the letter from Grant Thornton that are required by applicable requirements of the PCAOB regarding Grant Thornton’s communications with the Audit Committee concerning independence and has discussed with Grant Thornton its independence. On the basis of the foregoing, the Audit Committee concluded that Grant Thornton is independent from the Company, its affiliates and management. Based upon its review of the Company’s audited financial statements and the discussions noted above, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2020 be included in the Company’s Annual Report on Form 10-K for such fiscal year, which was filed with the SEC. This report has been furnished by the members of the Audit Committee. THE AUDIT COMMITTEE Michael J. Sullivan, Chair William G. Bock James M. Pflaging 41 DELINQUENT SECTION 16(A) REPORTS Section 16(a) of the Exchange Act requires that our directors, executive officers and persons who beneficially own more than 10% of our common stock to file reports regarding ownership and changes in ownership of our common stock with the SEC and NYSE. These persons are also required by SEC regulation to furnish the Company with copies of all such reports they file. Based solely on our review of such reports and any written representations from such reporting persons, we believe that except as set forth below, all required Section 16 reports were timely filed during 2020 by our directors, executive officers and beneficial owners of more than 10% of our common stock. During 2020, Mr. Schmitt submitted a timely report on Form 4 reporting a sale pursuant to a 10b5-1 sales plan, which form he subsequently amended to report an underlying stock option exercise that was inadvertently omitted from the original Form 4, causing it to be deemed to be delinquent. SUBMISSION OF STOCKHOLDER PROPOSALS For any proposal to be considered for inclusion in the Company’s proxy statement and form of proxy relating to the Company’s 2022 Annual Meeting of Stockholders, it must be submitted in writing and comply with the requirements of Rule 14a-8 of the Exchange Act. Generally, such proposals are due 120 days before the anniversary of the date the Company released the proxy materials for the prior year; however, if the date of the annual meeting has been changed by more than 30 days from the date of the previous year’s meeting, then the deadline is a reasonable time before we begin to print and send our proxy materials. We currently expect to hold the 2022 Annual Meeting of Stockholders within 30 days of April 29. Therefore, we have determined that Rule 14a-8 stockholder proposals must be received by the Company at its principal executive offices no later than the close of business on November 19, 2021, unless otherwise announced by the Company prior to the 2022 Annual Meeting of Stockholders. In accordance with our bylaws, stockholder proposals and director nominations that are not intended to be included in the Company’s proxy statement must be received, in writing, by the Secretary of the Company at the principal executive offices of the Company not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the prior year’s annual meeting to be properly brought before an annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. Thus, assuming the 2022 Annual Meeting of Stockholders will be held no more than 30 days before nor more than 70 days after the first anniversary date of the 2021 Annual Meeting, if the Company does not receive notice of such a proposal or nomination between December 30, 2021 and January 29, 2022, it will be considered “untimely,” and the presiding officer at the 2022 Annual Meeting may properly use his or her discretionary authority to declare that such proposal or nomination was not properly brought before the meeting and therefore shall not be transacted. Any matter so submitted must comply with the other provisions of our bylaws and be submitted in writing to the Secretary at the principal executive offices of the Company. OTHER BUSINESS The Board does not presently intend to bring any other business before the Annual Meeting, and, to the knowledge of the Board, no matters are to be brought before the Annual Meeting except as specified in the Notice of the Annual Meeting. As to any business that may properly come before the Annual Meeting, however, it is intended that proxies will be voted in respect thereof in accordance with the judgment of the persons voting such proxies. 42 Whether or not you expect to attend the Annual Meeting, please vote as soon as possible over the Internet or by telephone, or by completing and returning the enclosed proxy card, so that your shares are represented at the Annual Meeting. WHERE YOU CAN FIND MORE INFORMATION The Company files annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. We make available free of charge on or through our Internet website, investors.sailpoint.com, our reports and other information filed with or furnished to the SEC and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC’s Internet website, www.sec.gov, also contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. We will provide, without charge, on the written request of any stockholder, a copy of our 2020 Annual Report, including the financial statements and the financial statement schedules required to be filed with the SEC pursuant to Rule 13a-1. Stockholders should direct such requests to Mediant by e-mail at paper@investorelections.com, by telephone at (866) 648-8133 or online at www.investorelections.com/SAIL. 43 [THIS PAGE INTENTIONALLY LEFT BLANK] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________ FORM 10-K ________________________________________________________________ (Mark One) (cid:31) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR (cid:31) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-38297 ________________________________________________________________ SailPoint Technologies Holdings, Inc. (Exact name of Registrant as specified in its Charter) ________________________________________________________________ Delaware (State or other jurisdiction of incorporation or organization) 11120 Four Points Drive, Suite 100, Austin, TX (Address of principal executive offices) 47-1628077 (I.R.S. Employer Identification No.) 78726 (Zip Code) Registrant’s telephone number, including area code: (512) 346-2000 ________________________________________________________________ Title of each class Common stock, par value $0.0001 per share Securities registered pursuant to Section 12(b) of the Act: Trading Symbol(s) SAIL Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:133) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:133) No (cid:95) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:133) Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes (cid:95) No (cid:133) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:133) Accelerated filer Smaller reporting company (cid:95) (cid:31) (cid:31) (cid:31) (cid:31) Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:31) No (cid:95) On June 30, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock, par value $0.0001 per share, held by non-affiliates of the Registrant was approximately $2.3 billion, based upon the closing price on the New York Stock Exchange on such date. The registrant had 91,429,769 shares of common stock outstanding as of February 18, 2021. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the Registrant’s fiscal year ended December 31, 2020, are incorporated by reference in Part III of this Annual Report on Form 10-K (this “Form 10-K”). Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K. Page 2 13 27 27 27 27 28 30 30 45 47 85 85 85 86 86 86 86 86 87 92 93 Table of Contents PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Financial Statements and Supplementary Data PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services Item 15. Exhibits, Financial Statement Schedules Item 16. Form 10-K Summary Signatures PART IV i SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements included in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking statements. This includes statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions. You should not rely upon forward-looking statements as predictions of future events or place undue reliance thereon. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections, in light of currently available information, about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. 1 ITEM 1. BUSINESS Overview PART I SailPoint Technologies Holdings, Inc. (“SailPoint,” “the Company” or “we”) is the leading provider of enterprise identity security solutions. SailPoint was launched by a team of visionary industry veterans to empower our customers to efficiently and securely govern the digital identities of employees, contractors, business partners, software bots and other human and non-human users, and manage their constantly changing access rights to enterprise applications and data. Our identity security solutions provide organizations with critical visibility into who currently has access to which resources, who should have access to those resources and how that access is being used. We offer both software as a service (“SaaS”) and software solutions, which provide organizations the intelligence required to empower users and govern their access to systems, applications and data across hybrid IT environments, spanning on-premises and cloud applications and file storage platforms. We help customers enable their businesses with more agile and innovative IT, streamline delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, financial institutions and governments. Organizations globally are investing in technologies such as cloud computing, artificial intelligence ("AI") and machine learning ("ML") to improve employee productivity, business agility and competitiveness. Today, enterprise environments are more open and interconnected with their business partners, contractors, vendors and customers. Business users have driven a dramatic increase in the number of applications and amount of data that organizations need to manage, much of which sits beyond the traditional network perimeter. Because of these trends, the attack surface is expanding while well-funded cyber attackers, in some cases sponsored by nation-states, have significantly increased the frequency and sophistication of their attacks. For example, it has been reported that the SolarWinds breach was part of a highly sophisticated, broad and coordinated nation-state cyber operation that targeted the IT infrastructure of the United States and potentially other countries as well. As a result, IT professionals need to manage and secure increasingly complex hybrid IT environments within these extended enterprises. Attackers frequently target the identity vector as it allows them to leverage user identities to gain access to high-value systems and data while concealing their activity and movements within an organization’s IT infrastructure. The consequences of a data breach can be extremely damaging, with organizations facing significant costs to remediate the breach and repair brand and reputational damage. In addition, governments and regulatory bodies have increased efforts to protect users and their data with a new wave of regulatory and compliance measures that are further burdening organizations and levying severe penalties for non-compliance. As a result of these trends, enterprises are struggling to efficiently manage and secure their digital identities. We believe that our identity security solutions are a critical, foundational layer of a modern cyber security strategy, which increasingly leverages a zero-trust approach for securing access. Open architecture allows our solutions to complement and build upon traditional perimeter- and endpoint-centric security solutions, which we believe on their own are increasingly insufficient to secure organizations, and their applications and data. We deliver an identity security platform that combines identity and data governance solutions to form a holistic view of the enterprise's identities, both human and non-human. In combination with our technology partners, we create identity awareness throughout our customers’ environments by providing valuable insights into, and incorporating information from, a broad range of enterprise software and security solutions. Our governance platform provides a system of record for digital identities across our customers’ IT environments while allowing them to remain agile and competitive. Our adaptable solutions integrate seamlessly into existing technology stacks, allowing organizations to maximize the value of their technology investments. Our professionals work closely with customers throughout the implementation lifecycle, from documentation to development to integration. Our solutions address the complex needs of global enterprises and mid-market organizations. Our go-to-market strategy consists of both direct sales and indirect sales through resellers, such as Optiv, and system integrators. Our mature system integrator channel includes global consultants such as Accenture, Deloitte, Ernst & Young (“EY”), KPMG and PricewaterhouseCoopers (“PwC”), all of whom have dedicated SailPoint practices, with some dating back more than 10 years. 2 Our Growth Strategy Key investments we are making to drive growth include: • • • • • • Driving new customer growth within existing geographic markets. There is a significant opportunity to expand our footprint through both new, greenfield deployments and displacement of competitive legacy solutions in the markets that we currently serve. We plan to expand our customer base in these countries by continuing to grow our sales organization, expand and leverage our channel partnerships and enhance our marketing efforts. Further penetrating our existing customer base. Our customer base of 1,753, as of December 31, 2020, provides a significant opportunity to drive incremental sales. Our customers have the flexibility to start with a single use case or project and expand over time. As they realize the value of their investment, new use cases and deployments are identified, allowing us to sell more products to existing customers and to expand the number and types of identities, including non-human and machine identities, and governed systems we cover within their organizations. This is especially true when it comes to our new and expanded SaaS offerings, including AI and cloud governance. We believe strong customer satisfaction is fundamental to our ability to expand our customer relationships. Continuing to invest in our platform. Innovation is a core part of our culture. We believe we have established a reputation as a technology leader and innovator in identity security. We intend to continue investing, particularly in our SaaS offerings, to extend our position as the leader in identity security by developing or acquiring new products and technologies. Leveraging and expanding our network of partners. Our partnerships with global system integrators, such as Accenture, Deloitte, EY, KPMG and PwC, and resellers, such as Optiv, have helped us extend our reach and serve our customers more effectively. We see a significant opportunity to offer comprehensive solutions to customers by collaborating with adjacent technology vendors. We intend to continue to invest in our partnership network as their influence on our sales is vital to the success of our business. Expanding market and product investment across existing vertical markets. We believe there is significant opportunity to further penetrate our target vertical markets by continuing to provide vertical-specific identity solutions and focusing our marketing efforts to address the use cases of those customers. With this approach, we believe we will be better able to address opportunities in key industries, such as financial services, healthcare, and federal, state and local government. Continuing to expand our global presence. We believe there is significant opportunity to grow our business internationally. Enterprises around the world are facing similar operational, security and compliance challenges, driving the need for identity governance. We have personnel in 18 countries and customers based in 57 countries as of December 31, 2020 and we generated 28% of our revenue outside of the United States in 2020. We plan to leverage our existing strong relationships with global system integrators and channel partners to grow our presence in Europe, Asia Pacific and other international markets. Product, Subscription, and Support Offerings We deliver an integrated set of solutions to address identity security challenges for medium and large enterprises. This set of solutions supports all aspects of identity security, including provisioning, access request, compliance, password management and identity analytics for visualizing and controlling which identities have access to data stored in applications and files. Our solutions deliver governance across the hybrid enterprise, extending from the mainframe to the cloud. We provide over 100 out-of-the-box connectors to enterprise applications environments such as SAP, Workday and ServiceNow, which automate the collection, analysis and provisioning of identity data. We also provide governance over infrastructure components, such as mainframes, operating systems, directories, databases and data storage solutions, and over vertical solutions, such as Epic in the healthcare provider market. SailPoint leverages AI and ML technologies into our open identity platform to deliver actionable insights and recommendations to reduce risk, accelerate deployment and simplify administration. Our solutions are built on our open identity platform, which creates a flexible deployment to address a wide range of customer use cases and enables integration to a variety of security and operational IT applications such as IT service management solutions (e.g., BMC Remedy and ServiceNow), privileged access management (“PAM”) (e.g., CyberArk and BeyondTrust), enterprise mobility management and security information and event management. Our open identity platform extends the reach of our identity security processes and enables effective identity security controls across unique customer environments. 3 IdentityNow IdentityNow is our cloud-based, multi-tenant identity governance platform, which is delivered as a SaaS subscription offering. IdentityNow provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud. IdentityNow meets the most stringent identity security requirements and provides enterprise-grade services that meet scalability, performance, availability and security demands. IdentityNow enables organizations to: • • • Automate identity security processes in one unified solution delivered from the cloud; Accelerate deployment with built-in best practice policies, options and default settings; and Eliminate the need to buy, deploy and maintain hardware and software to run an identity security solution. We package and price IdentityNow into a Cloud Platform and Governance Services with unique functionality as outlined below: • • • • • • Cloud Platform: IdentityNow provides foundational components for identity security in the cloud, including production and sandbox instances and the IdentityNow Cloud Gateway virtual appliance, which leverages our patented method for integrating with on-premises applications and data. IdentityNow also includes a large catalog of pre-built connectors and application profiles to on-premises and cloud applications, leveraging the intellectual property developed for IdentityIQ. It is included with all Governance Services at no additional charge. User Provisioning: This module enables business users to be productive from day one. With IdentityNow user provisioning, organizations can streamline the on-boarding and off-boarding process with best practice configurations and workflows, enabling IT to immediately grant employees access to the applications and data they need to do their jobs. Access Request: This module empowers the entire enterprise with a robust self-service solution for requesting and approving access to applications and data. Automating the access request process quickly delivers business users the access they need to do their jobs. Access Certifications: This module automates the process of reviewing user access privileges across the organization. Using IdentityNow, organizations can quickly plan, schedule and execute certification campaigns to ensure the right users have the appropriate access to corporate resources. Separation-of-Duties: This module simplifies and speeds the process of investigating access, quickly uncovering any access-related conflicts of interest for review and mitigation. It also automates the creation of policies that ensure continuous compliance with internal and external audit requirements. Password Management: This module offers business users an intuitive, self-service experience for managing and resetting passwords from any device and from anywhere. This service enforces consistent and secure password policies for all users across all systems from the cloud to the data center. IdentityIQ IdentityIQ is our on-premises identity security solution, which can be hosted in the public cloud or deployed in a customer’s data center. It provides large, complex enterprise customers a unified and highly configurable identity security solution that consistently applies business and security policies as well as role and risk models across applications and data on- premises or hosted in the cloud. IdentityIQ enables organizations to: • • • • • Empower users to request and gain access to enterprise applications and data; Enable business users to reset their passwords via self-service tools without the need for IT involvement; Provide on-demand visibility to IT, business and risk managers into “which identities have access to what resources” to help make business decisions, improve security and meet audit requirements; Improve security and eliminate common weak points associated with data breaches, including weak passwords, orphaned accounts, entitlement creep and separation-of-duties policy violations; and Manage compliance using automated access certifications and policy management. We package and price IdentityIQ into Core Modules and Advanced Integration Modules. All customers leverage the IdentityIQ Governance Platform, which provides the base features of the solution, including the identity warehouse, workflow engine and governance models. The three Core Modules include: • Lifecycle Manager: This module provides a business-oriented solution that delivers access securely and cost effectively. The self-service access request capabilities feature an intuitive user interface that empowers business users to take an active role in managing changes to their access while greatly reducing the burden on IT organizations. Automated provisioning manages the business processes of granting, modifying and 4 • • revoking access throughout a user’s lifecycle with an organization, whether that user is an employee, contractor or business partner. Changes to user access can be automatically provisioned via a large library of direct connectors for applications such as Workday and SAP or synchronized with IT service management solutions such as ServiceNow. Compliance Manager: This module enables the business to improve compliance and audit performance while lowering costs. It provides business user friendly access certifications and automated policy management controls (e.g., separation-of-duty violation reporting) that are designed to simplify and streamline audit processes across all applications and data. Built-in audit reporting and analytics give IT, business and audit teams visibility into, and management over, all compliance activities in the organization. File Access Manager: This module, a rebranded and repackaged version of the SecurityIQ product line, secures access to the growing amount of data stored in file servers, collaboration portals, mailboxes and cloud storage systems. The change was made to align the positioning and packaging of solutions with how our customers are purchasing and deploying a comprehensive identity security strategy. It helps organizations identify where sensitive data resides, which identities have access to it, and how they are using it and then puts effective controls in place to secure it. File Access Manager is designed to interoperate with the Compliance Manager and Lifecycle Manager modules to provide comprehensive visibility and governance over user access to all data. By augmenting identity data from structured systems with data from unstructured data targets, organizations can more quickly identify and mitigate risks, spot compliance issues and make the right decisions when granting or revoking access to sensitive data. The Advanced Integration Modules provide connectivity to target application platforms such as SAP, mainframes and file storage systems. SailPoint Identity Services SailPoint Identity Services are delivered as multi-tenant SaaS subscription services and are designed to integrate and extend IdentityNow and IdentityIQ. We package and price SailPoint Identity Services individually. The current list of SailPoint Identity Services includes: • • • • Access Insights: collects a wealth of identity information, turns that information into actionable insights and provides business-oriented dashboards and reports to track the effectiveness of your identity program; Recommendation Engine: uses AI and ML, peer group analysis, identity attributes and access activity to help you decide whether access should be requested, granted or removed; Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role; and Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure. Technology Our comprehensive, enterprise-grade identity security platform is the result of both years of investment and the expertise of the Company’s management and technical teams. Taking the lessons learned from our experiences with prior generation identity solutions, our engineers and architects designed a modern identity platform with internet scale, comprehensive hybrid environment coverage, and openness to optimize customers’ existing technology investments. Identity Cube Technology Our Identity Cube technology establishes the 360-degree control essential to govern and secure digital identities in today’s complex IT environments. Our extensive data modeling capabilities allow us to understand how each identity relates to the full IT environment, whether on-premises or in the cloud. SailPoint’s account correlation and orphan account management capabilities allow IT security professionals and business managers to track and monitor the accounts that are most frequently under attack. Identity Cubes track all relevant information about an identity and its relationships to applications and data. They create the “identity context” which is key to an identity-aware infrastructure in which identity information is shared across the extended enterprise. With identity context, operational and security systems can make informed decisions about access and perform key remediation and change requests on our open identity platform via our standardized application program interfaces (“APIs”) and software development kits (“SDKs”). 5 Model-Based Governance Our model-based governance engine sits at the center of our platform and provides a comprehensive understanding of both the current state of which identities currently have access to what as well as the desired state of who should have access to what. The governance engine is responsible for managing the ongoing process of aligning these two states. Governance and control models are used to drive our policy-based reconciliation service and to define how reconciliation and provisioning fulfillment actions are executed. These models are designed with graphical tools, enabling IT and business users to own and define the reconciliation and fine-grained access provisioning fulfillment processes for applications and data. Access Modeling Our AI-based Access Modeling is designed to continually model and adapt access to evolving business needs. Leveraging AI, Access Modeling evaluates the access that users have, including collections of entitlements bundled into roles, and recommends new access models. Once approved and created, these access models can be assigned to identities. Access Modeling also continually monitors for updates to existing roles within the access model to help enforce the principle of least privileged access. Recommendation Engine The patented Recommendation Engine leverages AI and ML technologies to automate mundane tasks and provide Open and Extensible Identity Platform users with insights in order to make more informed decisions. Based on identity information and attributes collected, the Recommendation Engine identifies and classifies access as acceptable or risky, along with the reasons for those classifications. These recommendations are visually presented to users reviewing access, so they can quickly, and efficiently, make decisions. Recommendations can also be used to automatically approve acceptable access. Provisioning Broker Our provisioning broker provides separation between identity processes at the business level (e.g., requesting access to an application) and the actual fulfillment of that request on the target system. The provisioning broker is a specialized business process workflow execution engine that manages long-running provisioning tasks and provides tracking, monitoring and statistics for the end-to-end fulfillment process. The decoupling capability of the provisioning broker maximizes our customers’ flexibility and allows for the reuse of their existing IT investments. For example, if access to an application can only be provided manually through the opening of a help desk ticket, the provisioning broker will send that request to the help desk and report back on the status of that request. Likewise, if a customer utilizes a legacy provisioning system, the provisioning broker can pass off a request to that legacy system for fulfillment. In addition, the provisioning broker provides us with a unique migration strategy for customers moving from a legacy system to our identity security solutions. Enterprise-Grade Cloud Gateway To manage on-premises infrastructure, applications and data from the cloud, we employ a Cloud Gateway Server (“CGS”), delivered as a virtual machine behind the customer’s firewall, which ensures that all SailPoint communications are highly secure. Our CGS technology is a high availability, secure, self-managed container that allows for controlled and automated updates of our connector infrastructure while ensuring the integrity of individual on-premises and cloud connections. Our CGS also provides an innovative and patented approach to protecting our customer’s credentials. Our “zero- knowledge encryption” technology allows us to store all of a customer’s passwords and security credentials inside the CGS behind their firewall. As a result, we protect the confidentiality of our customers’ system and end-user credentials, even if our cloud service provider were to be breached. Data Ownership Assessment and Election Verifying the business end-user who is the logical owner of information is a key challenge in managing growing volumes of unstructured data in the enterprise. Our novel, patent-supported approach determines the rightful owner of files, so they can be integrated into governance control processes, such as access certifications and access approvals. Our solution leverages profile data to determine logical owners of information based on identity attributes and usage data. Once a set of 6 logical owners is identified, we use a crowd-sourcing approach to allow other users familiar with the data to vote on the rightful owner of the file or file storage location. This enables organizations to efficiently identify and designate specific owners for sensitive information stored in files and incorporate them into identity security processes. Connectivity for the Hybrid IT Environment Our extensive library of over 100 proprietary connectors provides interfaces to on-premises and cloud applications. These connectors are the means by which we provide governance over target systems. We support granular management of a wide range of systems, from mainframe security managers, including CA ACF2 and Top Secret, IBM and RACF, to traditional enterprise applications, including Oracle E-Business Suite and SAP, and pure SaaS business applications, such as Microsoft Office365, Salesforce, ServiceNow, Slack and Zoom. Generally, the same connectors are used for both our on-premises and cloud-based products. This allows both solutions to leverage fully the over 400-person years we have invested in developing these connectors. Open and Extensible Identity Platform Our open identity platform is the result of over a decade of investment. Recognizing identity security is at the center of critical enterprise business and IT processes, we developed a comprehensive set of services that go beyond simple APIs. In addition to our comprehensive API strategy, we deliver SDKs and plug-in frameworks which allow our partners and customers to create their own integrations and extensions to our core product capabilities. For example, we leverage our open identity platform to integrate with third-party user provisioning solutions, such as IBM Security Identity Manager and Oracle Identity Manager, and service desk solutions, such as BMC Remedy and ServiceNow, to implement account change requests. This enables SailPoint to govern access and provide identity context to downstream processes managed by these solutions. Another important open identity platform integration model is with PAM solutions. SailPoint provides a framework that enables organizations to use the same governance controls to oversee both privileged and standard account access. We also collect activity and other information from third-party solutions to improve risk analytics and identity security processes in our products. Our APIs and SDKs are compliant with System for Cross-domain Identity Management ("SCIM") and both provide standards-based bi-directional runtime access to our identity context model. Many such integrations and extensions have already been built by partners and certified for commercialization on our open identity platform. Our SaaS Event Trigger Service emits actionable events that allows customers to extend identity security into their own application ecosystems. Once subscribed to these events, SailPoint starts streaming identity events into their custom integrations. Seasonality We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth quarter of a calendar year and lowest in the first quarter. Customers As of December 31, 2020, we have 1,753 customers based in 57 countries. In the year ended December 31, 2020, we generated 28% of our revenue outside of the United States. As of December 31, 2020, our revenue did not materially depend on any single customer. Sales and Marketing Sales We sell our platform through our direct sales organization, which is comprised of field and inside sales personnel, as well as through channel partners. Our sales strategy often reflects a “land-and-expand” business model, in which our initial deployment with a new customer typically addresses a limited number of use cases within a single business unit. Such initial deployments frequently expand across departments, divisions and geographies through a need for additional users, increased usage or extended functionality. As we expand our portfolio of offerings within our platform, we execute a growing number of “solution” deals that include two to three of our products in the initial transaction. 7 Our sales force is structured by geography, customer size, status (customer or prospect) and industry. Our global sales organization is comprised of quota-carrying sales representatives supported by sales development representatives, sales engineers, partner managers, product and technical specialists and solution architects. Partners constitute an essential part of our selling model. We have established a model designed to create zero conflict, and typically include our partners in all of our training and enablement efforts. As a result, our indirect sales model, executed through our global and regional system integrators, technology partners and value-added resellers, is a key factor in our overall success. Marketing Our marketing strategy is focused on building a strong brand through differentiated messaging and thought leadership, educating the market on the importance of identity security, communicating our product advantages and generating pipeline for our sales force. Our data-driven digital approach to marketing is tightly aligned to the needs of our addressable market and provides agility to leverage market opportunities in a targeted and timely fashion. Our awareness and educational efforts focus on branding, digital and content marketing, public and analyst relations and social media, including blogs and bylines. Engagement programs include digital campaigns and webinars and virtual events such as Navigate, while pipeline maturation focuses on customer and executive round tables. Pipeline generation and maturation efforts focus digital strategies—global and regional—to move targeted accounts through their buyer’s journey and through the SailPoint pipeline. While digital efforts are managed centrally and regionally, engagements programs are run in our three major geographies: (i) Americas, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) Asia-Pacific (“APAC”). Audiences for such events are typically IT and security professionals, including Chief Information Officers and Chief Information Security Officers. Our global virtual Navigate user conferences demonstrate our strong commitment to enabling our customers to succeed, while also serving as an opportunity to create pipeline for new sales to prospective customers and additional sales to existing customers. Professional Services and Maintenance and Customer Support Professional Services We are primarily focused on ensuring that our professional services partners, who perform a majority of the implementations for our customers, are able to implement our solutions successfully. We provide “expert services” to partners and customers for complex implementation assistance. We also lead direct implementations when requested by a customer. We believe that our investment in professional services and in our partners will drive increased adoption of our platform. Maintenance and Customer Support Our customers receive one year of software maintenance and support as part of their initial purchase of our on- premises offerings and may renew their maintenance and support agreement following the initial period. Our cloud-based offerings include customer support. For our on-premises offerings, our maintenance provides customers with the right to receive major releases of their purchased solutions, maintenance releases and patches and access to our technical support services during the term of the agreement. We provide customers of our cloud-based offerings with technical support services and all aspects of infrastructure support. We maintain a customer support organization, which includes experienced, trained engineers, that offers multiple service levels for our customers based on their needs. These customers receive contractual response times, telephonic support and access to online support portals. Our highest levels of support provide 24x7x365 support for critical issues. Our customer support organization has global capabilities, a deep expertise in our solutions and, through select support partners, is able to deliver support in multiple languages. Customer Success Management Our customer success strategy centers around our investment in, and ownership of, the post-sale experience for our customers. Every customer has an assigned dedicated Customer Success Manager (“CSM”), who is responsible for ensuring that return on investment and business results, committed during the sales cycle, are achieved. Through proactive and regular engagements, the CSM makes sure every customer is satisfied and is using their SailPoint products or services optimally. When necessary, the CSM coordinates cross-departmental resources to remove any barrier to success. In addition, our customer success team utilizes customer data to identify and present any cross-sell or upsell solutions aligned to a customer’s business objectives, thereby contributing to revenue expansion and increased product penetration. By proactively managing customer relationships, our CSM team nurtures client advocates, who become a powerful asset in closing new business. 8 Partnerships and Strategic Relationships As a core part of our strategy, we have cultivated strong relationships with partners to help us increase our reach and influence, while providing a broader distribution of our identity security services. We have developed a large partner network consisting of technology partners, system integrators, a growing network of value-added resellers and our alliance partners (Accenture, Deloitte, EY, KPMG and PwC). In 2020, approximately 90% of our new customer transactions involved our partners. We believe that our extensive partnership network enables us to provide the most complete identity security solution to our customers. Technology Partners We have partnered with industry leaders across a spectrum of technologies that enable organizations to integrate their entire security, mobility, cloud, and applications infrastructure into our platform so that breaches can be better identified, mitigated and contained, and operations can be streamlined. We believe that solutions from companies such as AWS, CyberArk, Microsoft, SAP, ServiceNow and Workday that are plugged into our open identity platform through APIs provide our customers value-added capabilities to build an identity-aware enterprise. The SailPoint Technology Partner Program is a technology partnering network that leverages familiar standards and methods—like SQL, SCIM and Representational State Transfer—that make it easy to share identity context and configure identity-specific policies across disparate systems. For example, when PAM systems are integrated with our solutions, enterprises can conduct regular audits of privileged users and automatically remediate any policy violations. Program offerings include access to SailPoint SDKs and APIs, developer support, and cloud-based certification services. The Identity+ Alliance comprises over 60 technology and implementation partners and has produced over 40 certified integrations. Value-Added Resellers Value-added resellers bring product expertise and implementation best practices to our customers globally. They provide vertical expertise and technical advice in addition to reselling or bundling our software. Many of our reseller partners have been trained to demonstrate and promote our identity platform. Our reseller channel ranges from large companies, like Optiv, to regional resellers in our markets and territories. Our reseller program is designed to scale growth, help generate new opportunities, optimize customer experience and increase profitability as well as sales efficiency. System Integrators We partner with many large and global system integrators. We have partnerships with global advisory firms such as Deloitte, EY, KPMG, and PwC, with global system integrators such as Accenture and DXC Technologies, and with many regional system integrators in all three of our geographies. The focus of our system integrators program is to deliver pipeline growth and bookings, to help partners drive self-sufficiency and to foster transparency and collaboration through shared assets and resources. We have implemented joint business controls and metrics that provide a platform for discussion and partnership development and help us optimize our program and unified value proposition. Research and Development Innovation is one of our core values, and it is at the heart of how we think and do business. We believe ongoing and timely development of new products and features is imperative to maintaining our competitive position. We continue to invest in both our cloud and on-premises solutions. Additionally, we will be opportunistic in leveraging technology acquisitions. As of December 31, 2020, our research and development team had 403 employees. Competition We operate in a highly competitive market characterized by constant change and innovation. Our competitors include large enterprise software vendors that offer identity solutions within their product portfolios, pure play identity vendors (including new market entrants) and vendors with whom we have not traditionally competed but may either introduce new products or incorporated features into existing products that compete with our solutions. 9 We believe the principal competitive factors in our market include: • • • • • • • • • • • Comprehensiveness of visibility to which identities have access to what across cloud and on-premises applications and data repositories Reliability and effectiveness in defining and implementing identity security policies; Flexibility to deploy identity security and administration as a SaaS solution or as a software-based solution on-premises or in the cloud; Adherence to government and industry regulations and standards; Comprehensiveness and interoperability of the solution with other IT and security solutions; Enterprise security, scalability and performance; Ability to innovate and respond to customer needs rapidly; Quality and responsiveness of support organizations; Total cost of ownership; Ease of use; and Customer experience. Some of our competitors have significantly greater financial, technical, and sales and marketing resources, as well as greater name recognition, in some cases within particular geographic regions, and more extensive geographic presence than we do. However, we believe we compete favorably with our competitors on the basis of all the factors above. Intellectual Property Our success depends in part on our ability to protect our intellectual property. We rely on copyrights and trade secret laws, confidentiality procedures, employment proprietary information and inventions assignment agreements, trademarks and patents to protect our intellectual property rights. We also license software from third parties for integration into our product solutions, including open source software and other software available on commercially reasonable terms. We control access to and use of our product solutions and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners, and our software is protected by U.S. and international copyright and trade secret laws. Despite our efforts to protect our trade secrets and proprietary rights through intellectual property rights, licenses and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology. We have 36 issued patents and 25 patent applications pending in the United States relating to certain aspects of our technology. Additionally, we have three issued patents and one patent application pending internationally. The expiration dates of our issued patents range from 2024 to 2040. We cannot assure you whether any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. Any of our existing patents and any that may issue may be contested, circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties from infringing them. In addition, we have international operations and intend to continue to expand these operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. Human Capital Management We understand that our success as a company is strongly linked to our core values: • • • • Innovation – developing creative solutions to real challenges; Integrity – delivering on the commitments we make; Impact – measuring and rewarding results, not activity; and Individuals – valuing every person at SailPoint. These values are cornerstones to our corporate culture and the way that we manage our human capital – from team member engagement efforts to providing career development and training opportunities to attracting and retaining top talent. We think team member engagement is critical to maintaining a positive culture, and our annual team member engagement survey helps us evaluate our efforts in light of our core principles. In our annual global employee engagement survey, our overall team member satisfaction has exceeded 90% for each of the last 4 years. And over the last 10 years, we’ve been consistently recognized as a “best place to work” by various organizations such as Austin Business Journal, Fortune and Glassdoor. Our diversity, inclusion and belonging efforts are critical to creating and maintaining a positive culture in which all 10 team members can succeed and thrive. Those efforts include focused training on recognizing and removing bias from our recruitment process, broadening our talent pool reach by working with diversity-focused talent acquisition vendors, pay equity reviews during our merit and equity planning process and other programs designed to improve indicators related to inclusion and equity in our workforce. Training and development efforts built around our core values are another key part of our human capital management strategy. Our leaders go through specific training to ensure they are leading their teams with our values at the forefront of the decisions they make. Our annual employee review process allows team members to engage in meaningful discussions with their managers regarding performance and development goals. Additionally, our managers assess the growth potential of each team member through a standardized evaluation process, which provides actionable outputs to help develop and retain our high potential employees. We also regularly hold educational lunch and learns on a wide range of topics including interrupting unconscious bias, wellness, local volunteering opportunities, and tips and tricks to more effectively use our latest technologies. Through these and other training efforts, we believe that we support the growth and development of our crew members in a way that promotes our growth and innovation. Offering a competitive compensation and benefits package is a critical part of our effort to attract and retain top talent. In addition to competitive base salaries, we offer team members comprehensive health, welfare, income protection and long- term savings benefits, the opportunity to participate in our employee stock purchase plan, and incentive equity compensation and incentive cash plans for eligible team members. Total compensation is designed to align with SailPoint’s business objectives and financial goals, and pay is differentiated for individuals based on relevant experience, impact, relative internal value and company performance. Variable compensation delivers pay aligned with company and individual performance, with more pay at risk at more senior levels. Management regularly discusses compensation and benefits strategies with the compensation committee of our board of directors. As we work to execute our growth strategy, which is described above, we continue to invest in human capital resources that will sustain and fuel that growth. As of December 31, 2020, we had a total of 1,394 employees, including 403 involved in research and development activities, 537 in our sales and marketing organization and 297 in professional services and customer support. As of December 31, 2020, approximately 31% of our employees were located outside of the United States. Ensuring that we have the right people in the right positions is essential to our strategy for sustained growth. Government Regulations A wide variety of domestic and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, disposal and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in regulatory and public scrutiny and escalating levels of enforcement and sanctions. Our failure to comply with applicable laws and regulations, or to protect any personal or other customer data, could result in enforcement actions against us, including regulatory fines, as well as claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could adversely affect our business, operating results, financial performance and prospects. Domestically, California enacted the California Consumer Privacy Act (the “CCPA”) which took effect on January 1, 2020, creating additional new consumer privacy rights, and providing for both civil penalties as well as a private right of action for data breaches. On November 3, 2020, California voters approved Proposition 24, also known as the California Privacy Rights Act (the “CPRA”). The CPRA will go into effect January 2023 and provides for additional consumer privacy rights, increased penalties, and establishes a new dedicated California data protection regulator with rulemaking and audit authorities. Other states are also considering legislation similar to California. The CCPA imposed additional regulatory risks and burdens on our company. Additional resources will be required to respond to these changes in the law and coming regulations, including to implement new internal and customer supporting compliance procedures, and potentially to offer new product features to respond to data protection requirements or related market trends. Also domestically, the Health Insurance Portability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations (“HIPAA”), imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates.” We function as a business associate for certain of our customers that are HIPAA covered entities and service providers and, in that context, we are regulated as a business associate for the purposes of HIPAA. The HIPAA covered entities and service providers to which we provide services require us to enter into HIPAA-compliant business associate agreements with them. These agreements impose stringent data security obligations on us. If we are unable to comply with our obligations, including contractual obligations, as a 11 HIPAA business associate, we could face substantial contractual, civil and even criminal liability. Modifying the already stringent penalty structure that was present under HIPAA prior to HITECH, HITECH created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect. In jurisdictions outside of the United States, we may face heightened data protection and privacy requirements. In the EU, for example, the General Data Protection Regulation (the “GDPR”) regulates the collection, use and disclosure of personal data that is subject to the GDPR, including the transfer of personal data to third countries, such as the United States. On July 16, 2020, the Court of Justice of the European Union (“CJEU”) issued a decision invalidating the U.S. Privacy Shield as a mechanism to transfer personal data from Europe to the U.S., and requiring additional safeguards for reliance on standard contractual clauses as a transfer mechanism. We are certified to the U.S. Privacy Shield and also continue to rely on standard contractual clauses. As regulatory guidance on recommendations to comply with the GDPR in light of the CJEU decision evolve, we face uncertainty as to whether our efforts to comply with such transfer restrictions are adequate and, as a result, we and our customers may be at risk of enforcement actions taken by EU data protection authorities until such point in time that we may be able to ensure that all international data transfers comply with applicable law and regulatory guidance. The GDPR also imposes significant penalties for non-compliance and may continue to cause our company to incur increased compliance costs. The GDPR and other international data protection laws are subject to differing interpretations and may cause us to incur substantial compliance costs and/or to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall. Corporate Information Our principal executive offices are located at 11120 Four Points Drive, Suite 100, Austin, Texas 78726, and our telephone number at that address is (512) 346-2000. Our website address is www.sailpoint.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K, and inclusions of our website address in this Annual Report on Form 10-K are inactive textual references only. The SailPoint design logo and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on Form 10-K are the property of SailPoint Technologies, Inc., our wholly-owned subsidiary. Other trademarks and trade names referred to in this Annual Report on Form 10-K are the property of their respective owners. Available Information is Our website located at https://www.sailpoint.com, and our located at https://investors.sailpoint.com. The information posted on our website is not incorporated into this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge on our investor relations website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). You may also access all of our public filings through the SEC’s website at https://www.sec.gov. relations website investor is Investors and other interested parties should note that we use our media and investor relations website and our social media channels to publish important information about us, including information that may be deemed material to investors. We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls and webcasts. 12 ITEM 1A. RISK FACTORS The nature of the business activities conducted by the Company subjects it to certain hazards and risks. The following is a summary of some of the material risks relating to the Company’s business activities. Other risks are described in Part I, Item 1. “Business—Competition”, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.—Liquidity and Capital Resources” and Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” These risks are not the only risks facing the Company. The Company’s business could also be affected by additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial. If any of these risks actually occurs, it could materially harm the Company’s business, financial condition or results of operations and impair the Company’s ability to implement business plans. In that case, the market price of the Company’s common stock could decline. Risks Related to Our Financial Performance and Results Since our inception, except for the year ended December 31, 2018, we have incurred net losses and we may not be able to generate sufficient revenue to achieve and sustain profitability. Since our inception, except for the year ended December 31, 2018, we have incurred net losses, including a net loss of $10.8 million for the year ended December 31, 2020. We cannot assure you that we will achieve profitability in the future or that we would be able to sustain profitability. We expect our operating expenses to increase significantly as we continue to expand our sales and marketing efforts, continue to invest in research and development, particularly for our cloud-based solutions, and expand our operations in existing and new geographies and vertical markets. Further, we expect our revenue growth rate to be materially adversely impacted by our continued shift to subscription-based arrangements. As a result, we do not know when we will achieve profitability, and it is possible that we continue to sustain net losses for a period. We have experienced rapid growth in recent periods, and our recent growth rates may not be indicative of our future growth. We have experienced rapid growth in recent years. Our revenue grew from $248.9 million to $365.3 million from the year ended December 31, 2018 to the year ended December 31, 2020. In future periods, we may not be able to sustain revenue growth consistent with recent history, or at all. We believe our revenue growth depends on a number of factors, including (i) our ability to attract new customers and retain and increase sales to existing customers; (ii) our ability to, and the ability of our channel partners to, successfully deploy and implement our solutions, increase our existing customers’ use of our solutions and provide our customers with excellent customer support; (iii) our ability to develop our existing solutions and introduce new solutions; (iv) our ability to hire substantial numbers of new sales and marketing, research and development and general and administrative personnel, and expand our global operations; and (v) our ability to increase the number of our technology partners. If we are unable to achieve any of these requirements, our revenue growth will be adversely affected. In addition, as discussed below, our revenue growth may be materially and adversely affected during any period of significant shifts to subscription-based arrangements. Our future revenues and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their arrangements with us, or if we are unable to expand sales to our existing customers or develop new solutions that achieve market acceptance. To continue to grow our business, it is important that we continue to acquire new customers to purchase and use our solutions. Our success in adding new customers depends on numerous factors, including our ability to (i) offer a compelling identity security platform and solutions, (ii) execute an effective sales and marketing strategy, (iii) attract, effectively train and retain new sales, marketing, professional services and support personnel in the markets we pursue, (iv) develop or expand relationships with channel partners, including systems integrators, resellers and technology partners, (v) expand into new geographies and vertical markets, (vi) deploy our platform and solutions for new customers and (vii) provide quality customer support once deployed. As a result of the COVID-19 pandemic, we shifted all customer events to virtual-only experiences for the time being. Although the level of attendance at our virtual-only events has been generally consistent with or greater than our in-person events, it is possible that the level of prospective customer engagement, and thus conversion into sales, is lower at such events. It is important to our continued growth that our customers renew their arrangements when existing contract terms expire. Our customers have no obligation to renew their maintenance and support, SaaS, and/or term-license agreements, and 13 our customers may decide not to renew these agreements with a similar contract period, at the same prices and terms or with the same or a greater number of identities. Our customer retention and expansion is difficult to accurately predict and may decline or fluctuate as a result of a number of factors. Our ability to increase revenue also depends in part on our ability to increase the number of identities governed with our solutions and sell more modules and solutions to our existing and new customers. If we are unable to successfully acquire new customers, retain our existing customers, expand sales to existing customers or introduce new solutions, our business, financial condition and operating results could be adversely affected. The adverse effect on our financial results may be particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred in connection with the new solutions. Our sales cycle is long and unpredictable, and our sales efforts require considerable time and expense. The length and unpredictability of the sales cycle for our offerings makes it difficult to identify a regular cadence to our sales and the related revenue recognition. We and our channel partners are often required to spend significant time and resources to better educate and familiarize potential customers with the value proposition of our platform and solutions. Customers often view the purchase of our solutions as a strategic decision and significant investment and, as a result, frequently require considerable time to evaluate, test and qualify our platform and solutions prior to purchasing our solutions. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which ultimately may not result in a sale. Additional factors that may influence the length and variability of our sales cycle include: (i) the discretionary nature of purchasing and budget cycles and decisions; (ii) lengthy purchasing approval processes; (iii) the evaluation of competing products during the purchasing process; (iv) time, complexity and expense involved in replacing existing solutions; (v) announcements or planned introductions of new products features or functionality by our competitors or of new solutions or modules by us; (vi) the practice of large enterprises often driving their purchasing cycles based on internal factors rather than marketing cycles; and (viii) evolving functionality demands. If our efforts in pursuing sales and customers are unsuccessful, or if our sales cycles lengthen, our revenue could be lower than expected, which would have an adverse effect on our business, operating results and financial condition. We recognize some of our revenue ratably over the term of our agreements with customers and, as a result, downturns or upturns in sales may not be immediately reflected in our operating results. We recognize revenue from our subscription offerings ratably over the terms of our agreements with customers. As a result, a portion of the revenue that we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into during previous periods. Consequently, a decline in new subscription sales or renewals in any one period may not be immediately reflected in our revenue results for that period. This decline, however, will negatively affect our revenue in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our products and potential changes in our rate of renewals may not be fully reflected in our operating results until future periods. We expect to continue to invest in research and development, sales and marketing, and general and administrative functions and other areas to grow our subscription-related business. These subscription-related costs are generally expensed as incurred (with the exception of sales commissions), as compared to the corresponding revenue, substantially all of which is recognized ratably in future periods. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits and the return on these investments may develop more slowly, or may be lower, than we expect, which could adversely affect our operating results. Our quarterly results fluctuate significantly and may not fully reflect the underlying performance of our business. Our quarterly revenue and operating results tend to fluctuate from period-to-period, and we believe that our quarterly results may vary significantly in the future. These results may fluctuate as a result of a variety of factors, including the mix of revenue and associated costs attributable to licenses, subscription and professional services, the mix of revenue attributable to larger transactions as opposed to smaller transactions, and others discussed throughout this “Risk Factors” section, many of which are outside of our control. Consequently, you should not rely on the results of any one quarter as an indication of future performance. Period-to-period comparisons of our revenue and operating results may not be meaningful and, as a result, may not fully reflect the underlying performance of our business. 14 Risks Related to Our Technology, Products and Security Real or perceived errors, failures, or disruptions, including those caused by cyber-attacks, in our platform and solutions could adversely affect our customers’ satisfaction with our solutions and harm our business and industry reputation. Our platform and solutions are very complex and have contained and may contain undetected defects, vulnerabilities or errors, especially when solutions are first introduced or enhanced. Our platform and solutions are often used in connection with large-scale computing environments with different operating systems, system management software, equipment and networking configurations, which may cause errors or failures of products, or other aspects of the computing environment into which our products are deployed. If our platform and solutions are not implemented or used correctly or as intended, inadequate performance and disruption in service may result. In addition, deployment of our platform and solutions into complicated, large-scale computing environments may expose errors, failures or vulnerabilities in our products. Any such errors, failures, or vulnerabilities may not be found until after they are deployed to our customers. Some of our software and features are powered by ML and AI, which depend on datasets and algorithms that could be flawed, including through inaccurate, insufficient, outdated or biased data. From time to time, we have experienced errors, failures and bugs in our platform that have resulted in customer downtime, and we cannot assure you that we will be able to mitigate future errors, failures, vulnerabilities or bugs in a quick or cost-effective manner. We and our third-party service providers have in the past experienced, and may in the future experience, performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions or capacity constraints due to a number of potential causes including technical failures, cyber-attacks, security incidents, natural disasters or fraud. We have also been the target of distributed denial-of-service attacks and other cybersecurity attacks that attempt to disrupt our services. If our or our third-party service providers’ products or solutions or corporate security are compromised, our website, professional services, customer support or SaaS solutions are unavailable, or there are flaws in our ML and AI processes, our business could be negatively affected. Moreover, if our security measures, products, services or third-party service providers are subject to cyber-attacks that degrade or deny the ability of users to access our website or other products or services, our products or services may be perceived as insecure, and we may incur significant legal and financial exposure. In particular, our cloud-based products may be especially vulnerable to interruptions, performance problems or cyber-attacks. Furthermore, our solutions may not help detect situations in which a valid user identity has been compromised, for example as part of a highly sophisticated cyberattack of the type described below. If we, our third party service providers or our partners or one or more customers were to suffer a highly publicized breach, even if our platform and solutions perform effectively, such a breach could cause our customers or potential customers to lose trust in our identity governance platform in general, which could cause us to suffer reputational harm, lose existing commercial relationships and customers or deter them from purchasing additional solutions and prevent new customers from purchasing our solutions. For example, in December 2020, it was widely reported that hackers installed malware into business software updates provided by SolarWinds Corporation. The attack was widespread, affecting public and private organizations around the world, including several U.S. government agencies. Highly publicized cybersecurity events such as this have heightened consumer, legislative and regulatory awareness of these kinds of cybersecurity risks, while further emboldening individuals or groups to target IT systems more aggressively, highlighting the vulnerability of IT supply chains. We continue to invest in the personnel, infrastructure and third-party best practice software solutions and services necessary to mitigate these risks. However, if we are unable to attract and retain personnel with the necessary cybersecurity expertise, or fail to implement sufficient safeguarding measures, we may not be able to prevent, detect, and mitigate potentially disruptive events which could occur in the future. In some instances, we may not be able to identify the cause or causes of these events within an acceptable period of time. Even with these investments, we may not be able to stop a complex and sophisticated cyberattack of the type that occurred in the SolarWinds breach. Based on reporting, the U.S. government and many private-sector experts have stated the belief that a foreign nation-state conducted the intrusive operation against SolarWinds as part of a widespread attack against America’s cyber infrastructure. SolarWinds has reported that the attackers first gained access to its systems in September 2019 but the breach was not identified until December 2020. In addition, the continuing investigation of the breach may take several more weeks, possibly months, as a result of the sophistication of the attacks. If we are or become a target of such an attack, we may not be able to prevent, detect and mitigate such an attack, which could cause disruptions in service or other performance problems, hurt our reputation and our ability to attract new customers and retain existing customers, and damage our customers’ businesses. Since our customers use our platform and solutions for important aspects of their security environment and operational business, any real or perceived errors, failures or vulnerabilities in our products, or disruptions in service or other performance problems, could hurt our reputation and may damage our customers’ businesses. Furthermore, defects, errors, vulnerabilities or failures in our platform or solutions may require us to implement design changes or software updates. Any defects, 15 vulnerabilities or errors in our platform or solutions, or the perception of such defects, vulnerabilities or errors, could result in: (i) expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects; (ii) loss of existing or potential customers or channel partners; (iii) delayed or lost revenue; (iv) delay or failure to attain market acceptance; (v) delay in the development or release of new solutions or services; (vi) negative publicity, which will harm our reputation; (vii) an increase in collection cycles for accounts receivable or the expense and risk of litigation; and (viii) harm to our operating results. The contractual protections we have in our standard terms and conditions of sale, such as warranty disclaimers and limitation of liability provisions, may not fully or effectively protect us from claims by customers, commercial relationships or other third parties. Any insurance coverage we may have may not adequately cover all claims asserted against us or cover only a portion of such claims. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and the diverting of management’s time and other resources. Interruptions with the delivery of our SaaS solutions, or third-party cloud-based systems that we use in our operations, may adversely affect our business, operating results and financial condition. Our continued growth depends in part on the ability of our existing customers and new customers to access our platform and solutions at any time and within an acceptable amount of time. In addition, our ability to access certain third-party SaaS solutions is important to our operations and the delivery of our customer support and professional services. We have experienced, and may in the future experience, service disruptions, outages and other performance problems both in the delivery of our SaaS solutions and in third-party SaaS solutions we use due to a variety of factors, including infrastructure changes, malicious actors, human or software errors or capacity constraints. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If our SaaS solutions or the third-party SaaS solutions we depend on are unavailable or if our customers are unable to access features of our SaaS solutions within a reasonable amount of time or at all, our business would be negatively affected. We host our SaaS and other subscription services solutions primarily using AWS data centers. Our related operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake or other natural disasters, cyber-attacks, terrorist or other attacks, public health issues or other similar events beyond our control could negatively affect our SaaS platform. A prolonged AWS service disruption affecting our SaaS platform for any of the foregoing or other reasons would negatively impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use, which would also likely require significant investments of time. In addition, AWS may terminate the agreement by providing 30 days’ prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. In the event that our AWS service agreements are terminated, or there is a lapse of service, elimination of AWS services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re- architecting our SaaS solutions for deployment on a different cloud infrastructure service provider, which may adversely affect our business, operating results and financial condition. Breaches in our security, cyber-attacks or other cyber-risks could expose us to significant liabilities and cause our business and reputation to suffer. Our operations involve transmission and processing of our customers' and their employees’ confidential, proprietary and sensitive information including, in some cases, personally identifiable information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. Despite our security measures, our and our third- party service providers' information technology and infrastructure may be vulnerable to security risks, including unauthorized access to use or disclosure of customer data, theft of proprietary information, employee error or misconduct, denial of service attacks, loss or corruption of customer data, and computer hacking attacks or other cyber-attacks subsequently originated from our infrastructure. Such events could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses and other liabilities. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target, we and our third-party service providers may be unable to anticipate these techniques or to reasonably implement adequate preventative measures. For example, we may not be able to stop a complex and sophisticated cyberattack 16 of the type described in the risk factor above. If an actual or perceived breach of our or our third-party service providers' security occurs, the market perception of the effectiveness of our security measures could be harmed, our brand and reputation could be impacted, we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur significant liabilities. Moreover, failure to maintain effective internal accounting controls related to data security breaches and cybersecurity in general could impact our ability to produce timely and accurate financial statements and could subject us to regulatory scrutiny. If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations and changing customer needs, requirements or preferences, our platform and solutions may become less competitive. The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards and changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. In addition, as our customers’ technologies and business plans grow more complex, we expect them to face new and increasing challenges. Our customers require that our solution effectively identifies and responds to these challenges without disrupting the performance of our customers’ IT systems. As a result, we must continually modify and improve our products and introduce or acquire new products in response to changes in our customers’ IT infrastructures. We may be unable to anticipate future market needs and opportunities or be unable to develop enhancements to our platform or existing solutions or new solutions to meet such needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and commercially introduce enhancements to our platform and existing solutions and new solutions, those enhancements and new solutions may not achieve widespread market acceptance. Our enhancements or new solutions could fail to attain sufficient market acceptance for many reasons. Any actual or perceived failure by us to comply with our privacy commitments or legal or regulatory data protection requirements in one or multiple jurisdictions could result in proceedings, actions or penalties against us, as well as a loss of goodwill. Our customers’ storage and use of data concerning, among others, their employees, contractors, customers and partners is essential to their use of our platform and solutions. We have implemented various features intended to enable our customers to better secure their information and comply with applicable privacy and security requirements in their collection and use of data, but these features do not ensure their compliance and may not be effective against all potential privacy and data security concerns. A wide variety of domestic and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, disposal and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and may result in regulatory and public scrutiny and escalating levels of enforcement and sanctions. See Part I, Item 1. “Business—Government Regulations” for more information. Our failure to comply with applicable laws and regulations, or to protect any personal or other customer data, could result in enforcement actions against us, including regulatory fines, as well as claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could adversely affect our business, operating results, financial performance and prospects. In particular, we function as a HIPAA "business associate" for certain of our customers and, as such, are subject to strict privacy and data security requirements. In addition, we are subject to certain contractual obligations and have made privacy commitments, including in privacy policies, regarding our collection, use, storage, transfer, disclosure, disposal or processing of personal data. As a company that supports customer privacy and security objectives, even the perception of a failure by us to comply with our privacy commitments, whether or not valid, may harm our reputation, inhibit adoption of our solutions by current and future customers or adversely impact our ability to attract and retain workforce talent. Additionally, a failure or perceived failure to comply with privacy commitments could lead to regulator or civil claims if our commitments are found to be deceptive or otherwise misrepresentative of our actual policies and practices. Loss, retention or misuse of certain information and alleged violations of laws and regulations relating to privacy and data security, and any relevant claims, may expose us to potential liability and may require us to expend significant resources on data security and in responding to and defending such allegations and claims. In addition, future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations could impair our customers’ ability to collect, use or disclose data relating to individuals, which could decrease demand for our platform and solutions, increase our costs and impair our ability to maintain and grow our customer base and increase our 17 revenue. This includes evolutions in definitions of what constitutes “Personal Information” and “Personal Data” subject to privacy laws, especially relating to classification of IP addresses, machine or device identification numbers, location data and other information. Changes in the law may limit or inhibit our ability to offer certain products or features, limit the growth of features and/or development of new products and services supported by AI or machine learning, or limit our ability to operate or expand our business and develop technology alliance relationships that may involve the sharing of data. Around the world, there are numerous lawsuits in process against various technology companies that process personal data. If those lawsuits are successful, it could increase the likelihood that our company may be exposed to liability for our own policies and practices concerning the processing of personal data and could hurt our business. Furthermore, the costs of compliance with, and other burdens imposed by laws, regulations and policies concerning privacy and data security that are applicable to the businesses of our customers may limit the use and adoption of our platform or solutions and reduce overall demand for them. Privacy concerns, whether or not valid, may inhibit market adoption of our platform. Additionally, concerns about security or privacy may result in the adoption of new legislation that restricts the implementation of technologies like ours or requires us to make modifications to our platform, which could significantly limit the adoption and deployment of our technologies or result in significant expense to modify our platform. If we are not able to maintain and enhance our brand or reputation as an industry leader and innovator, our business and operating results may be adversely affected. We believe that maintaining and enhancing our reputation as a leader and innovator in the market for identity and data governance solutions is critical to our relationship with our existing customers and our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors, including our marketing efforts, our ability to continue to develop high-quality features and solutions for our platform and our ability to successfully differentiate our platform and solutions from competitive products and services. Our brand promotion activities may not be successful or yield increased revenue. In addition, independent industry analysts often provide reports of our platform and solutions, as well as products and services of our competitors, and perception of our platform and solutions in the marketplace may be significantly influenced by these reports. If these reports are negative, or less positive as compared to those of our competitors’ products and services, our reputation may be adversely affected. If we do not successfully maintain and enhance our brand and reputation, our business and operating results may be adversely affected. If our platform and solutions do not effectively interoperate with our customers’ existing or future IT infrastructures, installations could be delayed or cancelled, which would harm our business. Our success depends on the interoperability of our platform and solutions with third-party operating systems, applications, data and devices that we have not developed and do not control. Any changes in such operating systems, applications, data or devices that degrade the functionality of our platform or solutions or give preferential treatment to competitive software could adversely affect the adoption and usage of our platform. We may not be successful in adapting our platform or solutions to operate effectively with these applications, data or devices. If it is difficult for our customers to access and use our platform or solutions, or if our platform or solutions cannot connect to a broadening range of applications, data and devices, then our customer growth and retention may be harmed, and our business and operating results could be adversely affected. If our products fail to help our customers achieve and maintain compliance with certain government regulations and industry standards, our business and operating results could be materially and adversely affected. We believe we generate a portion of our revenues from our products and services because our customers use our products and services as part of their efforts to achieve and maintain compliance with certain government regulations and industry standards, and we expect that will continue for the foreseeable future. Examples of industry standards and government regulations include the Payment Card Industry Data Security Standard; the Federal Information Security Management Act and associated National Institute for Standards and Testing Network Security Standards; the Sarbanes-Oxley Act of 2002; Title 21 of the U.S. Code of Federal Regulations, which governs food and drugs industries; the North American Electric Reliability Corporation Critical Infrastructure Protection Plan; the GDPR; the German Federal Financial Supervisory Authority Minimum Requirements for Risk Management; and the Monetary Authority of Singapore’s Technology Risk Management Notices. These industry standards may change with little or no notice, including changes that could make them more or less onerous for businesses. In addition, governments may also adopt new laws or regulations, or make changes to existing laws or regulations, that could affect whether our customers believe our solution assists them in maintaining compliance with such laws or regulations. If our solutions fail to expedite our customers’ compliance initiatives, our customers may lose confidence in our products and could switch to products offered by our competitors. In addition, if government regulations and industry standards 18 related to IT security are changed in a manner that makes them less onerous, our customers may view compliance as less critical to their businesses, and our customers may be less willing to purchase our products and services. In either case, our sales and financial results would suffer. Risks Related to Our Strategy and Competition A shift in our business from selling licenses to selling subscriptions could materially and adversely affect our financial condition, operating results and liquidity, and our business, financial condition, operating results and prospects could be materially and adversely affected if we fail to successfully manage this shift. We believe enterprises are increasingly embracing the cloud to house their critical security infrastructure. As a result, a growing number of enterprises are changing their approach to identity security and now prefer SaaS in place of purchasing software via a license and independently operating their identity infrastructure. Our current product strategy reflects our belief in this industry shift. As we make this transition and sell subscription-based arrangements, our license revenue will likely be negatively impacted. In a subscription-based arrangement with a customer, we typically: • • recognize revenue (i) ratably over the term of the applicable agreement if the software is delivered as a service, whereas we typically recognize revenue from perpetual licenses upfront upon delivering the applicable license, or (ii) upfront if the software is purchased as a term license, but for an amount less than we would charge for a perpetual license given the finite term of the term license; meaning in each case that for a given customer, we will initially recognize less revenue if our software is delivered via a subscription-based arrangement rather than as a perpetual license; and invoice the customer for subscription fees annually, and at an amount less than we would charge initially for a perpetual license, meaning that for a given customer, initially our billings and our cash flows will decrease. As a result, during any period of significant shifts to subscription-based arrangements, our revenue and cash flows, financial condition, operating results and liquidity may be materially and adversely affected. Additionally, if a greater percentage of our customers purchase our solutions through subscription-based arrangements than we expect in any period, our revenue and earnings will likely fall below expectations for that period and our cash flows may be lower than expected. Furthermore, our business, financial condition, operating results and prospects could be materially and adversely affected if we fail to successfully manage this industry shift, which depends upon our ability to, among other things, properly price our subscription-based arrangements, deliver SaaS, retain our customers, and further develop or acquire related technologies and infrastructure. If the industry shift occurs differently than we anticipate, our business, financial condition, operating results and prospects could be materially and adversely affected. We face intense competition in our market, both from larger, well established companies and from emerging companies, and we may lack sufficient financial and other resources to maintain and improve our competitive position. The market for identity and data governance solutions is intensely competitive and is characterized by constant change and innovation. We face competition from large, well-known enterprise software vendors that offer identity solutions within their product portfolios, pure play identity vendors (including new market entrants) and vendors with whom we have not traditionally competed but who may either introduce new products or incorporate features into existing products that compete with our solutions. Many of our competitors are larger, have greater resources and existing customer relationships, and may be able to compete and respond more effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Our competitors may also seek to extend or supplement their existing offerings to provide identity and data governance solutions that more closely compete with our offerings. Potential customers may also prefer to purchase, or incrementally add solutions, from their existing suppliers rather than a new or additional supplier regardless of product performance or features. In addition, merger and acquisition transactions in the technology industry continue to occur, particularly transactions involving cloud-based technologies. Accordingly, there is a greater likelihood that we will compete with other large technology companies in the future. Continued industry consolidation may adversely impact customers’ perceptions of the viability of small and medium-sized technology companies and consequently their willingness to purchase from those companies. 19 New start-up companies that innovate and competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products, and our business could be materially and adversely affected if such technologies or products are widely adopted. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could adversely affect our business, financial condition and operating results. If we are unable to maintain successful relationships with our channel partners, our ability to market, sell and distribute our solutions will be limited and our business, financial condition and operating results could be adversely affected. We derive a significant portion of our revenue from sales influenced or made through our channel partner network and expect these sales to continue to grow for the foreseeable future. Our channel partners provide implementation and other services to our customers in exchange for fees paid by those customers. We may not achieve anticipated revenue growth from our channel partners if we are unable to retain our existing channel partners and expand their sales or add additional motivated channel partners. Our arrangements with our channel partners are generally non-exclusive, meaning they may offer customers the products of several different companies, including products that compete with our platform and solutions. If our channel partners do not effectively market and sell our solutions, choose to use greater efforts to market and sell our competitors’ products or services, fail to meet the needs of our customers, or cease marketing our products or providing services to us, our ability to grow our business and sell our solutions may be adversely affected. If we are unable to maintain our relationships with these channel partners, our business, financial condition and operating results could be adversely affected. We also collaborate with adjacent technology vendors to offer comprehensive solutions to our customers. If we do not effectively collaborate with them, or if they elect to terminate their relationship with us or develop and market solutions that compete with our solutions, our growth may be adversely affected. We anticipate that our operations will continue to increase in complexity as we grow, which will add additional challenges to the management of our business in the future. Our business has experienced significant growth and is becoming increasingly complex. We increased the number of our employees from 1,003 at December 31, 2018 to 1,394 at December 31, 2020. We have also experienced growth in the number of customers of our solutions from 1,173 at December 31, 2018 to 1,753 at December 31, 2020. We expect this growth to continue and for our operations to become increasingly complex. To effectively manage this growth, we have made and plan to continue to make substantial investments to improve our operational, financial and management controls as well as our reporting systems and procedures. Our success will depend in part on our ability to manage this complexity effectively without undermining our corporate culture, which we believe has been central to our success. If we are unable to manage this complexity, our business, operations, operating results and financial condition may suffer. As our customer base continues to grow, we likely will need to expand our professional services and other personnel, and maintain and enhance our existing partner network, to provide a high level of customer service. We also will need to effectively manage our direct and indirect sales processes as the number and type of our sales personnel and partner network continues to grow and become more complex and as we continue to expand into new geographies and vertical markets. This complexity is further driven by the various ways in which we sell our solutions, including on a per identity and per module basis through perpetual and term licenses, SaaS and other subscription services. If we do not effectively manage the increasing complexity of our business and operations, the quality of our solutions and customer service could suffer, and we may not be able to adequately address competitive challenges. These factors could impair our ability, and our channel partners’ ability, to attract new customers, retain existing customers, expand our customers’ use of existing solutions and adoption of more of our solutions and continue to provide high levels of customer service, all of which would adversely affect our reputation, overall business, operations, operating results and financial condition. We may acquire or invest in companies, which may divert our management’s attention and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions, and acquisitions, particularly of development stage companies, may adversely affect our operating results and liquidity as well as our ability to meet expectations. Our success will depend, in part, on our ability to expand our solutions and services and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may choose to do so through the acquisition of, or investment in, new or complementary businesses and technologies rather than through internal development. As a function of the industry in which we operate, we may acquire development stage companies that are not yet 20 profitable, and that require continued investment, which could adversely affect our results of operations and liquidity as well as our ability to meet expectations, particularly if they were formulated prior to such acquisitions. Development stage companies generally involve a higher degree of risk and have not been proven, require additional capital to develop, and typically do not generate enough revenue to offset increased expenses associated therewith. The identification of suitable acquisition or investment candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or investments. The risks we face in connection with acquisitions and/or investments include difficulties integrating the new businesses, technologies, or personnel, distractions to management, adverse tax consequences, claims and disputes by stockholders, and the assumption of debt or other liabilities, among other things. The occurrence of any of these or other risks could prevent us from realizing the anticipated benefits of an acquisition and could adversely affect our business, operating results and financial condition. Because our long-term success depends, in part, on our ability to expand the sales and marketing of our platform and solutions to customers located outside of the United States, and we perform a significant portion of our development outside of the United States, our business will be susceptible to risks associated with international operations. At December 31, 2020, we had customers in 57 countries and personnel in 18 countries, and we intend to continue expanding our international sales and marketing operations. Conducting international operations subjects us to risks that we do not generally face in the United States. These risks include: (i) heightened risks of unethical, unfair or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent sales arrangements; (ii) political instability, war, armed conflict or terrorist activities; (iii) public health issues, including outbreaks of contagious diseases or illnesses; (iv) currency fluctuations; (v) laws imposing heightened restrictions on data usage and increased penalties for failure to comply with applicable laws, particularly in the European Union (“EU”); (vi) risks associated with trade restrictions and foreign import requirements; (vii) potentially different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues; (viii) management communication and integration problems resulting from cultural differences and geographic dispersion; (ix) increased turnover of international personnel as compared to our domestic operations; (x) potentially adverse tax consequences, including multiple and possibly overlapping tax structures, the complexities of foreign value added tax systems, restrictions on the repatriation of earnings and changes in tax rates; (xi) changes in global trade policies, such as the United Kingdom’s exit from the EU, trade disputes and increased tariffs between the United States and China, or other political, cultural or economic developments; (xii) greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods; (xiii) the uncertainty and limitation of protection for intellectual property rights in some countries; and (xiv) increased financial accounting and reporting burdens and complexities. Additionally, operating in international markets requires significant management attention and financial resources. Legal, Regulatory and Governance Risks If we fail to meet contractual commitments related to response time, service level commitments or quality of professional services, we could be obligated to provide credits for future service, or face contract termination, which could adversely affect our business, operating results and financial condition. Depending on the products purchased, our customer agreements contain service level agreements, under which we guarantee specified availability of our platform and solutions. If we are unable to meet the stated service level commitments to our customers or suffer extended periods of unavailability of our SaaS solutions or other subscription services, we may be contractually obligated to provide affected customers with service credits or customers could elect to terminate and receive refunds for prepaid amounts. In addition, if the quality of our professional services does not meet contractual requirements, we may be required to re-perform the services at our expense or refund amounts paid for the services. Any failure to meet these contractual commitments could adversely affect our revenue, operating results and financial condition and any failure to meet service level commitments or extended service outages of our SaaS solutions or other subscription services could adversely affect our business and reputation as customers may elect not to renew and we could lose future sales. We use third-party licensed software in or with our solutions, and the inability to maintain these licenses or issues with the software we license could result in increased costs or reduced service levels, which would adversely affect our business. Our solutions include software or other intellectual property licensed from third parties, and we otherwise use software and other intellectual property licensed from third parties in our business. We anticipate that we will continue to rely on such third-party software and intellectual property in the future. This exposes us to risks over which we may have little or no control. The third-party software we currently license may not always be available, and we may not have access to alternative third- 21 party software on commercially reasonable terms. In addition, a third party may assert that we or our customers are in breach of the terms of a license, which could, among other things, give such third party the right to terminate a license or seek damages from us, or both. Our inability to obtain or maintain certain licenses or other rights or to obtain or maintain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in releases of new solutions, and could otherwise disrupt our business, until equivalent technology can be identified, licensed or developed, if at all. Also, to the extent that our platform and solutions depend upon the successful operation of third-party software in conjunction with our software, any undetected errors, vulnerabilities, compromises or defects in such third-party software could prevent the deployment or impair the functionality of our platform, delay new feature introductions, result in a failure of our platform and injure our reputation. If we fail to adequately protect our proprietary rights, our competitive position could be impaired, and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights. We rely on copyrights, trade secret laws, confidentiality procedures, employment proprietary information and inventions assignment agreements, trademarks and patents to protect our intellectual property rights. To protect our trade secrets and proprietary information, we rely in significant part on confidentiality arrangements with our employees, licensees, independent contractors, advisers, channel partners, resellers and customers. These arrangements and other steps we take may not be effective to prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We may be required to spend significant resources to obtain, monitor and enforce our intellectual property rights. Litigation brought to enforce our intellectual property could be costly, time-consuming and distracting to management and could be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property, which may result in the impairment or loss of portions of our intellectual property. The laws of some foreign countries do not protect our intellectual property to the same extent as the laws of the United States, and effective intellectual property protection and mechanisms may not be available in those jurisdictions. We may need to expend additional resources to defend our intellectual property in these countries, and our inability to do so could impair our business or adversely affect our international expansion. We may be subject to intellectual property rights claims by third parties or contractual counterparties, which may be costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies. Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. We have in the past and may in the future be subject to notices that claim we have infringed, misappropriated or misused the intellectual property of our competitors or other third parties, many of which have significantly larger and more mature patent holdings than we do or are patent holding companies whose sole business is to assert such claims. To the extent we increase our visibility in the market, we face a higher risk of being the subject of intellectual property claims. Additionally, we could in the future be subject to claims that we, our employees or our contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties. Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them or otherwise be liable for losses suffered or incurred as a result of claims of intellectual property infringement or misappropriation, damages caused by us to property or persons, or other liabilities relating to or arising from our platform, solutions, services or other contractual obligations. Some of these indemnity agreements provide for significant or uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and adversely affect our business and operating results. Any intellectual property, indemnification or wrongful use or disclosure claims, with or without merit, could be time- consuming and expensive, could require litigation and could divert our management’s attention and other resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could also result in our having to stop using technology found to be in violation of a third party’s rights. We might be required to seek a license for the intellectual property, which may not be available on reasonable terms or at all. Even if a license is available, we could be required to pay significant royalties, which would increase our operating expenses. As a result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any aspect of our business that may 22 ultimately be determined to infringe on or misappropriate the intellectual property rights of another party, we could be forced to limit or stop sales of licenses to our platform and solutions and may be unable to compete effectively. We could also lose valuable intellectual property rights or key personnel as a result of a wrongful disclosure dispute. Furthermore, we may be subject to indemnification obligations with respect to third-party intellectual property pursuant to our agreements with our channel partners or customers. Any of these results would adversely affect our business, operating results and financial condition. Our use of “open source” software could negatively affect our ability to sell our solutions and subject us to possible litigation. Some aspects of our platform and solutions are built using open source software, and we intend to continue to use open source software in the future. From time to time, we contribute software source code to open source projects under open source licenses or release internal software projects under open source software licenses and anticipate doing so in the future. The terms of certain open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to monetize our products. Additionally, we may from time to time face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source software license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement or violation. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software and, thus, may contain security vulnerabilities or broken code. Any of these risks could be difficult to eliminate or manage, and if not addressed, could have a negative effect on our business, operating results and financial condition. Our charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. Our charter and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include: (i) a classified board of directors with three-year staggered terms; (ii) removal of directors only for cause; (iii) the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval; (iv) allowing only our directors to fill vacancies on our board of directors; (v) a prohibition on stockholder action by written consent; (vi) the requirement that a special meeting of stockholders may be called only by or at the direction of our board of directors; (vii) the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our charter relating to the management of our business (including our classified board structure) or certain provisions of our bylaws; (viii) the ability of our board of directors to amend the bylaws; (ix) advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting; and (x) a prohibition of cumulative voting in the election of our board of directors. Our charter also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and prevents us from engaging in a business combination, such as a merger, with an interested stockholder (i.e., a person or group who acquires at least 15% of our voting stock) for a period of three years from the date such person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Our charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings by our stockholders, which could limit their ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents. Our charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our charter or bylaws, or (iv) any action asserting a claim against us that is governed by the internal 23 affairs doctrine, in each such case subject to such Court of Chancery of the State of Delaware having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our charter described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. The enforceability of similar exclusive forum provisions in other companies’ charters has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could rule that this provision in our charter is inapplicable or unenforceable. For example, the choice of forum provisions summarized above are not intended to, and would not, apply to suits brought to enforce any liability or duty created by the Exchange Act, or other claim for which the federal courts have exclusive jurisdiction. Additionally, there is uncertainty as to whether our choice of forum provisions would be enforceable with respect to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the “Securities Act”), or other claims for which the federal courts have concurrent jurisdiction, and in any event stockholders will not be deemed to have waived the Company’s compliance with federal securities laws and rules and regulations thereunder. If a court were to find these provisions of our charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or operating results. General Risk Factors Our success depends on the experience and expertise of our senior management team and key employees. If we are unable to hire, retain, train and motivate our personnel, our business, operating results and prospects may be harmed. Our success has depended, and continues to depend, on the efforts and talents of our senior management team and key employees, including our engineers, product managers, sales and marketing personnel and professional services personnel. Our future success will also depend upon our continued ability to identify, hire and retain additional skilled and highly qualified personnel, which will require significant time, expense and attention. Competition for such highly skilled personnel is intense, and we may need to invest significant amounts of cash and equity to attract and retain new employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, or if we lose one or more members of our senior management team, our business, operating results and prospects could be adversely affected. Our business depends, in part, on sales to the public sector, and significant changes in the contracting or fiscal policies of the public sector could have an adverse effect on our business. We derive a portion of our revenue from sales of our solutions to federal, state, local and foreign governments, and we believe that the success and growth of our business will continue to depend in part on our successful procurement of government contracts. Factors that could impede our ability to maintain or increase the amount of revenue derived from government contracts include: (i) changes in fiscal or contracting policies; (ii) decreases in available government funding; (iii) changes in government programs or applicable requirements; (iv) the adoption of new laws or regulations or changes to existing laws or regulations; and (v) potential delays or changes in the government appropriations or other funding authorization processes. The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions or otherwise have an adverse effect on our business, operating results and financial condition. If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, including the determination of stand-alone selling price, the expected period of benefit for our deferred contract acquisition costs, income taxes, and the valuation, estimated useful lives and impairment of intangible assets and goodwill arising from business combinations. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our 24 operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock. Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our operating results. We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things: (i) develop and enhance our products; (ii) continue to expand our product development, sales and marketing organizations; (iii) hire, train and retain employees; (iv) respond to competitive pressures or unanticipated working capital requirements; or (v) pursue acquisition opportunities. Servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from our business to do so. We have historically relied on the availability of some amount of debt financing. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 (the “Notes”) and any future borrowings under our credit facility, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control, including the factors described in this “Risk Factors” section. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms. In addition, our credit facility and any of our future debt agreements may contain restrictive covenants that prohibit us from adopting any of these alternatives. The terms, conditions and restrictions contained in our credit agreement and our convertible notes and related capped call transactions could expose us to risks that could adversely affect our liquidity and financial condition or otherwise adversely affect our operating results. Our credit agreement contains various covenants that, among other things, limit our and certain of our subsidiaries’ abilities to: (i) incur additional indebtedness or guarantee indebtedness of others; (ii) create additional liens on our assets; (iii) merge, consolidate or dissolve; (iv) make loans or investments, including acquisitions; (v) sell assets; (vi) engage in sale and leaseback transactions; (vii) pay dividends and make other distributions on our capital stock, and redeem and repurchase our capital stock; or (viii) enter into transactions with affiliates. Our credit agreement also contains numerous affirmative covenants and a financial covenant. Our failure to comply with these covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of our debt. Any additional debt that we incur in the future could subject us to similar or additional covenants. Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In such event, we may not have enough available cash or be able to obtain financing at the time to make repurchases of the Notes surrendered therefor. In addition, our ability to repurchase the Notes may be limited by our existing credit agreement or agreements governing our future indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes would constitute a default under such indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing credit facility or future indebtedness. The conditional conversion feature of the Notes has been triggered during certain quarters and may be triggered in future quarters, entitling holders of the Notes to convert the Notes at any time during specified periods at their option. We have received, and we may in the future receive, requests from holders to convert all or a portion of their Notes (for more information, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources"). To the extent that we elect to settle a portion or all of our conversion obligation through the payment of cash, this could adversely affect our liquidity. The conversion of some or all of the Notes will also dilute the ownership 25 interests of existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock upon any conversion of such Notes. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long- term liability, which would result in a material reduction of our net working capital. The Notes were classified as current liabilities on the consolidated balance sheet as of December 31, 2020. In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions (“Capped Call Transactions”) that are intended to reduce the potential dilution to our common stock upon any conversion of the Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Notes. The unwinding of such Capped Call Transactions in connection with a conversion of some or all of the Notes could adversely affect the value of our common stock. Additionally, it is possible that the accounting standards relating to the Notes and/or the Capped Call Transactions could in the future change, and compliance with any new or updated standards could have a material adverse effect on our results, including with respect to earnings per share. The COVID-19 pandemic continues to affect populations and businesses worldwide and may materially affect how we and our customers operate, and the duration and extent to which these effects may impact our future results of operations and overall financial performance remains uncertain. The emergence of the novel coronavirus as a global pandemic in late 2019 and the devastating effects of COVID-19 throughout 2020 and into 2021 have caused substantial disruption to populations, including markets and economies, worldwide. Governments and public health officials have recommended and imposed significant regulations and restrictions designed to protect human life, but which have simultaneously had (and are expected to continue to have) serious adverse impacts on domestic and foreign economies. Further, as new variants of the coronavirus emerge throughout the world, some governments have tightened restrictions, and making it even more difficult to predict the scope and duration of the effects of the coronavirus. While we believe that the pandemic has not had an immediate material adverse impact on our financial performance, our business may yet be negatively impacted by the COVID-19 pandemic as the duration of the pandemic and the scope of its effects ultimately remain unknown. The conditions caused by the COVID-19 pandemic have in some cases affected, and may continue to affect, the rate of IT spending by our current and prospective customers, impacting some of our customers’ ability and willingness to purchase our offerings, in some instances delaying prospective customers’ purchasing decisions, delaying the provisioning of our offerings and causing some customers to fail to make timely payments. We have seen an immaterial number of customer requests, and may continue to see similar requests, to lengthen payment terms or reduce the value or duration of subscription contracts, and for those customers that prefer we provide on-site consulting services, we have generally been unable to do so during the pandemic due to local and regional restrictions, instead providing those services virtually. Given the nature and significance of the circumstances created by the coronavirus, we are not able to enumerate all potential risks to our business; however, we believe that in addition to the impacts described above, other potential impacts of the global pandemic include: (i) an increased likelihood of interruptions with the delivery of our SaaS solutions, other subscription services or third-party cloud-based systems that we use in our operations; (ii) a decrease in the volume of sales through our channel partners due to changes to their business models as a result of COVID-19; (iii) cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity; (iv) risk of stockholder lawsuits arising from volatility in the trading price of our common stock and other securities-related claims; (v) litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements; (vi) changes to our culture and workforce to adjust to market conditions and as a result of increased remote connectivity; (vii) potentially higher borrowing costs or we may not be able to raise capital on terms acceptable to us or at all in the future; (viii) impairments and other accounting charges if demand for our services and products decreases; and (ix) infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate. The duration and extent of the impact from the COVID-19 pandemic depends on future developments, including the effectiveness of vaccinations as they are distributed and the nature and number of variants of the coronavirus that emerge, that cannot be accurately predicted at this time. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth in these “Risk Factors”, such as those relating to our financial performance and debt obligations. 26 The impact of various tax laws and regulations, including our failure to comply therewith, could have a negative impact on our operating results and financial condition. We are subject to tax laws and regulations, both in the United States and internationally, which laws and regulations are complex and may change over time. Compliance with such laws and regulations may have negative impacts on our operating results and financial condition, and our efforts to comply in a timely manner may prove inadequate. For example, (i) comprehensive U.S. federal tax reform legislation could adversely affect our business and financial condition; (ii) changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our operating results; (iii) our business may be subject to additional obligations to collect and remit sales tax, value-added and other taxes, and we may be subject to tax liability for past sales; (iv) our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our operating results; and (v) our ability to use net operating losses and other tax attributes to offset future taxable income may be subject to certain limitations. Additionally, forecasting our estimated annual effective tax rate for financial accounting purposes is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates. Any of these circumstances could have a material impact on our results of business, financial condition and results of operations. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. Our corporate headquarters in Austin, Texas consists of 164,818 square feet of space under a lease that expires in April 2029. We also have additional office space under leases in Pune, India, Tel Aviv, Israel, London, United Kingdom, San Jose, California and Singapore. We lease all of our facilities. We believe that our facilities are adequate for our current needs and anticipate that suitable additional space will be readily available to accommodate any foreseeable expansion of our operations. For more information about our lease commitments, see also Note 7 “Leases” in our notes to our consolidated financial statements included in this Annual Report. Item 3. Legal Proceedings. We are not currently a party to, nor is our property currently subject to, any material legal proceedings other than ordinary routine litigation incidental to the business, and we are not aware of any such proceedings contemplated by governmental authorities. Item 4. Mine Safety Disclosures. None. 27 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed and traded on the New York Stock Exchange ("NYSE") under the symbol “SAIL.” Holders of Record As of February 18, 2021, there were 23 holders of record of our common stock including Cede & Co, a nominee for The Depository Trust Company, or DTC, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one stockholder. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders. Dividend Policy We have never declared or paid any cash dividends on our common stock. We currently intend to retain all of our earnings to finance the growth and development of our business. Any further determination to pay dividends on our common stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors considers relevant. In addition, our Credit Agreement places restrictions on our ability to pay cash dividends. See Note 9 “Line of Credit and Long-Term Debt” in our notes to our consolidated financial statements included in this Annual Report for more information regarding terms and conditions of the Credit Agreement. Stock Performance Graph The following is not “soliciting material,” shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing. The graph assumes that $100 was invested (i) in the Company’s common stock on November 17, 2017 (the date on which initial trading in the Company’s common stock commenced), and (ii) on October 31, 2017, in the NYSE Composite Index, S&P Mid Cap 400 and the S&P 600 Information Technology Index, and in each case, that all dividends were reinvested. The stock price performance on the following graph is required by the SEC and is not necessarily intended to forecast or be indicative of future stock price performance. On October 5, 2020, our common stock was added to the S&P MidCap 400 Index. As a result, we have added the S&P MidCap 400 Index to our stock performance graph, and we intend to discontinue presentation of the NYSE Composite Index in future stock performance graphs, as we believe the S&P MidCap 400 Index is a more appropriate benchmark for comparative purposes. 28 COMPARISON OF 37 MONTH CUMULATIVE TOTAL RETURN* Among Sailpoint Technologies Holdings, Inc., the NYSE Composite Index, the S&P Midcap 400 Index, and S&P 600 Information Technology Index $450 $400 $350 $300 $250 $200 $150 $100 $50 11/17/17 12/17 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 Sailpoint Technologies Holdings, Inc. NYSE Composite S&P Midcap 400 S&P 600 Information Technology Index *$100 invested on 11/17/17 in stock or 10/31/17 in index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2021 Standard & Poor's, a division of S&P Global. All rights reserved. Company/Index 11/17/2017 12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 $ 100.00 $ 111.54 $ 159.15 $ 188.77 $ 261.69 $ 180.69 $ 220.92 $ 154.15 $ 143.77 $ 181.54 $ 100.00 $ 104.23 $ 101.92 $ 103.08 $ 108.50 $ 94.91 $ 106.64 $ 110.37 $ 110.69 $ 119.11 SAIL NNYSE Composite S&P MidCap 400 S&P 600 IT Index $ 100.00 $ 103.90 $ 103.10 $ 107.53 $ 111.68 $ 100.00 $ 94.32 $ 93.53 $ 97.94 $ 102.12 Company/Index 3/31/2020 6/30/2020 SAIL NNYSE Composite S&P MidCap 400 S&P 600 IT Index $ $ $ $ 117.08 88.80 81.96 81.70 $ $ $ $ 203.62 103.20 101.69 101.16 29 $ $ $ $ $ $ 92.39 $ 105.77 $ 108.99 $ 108.90 $ 116.59 82.13 $ 97.71 $ 99.70 $ 101.86 $ 112.95 9/30/2020 12/31/2020 304.38 110.85 106.55 100.74 $ $ $ $ 409.54 127.44 132.52 142.41 Recent Sales of Unregistered Securities On December 29, 2020, we received a conversion notice relating to $10.2 million of our 0.125% Convertible Senior Notes due 2024 (the “Converting Notes”). We have elected to settle the principal amount of the Converting Notes with cash and the conversion value in excess of the principal amount of the Converting Notes in shares of our common stock. Such shares will be issued following the observation period set forth in the Indenture governing the Converting Notes (which will occur during the first quarter of 2021) in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act. Purchase of Equity Securities by the Issuer and Affiliated Purchasers In connection with the settlement of the Converting Notes, as described above, we intend to unwind a pro rata portion of the Capped Call Transactions, which settlement is expected to occur in conjunction with the settlement of the Converting Notes (i.e., during the first quarter of 2021) in the form of shares of our common stock delivered to us by the capped call counterparties. Use of Proceeds from Initial Public Offering of Common Stock On November 16, 2017, the Registration Statement on Form S-1 (File No. 333-221036) relating to our initial public offering was declared effective by the SEC and we priced our initial public offering. Pursuant to the Registration Statement, we registered an aggregate of 23.0 million shares of our common stock, of which 15.8 million shares were sold by us and 7.2 million shares were sold by certain selling stockholders named therein at a price to the public of $12.00 per share (for an aggregate offering price of $276.0 million). We received net proceeds of approximately $172.0 million, after deducting underwriting discounts and commissions of approximately $13.3 million and offering-related expenses of $4.4 million. As of December 31, 2020, we have used $160.0 million of the proceeds from our initial public offering to repay borrowings under our previous term loan facility and approximately $1.8 million of such proceeds to pay a related prepayment premium; the remaining net proceeds are held in cash and have not been deployed. Item 6. Selected Financial Data None. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth in the section titled “Risk Factors” in Part I, Item 1A and in other parts of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period. The Company has elected to omit a discussion and analysis of the financial condition and results of operations of certain 2018 items and year-to-year comparisons between 2019 and 2018. Such discussion and analysis can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 24, 2020. Overview SailPoint (“we,” “our,” “the Company” or “SailPoint”) is the leading provider of enterprise identity security solutions. Our identity security solutions provide organizations with critical visibility into who currently has access to which resources, who should have access to those resources and how that access is being used. We offer both software as a service (“SaaS”) and software solutions, which provide organizations with the intelligence required to empower users and govern their access to systems, applications and data across hybrid IT environments, spanning on-premises, cloud and mobile applications and file storage platforms. We help customers enable their businesses with more agile and innovative IT, streamline delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, financial institutions and governments. 30 Our set of identity security solutions currently consists of: • • • IdentityNow: our cloud-based, multi-tenant identity security platform, which provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud; IdentityIQ: our on-premises identity security solution, which can be hosted in the public cloud or deployed in a customer’s data center provides large, complex enterprise customers a unified and highly configurable identity security solution; and SailPoint Identity Services: delivered as multi-tenant SaaS subscription services that can be utilized in conjunction with IdentityNow and IdentityIQ and currently consisting of: ◦ ◦ ◦ ◦ Access Insights: collects a wealth of identity information and turns that information into actionable insights and provides business-oriented dashboards and reports to track the effectiveness of your identity program; Recommendation Engine: uses artificial intelligence (“AI”), machine learning (“ML”), peer group analysis, identity attributes and access activity to help you decide whether access should be granted or removed; Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role; and Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure. Our solutions address the complex needs of global enterprises and mid-market organizations. Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. Rising security threats and evolving regulations and compliance standards for cyber security, data protection, privacy and internal IT controls create new opportunities for our industry and require us to adapt our solutions to be successful. Maintaining our historical growth rates is also challenging because our growth strategy depends in part on our ability to drive new customer growth within existing geographic markets, further penetrate our existing customer base, continue to invest in our platform, leverage and expand our network of partners, expand market and product investment across existing vertical markets, and continuing to expand our global presence, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on managing our net cash provided by operations while continuing to invest in our platform and to deliver innovative solutions to our customers. We believe enterprises are increasingly embracing the cloud to house their critical security infrastructure. As a result, a growing number of enterprises are changing their approach to identity security and now prefer to use a SaaS solution rather than purchase software outright and install it in their own infrastructure. This industry shift aligns well with our current product strategy. Our product strategy is to (1) accelerate innovation within our core identity security SaaS offerings, (2) deliver continued innovation as we execute against our vision for SailPoint identity security, and (3) ensure that as we deliver these new innovations, they work in concert with our SaaS offerings in addition to our on-premises offerings. We believe that continued growth of SaaS, term-based license and maintenance and support revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Nevertheless, our revenue and our gross margins vary depending on the type of solution we sell. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results. IdentityNow and our SailPoint Identity Services are provided in exchange for a subscription fee and offers customers access to these solutions and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our SaaS offerings has a duration of three years. For our IdentityIQ solutions, our customers typically purchase a perpetual software license, which includes one year of maintenance and support. Our maintenance provides software maintenance as well as access to our technical support services during the maintenance term. After the initial maintenance period, customers with perpetual licenses may renew their maintenance and support agreement for an additional fee. Pricing for each of our solutions is dependent on the number of digital identities of employees, contractors, business partners, software bots and other human and non-human users that the customer is entitled to govern with the solution. We also package and price our IdentityNow and IdentityIQ solutions into modules. Each module has unique functionalities, and our customers are able to purchase one or more modules, depending on their needs. We also offer advanced integration modules for key applications and systems which can be purchased in addition to our base solution modules. They are also priced based on the total number of identities, as are our SailPoint Identity Services. Thus, our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules purchased by 31 the customer for our IdentityIQ and IdentityNow solutions and which, if any, of the SailPoint Identity Services that the customer purchases. In addition to our solutions, we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. Most of our professional services activity is in support of our partners, who perform a significant majority of all initial and follow-on implementation work for our customers. Most of our consulting services are priced on a time-and-materials basis; our training services are provided through multiple pricing models, including on a per-person basis for instructor led courses and a flat-rate basis for our e-learning courses. As part of our growth strategy, on February 22, 2021, we acquired Intello Inc. (“Intello”), which is an early-stage SaaS management company that helps organizations to discover, manage, and secure SaaS applications. See Note 19 “Subsequent Events” in our notes to our consolidated financial statements included in this Annual Report for more information. Key Factors Affecting Our Performance Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to: • • • • Add New Customers Within Existing Markets. There is significant opportunity to expand our footprint in our existing markets through new, greenfield deployments and displacement of our competitors’ legacy solutions. We plan to grow our sales organization, expand and leverage our channel partners and enhance our marketing efforts. Generate Additional Sales to Existing Customers. We believe that our existing customer base provides us with a significant opportunity to drive incremental sales. In most cases, our customers initially purchase a subset of the modules or offerings we provide based on their immediate need. We focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations. This is especially true when it comes to our new and expanded SaaS offerings, including AI and cloud governance. Over time, we also identify up-selling and cross-selling opportunities and seek to sell additional modules and offerings to our existing customers. Retain Customers. We believe that our ability to retain our subscription-based customer contracts is an important component of our growth strategy and reflects the long-term value of our customer relationships. In order to maintain high renewal rates, we invest in the quality and reliability of our solutions and our customer service and support functions to help drive high levels of customer success. Expand into New Markets. We expect to continue to invest significantly in sales, marketing and customer service, as well as our indirect channel partner network, to expand into new geographies and vertical markets. We believe that our market opportunity is large and growing and that the global cyber security market represents a significant growth opportunity for us. In 2020, we generated only 28% of our revenue outside of the United States. We plan to leverage our existing strong relationships with global system integrators and channel partners to grow our presence in Europe, Asia Pacific and other international markets. Impact of COVID-19 In light of the ongoing spread of COVID-19 in the United States and abroad, including the emergence of new variants of the coronavirus, government and public health authorities continue to recommend social distancing and impose various quarantine and isolation measures on large portions of the population, including measures directed at businesses. While intended to protect human life, these restrictions have had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain duration. We have made certain adjustments to our operations as we continue to provide our offerings to new and existing customers in response to these measures. For example, as a result of the COVID-19 pandemic, we shifted all customer events to virtual-only experiences beginning in early 2020 and expect this trend to continue for the foreseeable future, and we have transitioned to providing consulting services virtually as well. While we believe that the pandemic has not had an immediate material adverse impact on our financial performance, our business may yet be negatively impacted by the COVID-19 pandemic as the duration of the pandemic and the scope of its effects ultimately remain unknown. For example, the conditions caused by the COVID-19 pandemic may materially adversely affect the rate of IT spending by our current and prospective customers, including our customers’ ability or willingness to purchase our offerings, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, or cause customers to fail to make timely payments. We have seen an immaterial number of customer requests, and may continue to see 32 similar requests, to lengthen payment terms or reduce the value or duration of subscription contracts, but this has not resulted in a material adverse impact on our renewal rates. While we have not been able to provide on-site consulting services to our customers during the pandemic due to local and regional restrictions, this has not resulted in any meaningful adverse impact on our ability to deliver such services because a significant portion of our consulting services have historically been provided remotely and most on-site projects transitioned to a remote delivery model. Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce, we believe the value and scalability of our identity platform has become even more evident. We believe that the pandemic has not had a material adverse impact on our financial performance, and indeed, our revenue and customer base grew throughout 2020 and our travel and facilities expenses for the year were down. While we expect to see a return to higher levels of travel and facilities expenses in 2021, we also expect to continue to see healthy demand for our solutions for the near-term given the aforementioned virtual workforce shift. Nevertheless, we recognize that the uncertainty related to COVID-19 may result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements. The challenges posed by COVID-19 on our business and our customers’ businesses may evolve rapidly, and the speed, trajectory and strength of a recovery in general economic conditions remains highly uncertain and could be slowed or reversed by a number of factors, including the recent emergence of new strains of the coronavirus and the effectiveness of vaccines for the disease as they continue to be developed and distributed. Consequently, we will continue to evaluate our financial position and results of operations in light of future developments, particularly those relating to COVID-19. See the section titled “Risk Factors” elsewhere in this Annual Report on Form 10-K for information regarding the possible effects of COVID-19 on our business. Key Business Metrics In addition to our financial information prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations: 2020 Year Ended December 31, 2019 2018 Number of customers (at period end) Total annual recurring revenue • • 1,469 178,953 1,753 250,951 1,173 131,483 Number of Customers. We believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity. We define a customer as a distinct entity, division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date. Revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased. Our customer base increased by 284, or 19%, from 1,469 customers at December 31, 2019 to 1,753 customers at December 31, 2020. Total Annual Recurring Revenue (“Total ARR”). We use Total ARR to monitor the growth of our recurring business as we continue to shift to a subscription model. Total ARR represents the annualized value of the active portion of SaaS, term-based license, maintenance and support contracts and other subscription services at the end of the reporting period. We calculate Total ARR by dividing the active contract value by the number of days in the active portion of the overall contract term and then multiplying by 365. Total ARR should be viewed independently of revenue and deferred revenue as Total ARR is an operating metric and is not intended to be combined with or replace these items. Total ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates, and does not include revenue from perpetual licenses, training, professional services or other sources of revenue that are not deemed to be recurring in nature. We no longer consider subscription revenue as a percentage of total revenue to be a key metric, and accordingly we do not expect to disclose this metric going forward. While we continue to place a considerable focus on the aggregate performance of subscription revenues, we believe that Total ARR is a more complete measure of the value of the Company’s recurring contracts. Subscription revenue as a percentage of total revenue was 54%, 50% and 42% for the years ended December 31, 2020, 2019 and 2018, respectively. 33 Components of Results of Operations Revenue License Revenue. We generate license revenue through the sale of our on-premises software license agreements to new customers and sales of additional licenses to the existing customers who can purchase additional users for existing licenses or purchase new licenses. Customers may also purchase term license agreements, under which we recognize the amount allocated to the licenses upfront. Perpetual license transactions generally include an amount for first-year maintenance and support, which we recognize as subscription revenue. We typically recognize license revenue upon delivering the applicable license. Over time, we will continue to expect license revenue to decrease as a percentage of our total revenue as we continue to focus on increasing our subscription revenue as a key growth initiative. Subscription Revenue. Our subscription revenue consists of (i) fees for access to, and related support for, our SaaS offerings, (ii) fees for ongoing maintenance and support of our licensed solutions and (iii) other subscription services, which includes our cloud managed services. We typically invoice subscription fees in advance, in annual installments, and recognize subscription revenue ratably over the term of the applicable agreement. Over time, we expect subscription revenue will increase as a percentage of total revenue as we continue to focus on increasing subscription revenue as a key growth initiative. Services and Other Revenue. Services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. Most of our professional services are priced on a time-and-materials basis and we generally invoice customers monthly as the work is performed. We generally have standalone value for our professional services and recognize revenue as services are performed based on an estimated fair value as a separate unit of accounting. Most of our professional services activity is in support of our partners, who perform the significant majority of all initial and follow-on configuration and optimization work for our customers. Over time, we expect our professional services revenue as a percentage of total revenue to decrease as we increasingly rely on partners to help our customers deploy our software. Cost of Revenue Cost of License Revenue. Cost of license revenue consists of amortization expense for developed technology acquired and third-party royalties. Cost of Subscription Revenue. Cost of subscription revenue consists primarily of employee-based costs (which consists of employee compensation and allocated overhead), costs of our customer support organization, contractor costs to supplement our staff levels, amortization expense for developed technology acquired and third-party cloud-based hosting costs. Cost of Services and Other Revenue. Cost of services and other revenue consists primarily of employee-based costs of our professional services and training organizations, travel-related costs and contractor costs to supplement our staff levels. Impairment of Intangible Assets. Impairment of intangible assets consists of impairments charges for developed technology acquired. This is a component of cost of subscription revenue that was broken out for financial statement purposes. Gross Profit and Gross Margin Gross profit is revenue less cost of revenue, and gross margin is gross profit as a percentage of total revenue. Gross profit has been and will continue to be affected by various factors, including the mix of our license, subscription, and services and other revenue, the costs associated with third-party cloud-based hosting services for our SaaS offerings, contractor costs to supplement our staff levels and the extent to which we expand our customer support and professional services and training organizations. We expect that our overall gross margin will fluctuate from period to period depending on the interplay of these various factors. Also, we expect our investment in technology to expand the capability of our services, enabling us to improve our gross margin over time. Operating Expenses Research and Development Expenses. Research and development expenses consist primarily of employee-based costs, software and hosting arrangement expenses (which includes cloud-based hosting costs related to the development of our cloud- based solution), professional services expense and amortization expense for acquired intangible assets. We believe that continued investment in our offerings is vital to the growth of our business, and we intend to continue to invest in product 34 development. We expect our research and development expenses to continue to increase on a dollar basis for the foreseeable future, as our business grows. General and Administrative Expenses. General and administrative expenses consist primarily of employee-based costs for corporate personnel. In addition, general and administrative expenses include professional services expense, software and hosting arrangement expenses, sponsor-related costs and all other corporate expenses not allocated to other departments. While we experienced a decrease in our general and administrative expenses in 2020, we expect our general and administrative expenses to increase on a dollar basis for the foreseeable future, as our business grows. Sales and Marketing Expenses. Sales and marketing expenses consist primarily of employee-based costs, costs of general marketing and promotional activities, professional services expense, software and hosting arrangement expenses, amortization expense for acquired intangible assets and travel-related expenses. Sales commissions earned by our sales force and the related payroll taxes, a primary component of “deferred contract acquisition costs”, are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years. We expect our sales and marketing expenses to increase on a dollar basis for the foreseeable future continue to invest in our sales force for expansion to new geographic and vertical markets as sales and marketing expenses continue to be our largest operating expense category. Allocated Overhead. We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), information technology costs and recruiting costs, to all departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category. Other Income (Expense), Net Other income (expense), net consists primarily of interest income, interest expense and foreign currency transaction gains and losses related to the impact of transactions denominated in a foreign currency. Interest income consists of interest earned on our cash equivalents, which we expect to fluctuate due to cash balance and interest rates. Interest expense consists primarily of contractual interest expense, amortization of debt discount and issuance costs, loss on the modification and extinguishment of debt and prepayment penalties on our current and prior credit agreements and Notes. We expect our non-cash components of interest expense to decrease on a dollar basis for the foreseeable future due to the planned early adoption of ASU 2020-06. For more information on the early adoption of ASU 2020-06, refer to Note 1, "Description of Business and Summary of Significant Accounting Policies" in our notes to our consolidated financial statements included in this Annual Report. As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased and we expect this trend to continue. Income Tax (Expense) Benefit Our provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Our income tax rate varies from the federal statutory rate due to foreign withholding taxes; changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate; changes to the financial accounting rules for income taxes; unanticipated changes in tax rates; differences in accounting and tax treatment of our stock-based compensation and research and development credits. We expect this fluctuation in income tax rates, as well as its potential impact on our results of operations, to continue. Seasonality We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth quarter of a calendar year and lowest in the first quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. Our revenue mix demand is shifting from sales of perpetual licenses to sales of term licenses and subscriptions and we expect this demand shift to continue and, over time, that sales to new customers will be exclusively comprised of term licenses and subscriptions. Our transition to a subscription model has impacted, and it will continue to impact, the timing of our recognition of revenue as an increasing percentage of our sales become recognized ratably, as well as impact our operating 35 margins as subscription revenue becomes a larger percentage of our sales. Our shift to a subscription model has fluctuated between periods, and our ability to predict our revenue and margins in any particular period has been, and may continue to be, more limited. Results of Operations The following table sets forth our results of operations for the periods presented: Revenue Licenses Subscription Services and other Total revenue Cost of revenue Licenses Subscription (1) Services and other (1) Impairment of intangible assets Total cost of revenue Gross profit Operating expenses Research and development (1) General and administrative (1) Sales and marketing (1) Total operating expenses Income (loss) from operations Other income (expense), net Interest income Interest expense Other income (expense), net Total other expense, net Income (loss) before income taxes Income tax (expense) benefit Net income (loss) 2020 Year Ended December 31, 2019 (In thousands) 2018 $ 120,874 $ 196,817 47,563 365,254 102,800 $ 143,390 42,325 288,515 4,467 37,644 38,517 5,119 85,747 279,507 71,191 37,783 169,656 278,630 877 2,019 (18,612) 33 (16,560) (15,683) 4,920 (10,763) $ 4,239 26,877 34,359 — 65,475 223,040 56,120 39,816 136,537 232,473 (9,433) 2,468 (5,041) (1,082) (3,655) (13,088) 4,588 (8,500) $ $ 105,000 104,033 39,887 248,920 4,634 20,734 29,302 — 54,670 194,250 43,154 34,781 105,402 183,337 10,913 10 (4,717) (1,446) (6,153) 4,760 (1,090) 3,670 (1) Includes stock-based compensation expense as follows: Cost of revenue - subscription Cost of revenue - services and other Research and development General and administrative Sales and marketing Total stock-based compensation expense 2020 Year Ended December 31, 2019 (In thousands) 2018 1,758 $ 1,963 6,282 6,802 12,252 29,057 $ 1,142 $ 1,379 3,517 5,990 6,686 18,714 $ 945 1,504 3,026 7,798 5,702 18,975 $ $ 36 The following table sets forth the results of operations for each of the periods presented as a percentage of total revenue: Revenue Licenses Subscription Services and other Total revenue Cost of revenue Licenses Subscription Services and other Impairment of intangible assets Total cost of revenue Gross profit Operating expenses Research and development General and administrative Sales and marketing Total operating expenses Income (loss) from operations Other income (expense), net Interest income Interest expense Other income (expense), net Total other expense, net Income (loss) before income taxes Income tax (expense) benefit Net income (loss) 2020 Year Ended December 31, 2019 2018 33 % 54 13 100 35 % 50 15 100 42 % 42 16 100 1 10 11 1 23 77 19 10 47 76 1 1 (6) — (5) (4) 2 9 12 — 23 77 20 14 47 81 (4) 1 (2) — (1) (5) 2 8 12 — 22 78 17 14 42 73 5 — (2) (1) (3) 2 1 (3)% 2 (3)% — 2 % Comparison of the Years Ended December 31, 2020 and 2019 Revenue Revenue Licenses Subscription SaaS Maintenance and support Other subscription services Total subscription Services and other Total revenue 2020 Year Ended December 31, variance $ 2019 variance % (In thousands, except percentages) $ 120,874 $ 102,800 $ 18,074 66,913 126,792 3,112 196,817 47,563 42,432 100,435 523 143,390 42,325 $ 365,254 $ 288,515 $ 24,481 26,357 2,589 53,427 5,238 76,739 18 % 58 % 26 % 495 % 37 % 12 % 27 % License Revenue. License revenue increased by $18.1 million, or 18%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. During the years ended December 31, 2020 and 2019, license revenue from new customers was $76.8 million and $63.6 million, and license revenue from existing customers was $44.1 million and $39.2 37 million for the respective periods. Our customer base increased by 284, or 19%, from 1,469 customers at December 31, 2019 to 1,753 customers at December 31, 2020. Subscription Revenue. Subscription revenue increased by $53.4 million, or 37%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase in SaaS revenue as we continue to see strong momentum in our SaaS business and an increase in ongoing maintenance and support revenue from our increased installed base. During the years ended December 31, 2020 and 2019, SaaS and other subscription services revenue from new customers was $13.7 million and $11.1 million, and SaaS and other subscription services revenue from existing customers was $56.4 million and $31.9 million for the respective periods. During the years ended December 31, 2020 and 2019, maintenance and support revenue from new customers was $8.3 million and $7.4 million, and maintenance and support revenue from existing customers was $118.5 million and $93.0 million for the respective periods. Services and Other Revenue. Services and other revenue increased by $5.2 million, or 12% for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase is primarily a result of an increase in the number of customers using our consulting and training services. Geographic Regions. Our customers in the United States contributed the largest portion of our revenue in each year ended December 31, 2020 and 2019 because we have more market momentum related to our larger and more established sales force, sales pipeline and brand recognition and awareness in the United States as compared to our other regions. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the world. We continue to invest in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide. For the year ended December 31, 2020, revenue in the United States, EMEA and the rest of the world increased year-over-year. The following table sets forth our consolidated total revenue by geography and the respective percentage of total revenue for the periods presented: Year Ended December 31, 2020 2019 United States EMEA (1) Rest of the World (1) Total revenue $ $ % of revenue (In thousands, except percentages) 72 % $ 204,500 17 % 54,315 11 % 29,700 100 % $ 288,515 $ 263,332 62,249 39,673 $ 365,254 % of revenue 71 % 19 % 10 % 100 % (1) No single country outside of the United States represented more than 10% of our revenue. 38 Gross Profit and Gross Margin Gross profit Licenses Subscription Subscription Impairment of intangible assets Total subscription Services and other Total gross profit Gross margin Licenses Subscription Services and other Total gross margin 2020 Year Ended December 31, variance $ 2019 variance % (In thousands, except percentages) $ 116,407 $ 98,561 $ 17,846 18 % 159,173 (5,119) 154,054 9,046 116,513 — 116,513 7,966 $ 279,507 $ 223,040 $ 42,660 (5,119) 37,541 1,080 56,467 37 % (100) % 32 % 14 % 25 % 96 % 78 % 19 % 77 % 96 % 81 % 19 % 77 % Licenses. License gross profit increased by $17.8 million, or 18%, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in gross profit was the result of increased license revenues with only minor increases in third party royalties. Subscription. Subscription gross profit increased by $37.5 million, or 32%, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily the result of increased subscription revenues, as described above, partially offset by approximately $15.9 million increase in cost in revenue compared to the prior period. The increase in cost of revenue during the year ended December 31, 2020 was primarily driven by a $5.1 million impairment of intangible assets, a $5.1 million increase in employee-based costs due to increases in headcount and related allocated overhead to primarily support the growth of our SaaS offerings and ongoing maintenance and support for our expanding installed customer base, a $3.4 million increase in cloud-based hosting costs to further support the scalability of our SaaS offerings and a $2.5 million increase in amortization expense for developed technology acquired. Gross margin decreased by 3% compared to the prior period primarily due to the impairment of intangible assets. Services and Other. Services and other gross profit increased by $1.1 million, or 14%, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in gross profit is primarily attributable to the increased revenues due to customer growth, partially offset by approximately $4.2 million increase in cost in revenue compared to the prior period. The increase in cost of revenue during the year ended December 31, 2020 was primarily driven by a $3.2 million increase in partner costs due to higher partner utilization in our professional services and training organization and $1.8 million in employee-based costs to support an increasing number of customers and related allocated overhead, partially offset by a $0.9 million decrease in travel expense due to COVID-19 related limitations. Operating Expenses Operating expenses Research and development General and administrative Sales and marketing Total operating expenses 2020 Year Ended December 31, variance $ 2019 variance % (In thousands, except percentages) $ 71,191 $ 37,783 169,656 56,120 $ 39,816 136,537 $ 278,630 $ 232,473 $ 15,071 (2,033) 33,119 46,157 27 % (5)% 24 % 20 % 39 Research and Development Expenses. Research and development expenses increased by $15.1 million, or 27%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by a $13.9 million increase in employee-based costs to optimize and expand our product offerings as well as pursue innovation in identity security. Substantially all of the remaining increase in research and development expenses was the result of a $0.9 million increase in software and hosting arrangement expenses and a $0.6 million increase in professional services expense. General and Administrative Expenses. General and administrative expenses decreased by $2.0 million, or 5%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily driven by a $4.8 million decrease in professional services expense relating primarily to legal fees and consulting fees associated with the issuance and sale of the Notes and Capped Call Transactions and acquisition related costs in the prior year, a $0.6 million decrease in travel expense due to COVID-19 related limitations, partially offset by a $2.6 million increase in employee-based costs, a $0.6 million increase in provision of credit losses and a $0.4 million increase in software maintenance and support and SaaS subscription expenses. Sales and Marketing Expenses. Sales and marketing expenses increased by $33.1 million, or 24%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by a $36.9 million increase in employee-based costs to support increased penetration into our existing customer base as well as expansion into new industry verticals and geographic markets. We also experienced a $1.7 million increase in professional services expense relating primarily to staff augmentation and advisory services and a $1.7 million increase in software and hosting arrangement expenses, partially offset by a $6.4 million decrease in travel expense and a $0.6 million decrease in events expense, both due to COVID-19 related limitations. Interest Income and Interest Expense Interest Income Interest income decreased by $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily due to a significant decrease in interest rates earned on our interest earned on our cash balance, offset by the increase in our cash balance. Interest Expense Interest expense increased by $13.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily due to the amortization of debt discount and issuance costs related to the Notes of $17.6 million for the year ended December 31, 2020 compared to $4.6 million for the year ended December 31, 2019. Income Tax (Expense) Benefit The Company recorded an income tax benefit of $4.9 million for the year ended December 31, 2020 compared to an income tax benefit of $4.6 million for the year ended December 31, 2019, leading to a net benefit of $0.3 million year-over- year. This is primarily due to research and development credits and the tax impact of stock compensation. Provision for income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. While we are still in an overall deferred tax liability position for federal and state tax purposes, we have established a partial valuation allowance for federal tax purposes as we expect some of our tax credits to expire prior to utilization. We still maintain a full valuation allowance for our Israel tax position due its lack of taxable earnings for the foreseeable future. We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax if such earnings are distributed to the U.S. Prior to 2018, we have incurred net operating losses for federal income tax purposes each year since our inception. We have since begun to utilize some of our net operating losses for federal income tax purposes. Thus, our tax expense to date relates primarily to state as well as foreign income taxes. The effective tax rate for years ended December 31, 2020, 2019 and 2018 are 31.4%, 35.1% and 22.9%, respectively. The main drivers for the differences in the rates from the prior period to the current period are related to an increase in pre-tax book loss, the impact of stock compensation and a decrease in state tax liabilities. For further information, refer to Note 15, "Income Taxes" in our notes to our consolidated financial statements included in this Annual Report. We do not consider the earnings of our foreign subsidiaries, with the exception of India, to be permanently reinvested in foreign jurisdictions. The global intangible low-taxed income (“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. 40 The Company is currently in a tested loss and does not incur a GILTI tax. In India, we continue to invest and grow our research and development activities and have no plans to repatriate undistributed earnings held in India back to the U.S. parent company, and therefore consider earnings in India to be permanently reinvested. Liquidity, Capital Resources and Cash Requirements As of December 31, 2020, we had $510.3 million of cash and cash equivalents (of which $4.8 million is held in our foreign subsidiaries) and $75.0 million of availability under the Credit Agreement (as defined below). As of December 31, 2020, we had $278.7 million in net working capital, which we define as current assets less current liabilities, excluding deferred revenue. On March 11, 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, the “Credit Agreement”). In September 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes. Such amendment included a decrease in the commitments for revolving credit loans from an initial $150.0 million to $75.0 million, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under specified circumstances and is subject to certain financial covenants. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement. The Credit Agreement is scheduled to mature on March 11, 2024. We had no outstanding revolving credit loan balance as of December 31, 2020. We were in compliance with all applicable covenants as of December 31, 2020. See Note 9 “Line of Credit and Long-Term Debt” in our notes to our consolidated financial statements included in this Annual Report for more information regarding terms and conditions of the Credit Agreement. In September 2019, we issued $400.0 million aggregate principal amount of 0.125% convertible senior notes (the “Notes”) due 2024 in a private offering (the "Offering") to qualified institutional buyers. The net proceeds from the Offering were approximately $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. In conjunction with the issuance of the Notes, and exercise in full of the initial purchasers’ option, the Company used approximately $37.1 million of the net proceeds to pay the cost of the privately negotiated capped call transactions (the “Capped Call Transactions”) to reduce our exposure to additional cash payments above principal balances in the event of a cash conversion of the Notes. The Notes will mature on September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year. As of December 31, 2020, we had in aggregate $2.2 million in contractual interest payments, of which $0.8 million are due within the next 12 months. As of December 31, 2020, the Notes are convertible at the option of the holders. We have the ability to settle the Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election. The impact of the Notes on our liquidity will depend on whether we elect to settle any conversion in shares of our common stock or a combination of cash and shares. It is our current intent to settle conversions of the Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of our common stock. During the year ended December 31, 2020, we have received requests for conversion that we expect to settle in cash the aggregate amount of $10.2 million in principal of the 2024 Notes during the fiscal quarter ending March 31, 2021. As of the date of this filing, no other holders of the Notes have submitted requests for conversion. See Note 10 “Convertible Senior Notes and Capped Call Transactions” in our notes to our consolidated financial statements included in this Annual Report for more information regarding terms and conditions of the Notes and Capped Call Transactions. As of December 31, 2020, we had in aggregate $13.3 million in contractual commitments associated with agreements that are enforceable and legally binding, including hosting service agreements, of which $9.8 million are due within the next 12 months. Such amounts do not include obligations under contracts that we can cancel without significant penalty and purchase orders as the purchase orders represent authorizations to purchase rather than binding agreements. As of December 31, 2020, we had $2.5 million of tax liabilities related to its uncertain tax positions. We cannot reasonably estimate the period which this obligation may be incurred, if at all. The Company has operating lease obligations for our offices, primarily our corporate headquarters in Austin, Texas, that consists of future non-cancelable minimum rental payments. As of December 31, 2020, we had an outstanding letter of credit in the amount of $6.0 million, which is classified as restricted cash, primarily related to our corporate headquarters. For 41 more information on our operating leases, refer to Note 7 “Leases” of our accompanying notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We believe that existing cash and cash equivalents, any positive cash flows from operations and available borrowings under our Credit Agreement will be sufficient to support working capital, capital expenditure and other cash requirements for at least the next 12 months and, based on our current expectations, for the foreseeable future thereafter. Our future capital requirements, both near-term and long-term, will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the introduction of new solutions and product enhancements, the continuing market acceptance of our offerings and services, the costs of any future acquisitions in complementary businesses and technologies and the impact of the COVID-19 pandemic to our and our customers', vendors' and partners' businesses. To the extent existing cash and cash equivalents are not sufficient to fund future activities, we may borrow under our Credit Agreement or seek to raise additional funds through equity, equity- linked or debt financings. Any additional equity financing may be dilutive to our existing stockholders. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected. Since inception, we have financed operations primarily through license fees, SaaS subscription fees, maintenance and support fees, consulting and training fees, borrowings under our prior credit agreement and, to a lesser degree, the sale of equity securities. Our principal uses of cash are funding operations and capital expenditures. Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased. However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in key initiatives to drive the Company’s long-term growth. Summary of Cash Flows The following table summarizes our cash flows for the periods presented: Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash 2020 Year Ended December 31, 2019 (In thousands) 2018 $ $ 57,949 $ (3,973) 12,548 66,524 $ 50,091 $ (38,906) 361,699 372,884 $ 37,540 (10,856) (65,575) (38,891) 42 Cash Flows from Operating Activities During 2020, cash provided by operating activities was $57.9 million, which consisted of a net loss of $10.8 million, adjusted by non-cash charges of $76.7 million and a net decrease of $8.0 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization expense of $18.3 million, amortization of debt discount and issuance costs of $17.8 million, amortization of contract acquisition costs of $13.7 million, loss on disposal of fixed assets of $0.2 million, provision for credit losses of $0.6 million, impairment of intangible assets of $5.1 million and stock-based compensation of $29.1 million, partially offset by a net decrease in operating leases of $0.4 million and a reduction in deferred tax liabilities of $7.6 million. The decrease in our net operating assets and liabilities was primarily a result of an increase in deferred contract acquisition costs $32.6 million, an increase in prepayments and other assets of $18.1 million, an increase in accounts receivable of $6.8 million due to the timing of receipts of payments from customers and a decrease in income taxes payable of $1.0 million, partially offset by an increase in deferred revenue of $32.7 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, an increase in accrued expenses of $16.3 million due primarily to accrual of additional commissions and bonuses and an increase in accounts payable of $1.5 million due to timing of cash disbursements. During 2019, cash provided by operating activities was $50.1 million, which consisted of a net loss of $8.5 million, adjusted by non-cash charges of $41.9 million and a net increase of $16.7 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization expense of $15.0 million, amortization of debt discount and issuance costs of $4.7 million, amortization of contract acquisition costs of $10.1 million, bad debt expense of $0.2 million, stock-based compensation of $18.7 million, and a net increase in operating leases of $0.5 million, partially offset by a reduction in deferred tax liabilities of $7.3 million. The increase in our net operating assets and liabilities was primarily a result of an increase in deferred revenue of $37.3 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services and an increase in accrued expenses of $11.8 million due primarily to accrual of additional commissions and bonuses, partially offset by a decrease in accounts payable of $1.6 million due to timing of cash disbursements, a decrease in income taxes payable of $0.1 million, an increase in deferred contract acquisition costs of $17.3 million, an increase in prepayments and other assets of $8.2 million and an increase in accounts receivable of $5.1 million due to the timing of receipts of payments from customers. Cash Flows used in Investing Activities During 2020, cash used in investing activities was $4.0 million, consisting primarily of $3.9 million in purchases of property and equipment. During 2019, cash used in investing activities was $38.9 million, consisting of $6.2 million in purchases of property and equipment, $0.4 million in acquisitions of intangibles and $32.4 million in cash paid for business acquisitions, net, partially offset by proceeds from sales of property and equipment. Cash Flows from Financing Activities During 2020, cash provided by financing activities was $12.5 million, consisting of $7.4 million of proceeds from issuance of equity related to share issues pursuant to our Employee Stock Purchase Plan and $6.0 million of the proceeds from exercise of stock options, partially offset by $0.8 million in vesting of restricted stock units, primarily related to tax payments funded in the form of net issuances for certain executive officers. During 2019, cash provided by financing activities was $361.7 million, consisting of $400.0 million of proceeds from issuance of the Notes, $5.6 million of proceeds from issuance of equity related to share issues pursuant to our Employee Stock Purchase Plan and $3.1 million of the proceeds from exercise of stock options, partially offset by payments of debt issuance costs of $9.6 million associated with the Credit Agreement and issuance of the Notes, $37.1 million of purchases of capped calls associated with the issuance of the Notes and $0.4 million in vesting of restricted stock units, primarily related to tax payments funded in the form of net issuances for certain executive officers. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these 43 judgments and estimates under different assumptions or conditions and any such differences may be material. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies associated with fair value allocation of multiple performance obligation in revenue recognition, the expected period of benefit of deferred contract acquisition costs, income taxes, and the valuation, impairment and estimated useful lives of long-lived assets and goodwill arising from business combinations are the most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included in this Annual Report. Revenue Recognition Revenue consists of fees for perpetual and term licenses for our software products, SaaS subscriptions, post-contract customer support (referred to as maintenance and support), other subscription services, professional services which includes training and other revenue. We derive license revenue through the sale of our on-premises software license agreements. We typically recognize license revenue upon delivering the applicable license. We derive subscription revenue through the sale of our SaaS subscription, maintenance and support and other subscription services offerings. We typically recognize subscription revenue ratably over the contract term. We derive services and other revenue primarily through the sale of professional services. We typically recognize services and other revenue over time as the services are performed. We apply judgment regarding contracts with multiple product and service obligations to determine whether each product or service is capable of being a distinct performance obligation in the contract. If products and services are not distinct, they are combined until a single distinct obligation is created. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. We have contracts with customers that may have multiple performance obligations, including some or all of the following: software licenses, SaaS subscriptions, maintenance and support, other subscription services and professional services. Judgment is required to determine the standalone selling price (“SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. We use a range to determine SSP based on the selling price of the products and services when sold separately. The SSP range is used to allocate each performance obligation in a contract to the transaction price and to apply a discount that will be allocated based on the relative SSP of the various products and services. When we do not have a directly observable SSP for a particular product or service, we estimate SSP by our overall pricing objectives, taking into consideration market factors, pricing practices including historical discounting, historical standalone sales of similar products, customer demographics, geographic locations, and the number and types of users within our contracts. The determination of SSP using the adjusted market assessment approach is made by the Company’s management. The Company generally has standalone value for our professional services and recognize revenue as services are performed based on an estimated fair value as a separate performance obligation. We allocate the transaction price to each performance obligation identified in the contract on a relative SSP and recognizes revenue when or as it satisfies a performance obligation by transferring control of a product or service to a customer. Deferred Contract Acquisition Costs Sales commissions paid to our sales force and the related employer payroll taxes, collectively “deferred contract acquisition costs,” are considered incremental and recoverable costs of obtaining a contract with a customer. The Company capitalizes and amortizes deferred contract acquisition costs over the remaining contractual term or over an expected period of benefit. Commissions allocated to the remaining elements are capitalized and amortized over an expected period of benefit. The Company has determined the expected period of benefit to be five years. The expected period of benefit was determined by taking into consideration our customer contracts, customer turnover rates, the life of our technology and other factors. In addition, the Company pays sales commissions for renewals of term licenses and subscription offerings at a lower rate, which is therefore not commensurate with commissions paid on an initial sale and are amortized over each renewal’s contractual term. The Company periodically reviews the amortization periods of its deferred contract acquisition costs and will update such 44 amortization period when there is a significant change in its expected timing of transfer to the customer of the products or services. Income Taxes We are subject to federal, state and local taxes in the United States as well as in other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current federal and state income tax in the United States. We account for uncertain tax positions based on those positions taken or expected to be taken in a tax return. We determine if the amount of available support indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. We then measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our consolidated statements of operations in the period in which such determination is made. Goodwill, Intangibles, and Other Long-Lived Assets We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. We use estimates, assumptions, and judgments when assessing the recoverability of goodwill and acquired intangible assets. We test for impairment on an annual basis, or more frequently if a significant event or circumstance indicates impairment. We also evaluate the estimated remaining useful lives of acquired intangible assets for changes in circumstances that warrant a revision to the remaining periods of amortization. For purposes of assessing potential impairment of goodwill, we estimate the fair value of the reporting unit, based on our market capitalization, and compare this amount to the carrying value of the reporting unit. If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. We have determined that we operate as one reporting unit and may first assess qualitative factors to determine whether the existence of events or circumstances indicate that an impairment test on goodwill is required. Goodwill is tested on an annual basis as of October 31st, or sooner if an indicator of impairment occurs. The Company internally monitors business and market conditions for evidence of triggering events for goodwill and acquired intangible assets. Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, an accumulation of costs and resources in excess of the original expectation, or a significant change in the operations of the acquired assets or use of an asset or asset group. During the year ended December 31, 2020, the Company recorded an impairment charge of $5.1 million related to certain developed technology assets due to our strategic decision to discontinue further investment and enhancements in the standalone existing technology. Recent Accounting Pronouncements For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included in this Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily 45 a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes. Interest Rate Risk We had cash and cash equivalents and restricted cash of $516.6 million as of December 31, 2020, which are held in cash deposits and money market funds. Due to the short-term nature of these instruments, we believe that we do not have material risk of exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates. As of December 31, 2020, we do not believe a hypothetical 10% relative change in interest rates would have a material impact on the value of our cash equivalents. We did not have any investments in marketable securities as of December 31, 2020. In September 2019, we issued and sold $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 in a private offering to qualified institutional buyers. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price decreases. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount and debt issuance costs on our balance sheets, and we present the fair value for required disclosure purposes only. Foreign Currency Exchange Risk Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risk related to operating expenses denominated in currencies other than the U.S. dollar, primarily the British pound, Euro, Israeli shekel, Indian rupee, Australian dollar, Singapore dollar and Canadian dollar. As of December 31, 2020, our cash and cash equivalents included $4.8 million held in currencies other than the U.S. dollar. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect our operating results as expressed in U.S. dollars. These amounts are included in other income (expense), net on our consolidated statements of operations. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates because, although substantially all of our revenue is generated in U.S. dollars, our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, Europe and Asia. Our results of operations and cash flows could therefore be adversely affected in the future due to changes in foreign exchange rates. We do not believe that a hypothetical 10% relative change in the value of the U.S. dollar to other currencies would have a material effect on our results of operations or cash flows, and to date, we have not engaged in any hedging strategies with respect to foreign currency transactions. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates, and we may choose to engage in the hedging of foreign currency transactions in the future. 46 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 Notes to Consolidated Financial Statements 48 51 52 53 54 55 47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders SailPoint Technologies Holdings, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of SailPoint Technologies Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 25, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Identification of Performance Obligations and Allocation of the Transaction Price to Multiple Performance Obligations As described in Notes 1 and 2 to the consolidated financial statements, the Company’s revenues consist of fees for perpetual and term licenses for software products, post-contract customer support (referred to as maintenance and support), software as a service (“SaaS”) subscriptions, other subscription services and professional services including training and other revenue. The Company has contracts with customers that may have multiple performance obligations including some or all of the following: software licenses, maintenance and support, SaaS, other subscription services and professional services. When multiple promised products and services are included within one contract, management applies judgment to determine whether promised products and services are capable of being distinct and distinct in the context of the contract. Additionally, the Company establishes the standalone selling price for each of its performance obligations to allocate transaction price in contracts including multiple performance obligations. If a standalone selling price is not directly observable, the Company estimates the standalone selling price, maximizing the use of observable inputs in making the estimate. Management applies judgment and considers many factors including past transactions, market conditions and internally approved pricing guidelines related to the 48 performance obligations. We identified revenue recognition specifically related to management’s identification of distinct performance obligations and its allocation of transaction price based on the established standalone selling price as a critical audit matter. The principal consideration for our determination that these aspects of revenue recognition represent a critical audit matter are that, given the volume of contracts and that they may contain multiple products or services combined with the complexity and estimation involved in management’s identification of distinct performance obligations and determination of appropriate allocation of transaction price based on the established standalone selling prices for all distinct performance obligations, auditing the related revenue required both extensive audit effort and a high degree of auditor judgement when performing audit procedures and evaluating results of those procedures. Our audit procedures related to the identification of performance obligations and allocation of total transaction price included the following, among others: • • • We tested the design and operating effectiveness of controls over revenue recognition, including the Company’s controls over the identification of performance obligations and determination of standalone selling price. We obtained an understanding and evaluated the appropriateness of management’s process and methodology for revenue recognition including identifying distinct performance obligations. This included evaluating management’s determination of whether or not to combine multiple products or services into a single distinct performance obligation. For each distinct performance obligation, we obtained management’s analysis to establish standalone selling price and performed the following procedures: ◦ ◦ Evaluated the reasonableness of available data and factors used in management’s determination, including considering other sources of information that would be relevant to the analysis Tested the completeness and accuracy of the source data used in management’s calculations. • We selected a sample of contracts and performed the following procedures: ◦ ◦ Reperformed and evaluated management’s identification of the performance obligations within the contract with the customer, including whether management identified options to acquire additional goods or services that gave rise to a performance obligation. Recalculated the appropriate allocation of transaction price based on the established standalone selling price for each distinct performance obligation. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2010. Denver, Colorado February 25, 2021 49 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders SailPoint Technologies Holdings, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of SailPoint Technologies Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Denver, Colorado February 25, 2021 50 SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2020 December 31, 2019 (In thousands, except per share data) Assets Current assets Cash and cash equivalents Restricted cash Accounts receivable, net of allowance Deferred contract acquisition costs, current Prepayments and other current assets Total current assets Property and equipment, net Right-of-use assets, net Deferred contract acquisition costs, non-current Other non-current assets, net of allowance Goodwill Intangible assets, net Total assets Liabilities and stockholders’ equity Current liabilities Accounts payable Accrued expenses and other liabilities Income taxes payable Convertible senior notes, net Deferred revenue Total current liabilities Deferred tax liability - non-current Convertible senior notes, net - non-current Long-term operating lease liabilities Other long-term liabilities Deferred revenue - non-current Total liabilities Commitments and contingencies (Note 8) Stockholders’ equity Common stock, $0.0001 par value, authorized 300,000 shares, issued and outstanding 91,386 shares as of December 31, 2020 and 89,676 shares as of December 31, 2019 Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of December 31, 2020 and December 31, 2019 Additional paid in capital Accumulated deficit Total stockholders' equity Total liabilities and stockholders’ equity $ $ $ $ 510,289 $ 6,355 112,255 15,592 26,027 670,518 19,443 27,048 38,510 15,016 241,103 63,962 1,075,600 $ 4,753 $ 59,460 978 326,672 165,995 557,858 1,329 — 33,080 — 18,723 610,990 9 — 484,012 (19,411) 464,610 1,075,600 $ 443,795 6,325 106,428 10,905 16,965 584,418 21,300 31,104 24,247 6,307 241,051 81,651 990,078 3,224 40,214 1,994 — 127,132 172,564 8,900 309,051 38,035 2,500 24,901 555,951 9 — 442,407 (8,289) 434,127 990,078 See accompanying notes to consolidated financial statements. 51 SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 2020 Year Ended December 31, 2019 (In thousands, except per share data) 2018 $ 120,874 $ 196,817 47,563 365,254 102,800 $ 143,390 42,325 288,515 Revenue Licenses Subscription Services and other Total revenue Cost of revenue Licenses Subscription Services and other Impairment of intangible assets Total cost of revenue Gross profit Operating expenses Research and development General and administrative Sales and marketing Total operating expenses Income (loss) from operations Other income (expense), net Interest income Interest expense Other income (expense), net Total other expense, net Income (loss) before income taxes Income tax (expense) benefit Net income (loss) Net income (loss) available to common stockholders Net income (loss) per share Basic Diluted Weighted average shares outstanding Basic Diluted $ $ $ $ 105,000 104,033 39,887 248,920 4,634 20,734 29,302 — 54,670 194,250 43,154 34,781 105,402 183,337 10,913 10 (4,717) (1,446) (6,153) 4,760 (1,090) 3,670 3,641 0.04 0.04 86,495 90,003 4,467 37,644 38,517 5,119 85,747 279,507 71,191 37,783 169,656 278,630 877 2,019 (18,612) 33 (16,560) (15,683) 4,920 (10,763) $ (10,763) $ (0.12) (0.12) $ 90,512 90,512 4,239 26,877 34,359 — 65,475 223,040 56,120 39,816 136,537 232,473 (9,433) 2,468 (5,041) (1,082) (3,655) (13,088) 4,588 (8,500) $ (8,500) $ (0.10) $ (0.10) $ 88,907 88,907 See accompanying notes to consolidated financial statements. 52 S E I R A I D I S B U S D N A . C N I , S G N I D L O H S E I G O L O N H C E T T N I O P L I A S Y T I U Q E ’ S R E D L O H K C O T S F O S T N E M E T A T S D E T A D I L O S N O C ' s r e d l o h k c o t S y t i u q e d e n i a t e R s g n i n r a e d e t a l u m u c c a ( ) t i c i f e d l a n o i t i d d A n i d i a p l a t i p a c ) s d n a s u o h t n I ( 1 6 7 , 1 2 7 9 3 , 8 2 3 ) 8 4 3 ( 9 0 8 , 1 5 7 9 , 8 1 8 7 1 5 3 , 3 0 7 6 , 3 — — — — — 0 7 6 , 3 1 6 7 , 1 2 — ) 8 4 3 ( 9 0 8 , 1 7 7 — 1 5 3 , 3 5 7 9 , 8 1 $ ) 0 2 2 , 5 2 ( $ 9 0 6 , 3 5 3 $ 3 9 6 , 7 7 3 $ 1 1 2 $ 3 7 4 , 7 7 3 $ ) 1 5 3 ( 3 5 0 , 3 4 1 7 , 8 1 7 3 9 4 6 , 5 4 6 7 , 6 8 ) 0 8 0 , 7 3 ( ) 2 5 8 , 1 1 ( ) 0 0 5 , 8 ( 7 2 1 , 4 3 4 ) 9 5 3 ( 7 6 9 , 5 ) 7 9 7 ( 8 7 3 , 7 7 5 0 , 9 2 ) 3 6 7 , 0 1 ( 0 1 6 , 4 6 4 — — — — — — — — $ ) 0 0 5 , 8 ( ) 9 8 2 , 8 ( — — — — ) 9 5 3 ( ) 3 6 7 , 0 1 ( ) 1 5 3 ( 3 5 0 , 3 4 1 7 , 8 1 7 3 9 4 6 , 5 4 6 7 , 6 8 ) 0 8 0 , 7 3 ( — ) 2 5 8 , 1 1 ( — ) 7 9 7 ( 7 6 9 , 5 — 8 7 3 , 7 7 5 0 , 9 2 $ 7 0 4 , 2 4 4 $ $ ) 1 1 4 , 9 1 ( $ 2 1 0 , 4 8 4 $ 8 — — — — 1 — — 9 — — — — — — — — — 9 — — — — — — 9 k c o t S n o m m o C r a P e u l a v r e b m u N s e r a h s f o $ 8 4 9 , 4 8 7 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B — 7 3 6 6 5 2 — — 8 6 1 3 0 5 , 1 $ 2 1 5 , 7 8 0 3 7 2 2 3 — 4 2 7 8 8 3 — — — — d n a s e t o n r o i n e s e l b i t r e v n o c f o e c n a u s s i o t d e t a l e r y t i l i b a i l x a t d e r r e f e D s t s o c e c n a u s s i f o t e n , s e t o n r o i n e s e l b i t r e v n o c f o t n e n o p m o c y t i u q E n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C s l l a c d e p p a c f o e s a h c r u P t n e m e l t t e s x a t f o t e n , d e t s e v s t i n u k c o t s d e t c i r t s e R e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S d e t s e v s t i n u e v i t n e c n I s l l a c d e p p a c s s o l t e N 6 0 6 C S A f o n o i t p o d a e h t m o r f t n e m t s u j d a t c e f f e e v i t a l u m u C t n e m e l t t e s x a t f o t e n , d e t s e v s t i n u k c o t s d e t c i r t s e R s n o i t p o k c o t s f o e s i c r e x E n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S d e t s e v s t i n u e v i t n e c n I 8 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B s n o i t p o k c o t s f o e s i c r e x E e m o c n i t e N $ 6 7 6 , 9 8 9 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B — 3 6 7 6 6 5 — 1 8 3 — $ 6 8 3 , 1 9 x a t f o t e n , 6 2 3 C S A f o n o i t p o d a e h t m o r f t n e m t s u j d a t c e f f e e v i t a l u m u C n a l p e s a h c r u p k c o t s e e y o l p m e r e d n u d e u s s i k c o t s n o m m o C t n e m e l t t e s x a t f o t e n , d e t s e v s t i n u k c o t s d e t c i r t s e R e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S s n o i t p o k c o t s f o e s i c r e x E 0 2 0 2 , 1 3 r e b m e c e D t a e c n a l a B s s o l t e N . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n g n i y n a p m o c c a e e S 3 5 SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 2020 Year Ended December 31, 2019 (In thousands) 2018 $ (10,763) $ (8,500) $ Operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense Amortization of debt discount and issuance costs Amortization of contract acquisition costs Loss on modification and extinguishment of debt (Gain) loss on disposal of fixed assets Provision for credit losses Impairment of intangible assets Stock-based compensation expense Operating leases, net Deferred taxes Net changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions Accounts receivable Deferred contract acquisition costs Prepayments and other current assets Other non-current assets Accounts payable Accrued expenses and other liabilities Income taxes Deferred revenue Net cash provided by operating activities Investing activities Purchase of property and equipment Proceeds from sale of property and equipment Purchase of intangibles Business acquisitions, net of cash acquired Net cash used in investing activities Financing activities Payment of debt issuance costs Proceeds from issuance of convertible senior notes Purchases of capped calls Repayment of debt Prepayment penalty and fees Taxes associated with net issuances of shares upon vesting of restricted stock units Proceeds from employee stock purchase plan contributions Exercise of stock options Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for income taxes, net of refunds Tenant improvement allowance Conversion of prepaid incentive units to common stock $ $ $ $ $ 18,290 17,787 13,684 — 158 586 5,119 29,057 (415) (7,553) (6,772) (32,634) (9,180) (8,875) 1,529 16,262 (1,016) 32,685 57,949 (3,945) 29 (57) — (3,973) — — — — — (797) 7,378 5,967 12,548 66,524 450,120 516,644 $ 641 $ 2,587 $ — $ — $ 14,992 4,691 10,130 — (4) 178 — 18,714 477 (7,268) (5,072) (17,330) (3,392) (4,798) (1,630) 11,786 (149) 37,266 50,091 (6,173) 39 (379) (32,393) (38,906) (9,572) 400,000 (37,080) — — (351) 5,649 3,053 361,699 372,884 77,236 450,120 $ 180 $ 2,658 $ — $ 37 $ 3,670 10,736 238 7,753 1,848 (20) 2,332 — 18,975 — (1,280) (31,249) (29,836) (3,558) 16,053 2,406 (882) 455 39,899 37,540 (8,389) 33 (2,500) — (10,856) — — — (70,000) (387) (348) 3,351 1,809 (65,575) (38,891) 116,127 77,236 2,780 1,631 9,787 78 See accompanying notes to consolidated financial statements. 54 SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Summary of Significant Accounting Policies SailPoint Technologies Holdings, Inc., (“we”, “our” or “the Company”) was incorporated in the state of Delaware on August 8, 2014, in preparation for the purchase of SailPoint Technologies, Inc. The purchase occurred on September 8, 2014 and our certificate of incorporation was amended and restated as of such date. SailPoint Technologies, Inc. was formed July 14, 2004 as a Delaware corporation. The Company designs, develops, and markets identity security software that helps organizations govern user access to critical systems and data. The Company currently markets its products and services worldwide. Basis of Presentation The accompanying consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of SailPoint Technologies Holdings, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management periodically evaluates such estimates and assumptions for continued reasonableness. In particular, we make estimates with respect to the fair value allocation of multiple performance obligation in revenue recognition, the expected period of benefit of deferred contract acquisition costs, the collectability of accounts receivable, stock-based compensation expense, fair value of the liability and equity components of the Notes (as defined below), income taxes, and the valuation, estimated useful lives and impairment of intangible assets and goodwill arising from business combinations. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates. Due to the COVID-19 pandemic, there is ongoing uncertainty and significant disruption in the global economy and financial markets. We are not aware of any specific event or circumstances that would require an update to our estimates, judgments or assumptions or a revision to the carrying value of our assets or liabilities as of the date of issuance of these financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained. Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. The Company is required to maintain a small amount of restricted cash to guarantee rent payments in a foreign subsidiary as well as cash collateral for an unconditional standby letter of credit related to the Company’s corporate headquarters lease. Fair Value of Financial Instruments Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows: • • • Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. 55 Concentration of Credit and Other Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. There was no concentration of credit risk for customers as of December 31, 2020 and 2019 as no individual entity represented more than 10% of the balance in accounts receivable. Management considers concentration of credit risk to be minimal with respect to accounts receivable due to the positive historical collection experience of the Company despite the geographic concentrations related to the Company’s customers. No customer represented more than 10% of revenue during the years ended December 31, 2020, 2019 and 2018. The Company does not experience concentration of credit risk in foreign countries as no foreign country represents more than 10% of the Company’s consolidated revenues or net assets. The Company’s revenue by geographic region based on the customer’s location is presented in Note 17 “Geographic Information and Major Customers.” Accounts Receivable and Allowance for Expected Credit Losses The Company continuously assesses the collectability of outstanding customer invoices and in doing so, the Company assesses the need to maintain an allowance for expected credit losses resulting from the non-collection of customer receivables. The allowance for expected credit losses is a valuation account that is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected on contracts with customers. Accounts receivable and contract assets are written off when management believes non-collectability is confirmed. Recoveries of financial assets previously written off shall be recorded directly to earnings when received. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts over a financial asset’s contractual term. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made from qualitative and quantitative factors if economic conditions at the reporting date reflect stronger or weaker economic performance than the historical data implies based on management’s expectations of economic conditions on certain indicators of the Company, industry and economy. We review factors such as past collection experience, age of the accounts receivable balance, significant trends in current balances, internal operations and macroeconomic conditions. The Company evaluates these economic conditions and makes adjustments to historical loss information for certain economic risk factors. In development of the expected credit loss model, we evaluated our financial assets with similar risk characteristics on a collective (pool) basis for their respective estimated and expected credit loss allowance. A financial asset will be measured individually only if it does not share similar risk characteristics with other financial assets. We believe that historical credit loss patterns by aging bucket and invoice type for accounts receivable are the most significant risk characteristics. Additionally, we analyze renewals and new business separately due to varying historical loss patterns. The Company notes expected credit loss is developed for the contractual life of the financial asset, which accounts receivable and contract assets can be viewed as one financial asset. However, a low percentage of our contract assets do not convert to accounts receivable. Therefore, we consider all contract assets as a single pool. For periods prior to the adoption of ASC 326 (defined below), the Company determined that an allowance for doubtful accounts was not required for the periods presented. Property and Equipment, Net Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, generally three years to five years. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the related lease term. Repairs and maintenance costs are expensed as incurred. Property and equipment are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if an impairment exists. If the asset is determined to be impaired, the impairment loss is measured based on the excess of the carrying value over the assets fair value. Assets to be disposed of are reported at the lower of carrying value or net realizable value. 56 Goodwill Goodwill represents the excess of acquisition cost over the fair value of net tangible and identified net assets acquired. Goodwill is not amortized, but rather tested for impairment annually, or more often if and when events or circumstances indicate that the carrying value may not be recoverable. For purposes of assessing potential impairment, we estimate the fair value of the reporting unit, based on our market capitalization, and compare this amount to the carrying value of the reporting unit. If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. We have determined that we operate as one reporting unit and may first assess qualitative factors to determine whether the existence of events or circumstances indicate impairment test on goodwill is required. Goodwill is tested on an annual basis as of October 31st, or sooner if an indicator of impairment occurs. The Company internally monitors business and market conditions for evidence of triggering events. Intangible Assets Intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company periodically reviews the estimated remaining useful life of our intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Periodically, the Company evaluates the recoverability of its long-lived assets, including intangible assets, for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset, or related asset group, to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Software Development Costs Software development costs for products intended to be sold, leased or otherwise marketed are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. Technological feasibility is established when a product design and working model have been completed and the completeness of the working model and its consistency with the product design have been confirmed by testing. To date, the establishment of technological feasibility of the Company’s products and general release of such software have substantially coincided. As a result, we have not capitalized any software development costs through December 31, 2020 and all such costs have been recorded as research and development expenses as incurred in the consolidated statements of operations. Capitalized Software and Cloud-computing Arrangements The Company evaluates whether the cloud-computing arrangement ("CCA") includes a license to internal-use software. If the CCA includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the CCA does not include a software license, the Company accounts for the arrangement as a service contract (or hosting arrangement) and hosting costs are generally expensed as incurred. The Company evaluates upfront costs including implementation, set-up or other costs (collectively, implementation costs) for hosting arrangements under the internal-use software framework. Costs related to preliminary project activities and post implementation activities are expensed as incurred, whereas costs incurred in the development stage are generally capitalized. Capitalized implementation costs are recorded in prepayments and other current assets or other non-current assets 57 and amortized over the expected term of the arrangement, which includes consideration of the non-cancellable contractual term and reasonably certain renewal options. During the year ended December 31, 2020, the Company’s capitalized implementation costs related to hosting arrangements were not material. Comprehensive Income (Loss) The Company has not entered into transactions that require presentation as other comprehensive income (loss). Total comprehensive income (loss) is equal to net income (loss) for all periods presented. Revenue Recognition Revenue consists of fees for perpetual and term licenses for the Company’s software products, post-contract customer support (referred to as maintenance and support), software as a service (“SaaS”) subscriptions, other subscription services and professional services including training and other revenue. The following describes the nature of the Company’s primary types of revenues and the revenue recognition policies as they pertain to the types of transactions the Company enters into with its customers. License Revenue License revenue includes perpetual and term license fees which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the use of software. Both revenues from perpetual and term license performance obligations are generally recognized upfront at the point in time when the software license has been delivered. All perpetual license transactions generally include an amount for first-year maintenance and support at no additional charge, which we recognize as subscription revenue over the term. Subscription Revenue Our subscription revenue consists of (i) fees for access to, and related support for, our SaaS offerings, (ii) fees for ongoing maintenance and support of our licensed solutions and (iii) other subscription services, which includes our cloud managed services. We typically invoice subscription fees in advance in annual installments and recognize subscription revenue ratably over the term of the applicable agreement. Maintenance and support contracts generally have a term of one year and SaaS contracts usually have a term of one to three years, which is initially deferred and recognized ratably over the life of the contract. Maintenance and support agreements consist of fees for providing software updates on a when and if available basis and for providing technical support for software products for a specified term. We believe that our when and if available software updates and technical support each have the same pattern of transfer to the customer and are substantially the same. Therefore, we consider these to be a single distinct performance obligation. Revenue allocated to maintenance and support agreements are recognized ratably over the contract term beginning on the delivery date of each offering. Expenses related to our subscriptions are recognized as incurred. Unearned subscription revenue is included in deferred revenue. The Company’s subscription arrangements are generally non-cancelable and do not contain refund-type provisions. In instances that subscription arrangements are deemed cancellable, which is rare, the Company will adjust the transaction price and period for revenue recognition accordingly to be reflective of the contract term in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Services and Other Revenue Services and other revenue consist primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. The Company’s professional services contracts are either on a time-and-materials or consumption-based on a fixed fee or prepaid basis. For services that are contracted for at a fixed price, progress is generally measured based on hours incurred as a percentage of the total estimated hours required for complete satisfaction of the related performance obligations. For services that are contracted on a time-and-materials or prepaid basis, progress is generally based on actual hours expended. These input methods (e.g. hours incurred or expended) are considered a faithful depiction of our efforts to satisfy services contracts as they represent the performance obligation consumed by the customer and performed by the entity and therefore reflect the transfer of services to a customer under such contracts. 58 Services revenues are generally recognized over time as the services are performed. Revenues for fixed price services and prepaids are generally recognized over time applying input methods to estimate progress to completion. Revenues for consumption-based services are generally recognized as the services are performed. Training revenues are recognized as the services are performed over time. Deferred Contract Acquisition Costs Sales commissions paid to our sales force and the related employer payroll taxes, collectively “deferred contract acquisition costs”, are considered incremental and recoverable costs of obtaining a contract with a customer. The Company capitalizes and amortizes incremental costs of obtaining a contract, such as certain sales commission costs and related payroll taxes, over the remaining contractual term or over an expected period of benefit. The Company typically pays sales commissions for both initial and follow-on sales of perpetual licenses, inclusive of initial maintenance and support, term licenses and SaaS subscriptions. Initial commissions are allocated to each performance obligation within the contract. The portion allocated to the perpetual license element is expensed at the time the license is delivered. Commissions allocated to the remaining elements are capitalized and amortized over an expected period of benefit. The Company has determined the expected period of benefit to be five years. In addition, the Company pays sales commissions for renewals of term licenses and subscription offerings at a lower rate, which is therefore not commensurate with commissions paid on an initial sale. These renewal commissions are amortized over each renewal’s contractual term. The Company does not pay sales commissions on renewals of maintenance and support agreements related to perpetual licenses. The portion of deferred contract acquisition costs that we anticipate will be recognized within twelve months is recorded as current deferred contract acquisition costs and the remaining portion is recorded as non-current deferred contract acquisition costs in the consolidated balance sheets. We determined the period of benefit by taking into consideration our customer contracts, customer turnover rates, the life of our technology and other factors. The Company applied the practical expedient to expense costs as incurred if the expected amortization period is one year or less. Amortization of deferred contract acquisition costs is included in sales and marketing expenses in the accompanying consolidated statements of operations. Contract Balances Deferred revenue We typically invoice our customers for subscription fees in advance on either an annual, two- or three-year basis, with payment due at the start of the subscription term. For subscription fees, which includes SaaS, maintenance and support and other subscription services, the timing of payments is typically upfront. Therefore, a contract liability or deferred revenue is created because payment is made in advance of performance and these performance obligations are satisfied over time. Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. Invoice amounts for non-cancelable services starting in future periods are included in contract assets and deferred revenue. The portion of deferred revenue that we anticipate will be recognized within twelve months is recorded as current deferred revenue and the remaining portion is recorded as non-current deferred revenue in the consolidated balance sheets. Contract assets Contract assets relate to the Company’s rights to consideration for performance obligations satisfied but not billed at the reporting date on contracts. Contract assets are transferred to accounts receivable when the rights become unconditional. Contract assets are included in prepayments and other current assets and other non-current assets in the consolidated balance sheets, net of an allowance for expected credit losses. Cost of Revenue Cost of License Revenue. Cost of license revenue consists of amortization expense for developed technology acquired and third-party royalties. Cost of Subscription Revenue. Cost of subscription revenue consists primarily of employee-based costs (which consists of salaries, benefits, bonuses and stock-based compensation and allocated overhead), costs of our customer support organization, contractor costs to supplement our staff levels, amortization expense and impairments charges for developed technology acquired and third-party cloud-based hosting costs. 59 Cost of Services and Other Revenue. Cost of services and other revenue consists primarily of employee-based costs of our professional services and training organizations, travel-related costs and contractor costs to supplement our staff levels. Impairment of Intangible Assets. Impairment of intangible assets consists of impairments charges for developed technology acquired. This is a component of cost of subscription revenue that was broken out for financial statement purposes. Research and Development Expenses Research and development expenses consist primarily of employee-based costs, software and hosting arrangement expenses (which includes cloud-based hosting costs related to the development of our cloud-based solution), professional services expense and amortization expense for acquired intangible assets. We believe that continued investment in our offerings is vital to the growth of our business, and we intend to continue to invest in product development. Advertising Expenses The Company expenses advertising costs as incurred and are included in sales and marketing expense. Advertising expenses were approximately $10.7 million, $11.3 million and $7.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Stock-Based Compensation The Company measures stock-based compensation expense for equity instruments granted to employees and board members based upon the estimated fair value of the award at the date of grant adjusted for actual forfeitures. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires us to estimate the expected term, fair value of common stock, expected volatility, risk-free interest rate, and dividend yield. The risk-free interest rate is based on the U.S. treasury yield curve for the term consistent with the life of the stock options as of the date of grant. The Company has elected to apply the “shortcut approach” in developing the estimate of expected term for “plain vanilla” stock options by using the mid-point between the vesting date and contractual termination date. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. During 2019, the Company began to determine volatility by introducing the Company’s own historical volatility measurements once two years of historical data became available in the public market. The Company used a blend of the Company’s volatility and industry peers to arrive at a volatility consistent with the life of the options. During 2020, the Company continued to increase the weighting factor of the Company’s own volatility as additional time periods become available. Stock-based compensation expense resulting from this valuation is recognized in the consolidated statements of operations on a straight-line basis over the period during which an employee provides the requisite service in exchange for the award. The Company analyzes the facts and circumstances of each equity instrument to determine if modification accounting is required. When a modification is triggered, the revised fair value is calculated, and additional stock-based compensation is recognized over the remaining service period of the modified instrument. Restricted stock units (“RSUs”) are generally subject to forfeiture if employment terminates prior to the vesting date. We expense the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs on the date of grant, ratably over the period during which the vesting restrictions lapse. In November 2017, the Company’s board of directors adopted the Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective November of 2017, after the date our registration statement was declared effective by the SEC. The first offering period opened July 1, 2018 and permitted eligible employees to purchase shares by authorizing payroll deductions from 1% to 15% of employee’s eligible compensation during the offering period, which is generally six-months, with an annual cap of $25,000 in fair market value, determined at the grant date. Unless an employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares after the closing of the offering period at a price equal to 85% of the closing price of the shares at the opening or closing of the offering period, whichever is lower. ESPP purchase rights have an expected volatility consistent with our volatility estimates that are used to value our stock options. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding and 60 approximates the offering period. Stock-based compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the offering period. Foreign Currency Translation The functional currency of our non-U.S. subsidiaries is the U.S. dollar; therefore, all gains and losses on currency transactions are expensed as incurred. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are provided if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertainty of income taxes based on a “more-likely-than-not” threshold for the recognition and de-recognition of tax positions, which includes the accounting for interest and penalties relating to tax positions. Convertible Senior Notes Convertibles Senior Notes are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability and equity components of the instrument. The carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. The difference between the principal amount and the liability component represents a debt discount that is amortized to interest expense over the respective terms of the Notes using an effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components were based on their relative values. Leases The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the assets’ economic benefits. The Company’s leases are primarily for office space. At the inception or modification of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and if so, the classification of the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the present value of future lease payments over the lease term. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. The implicit rates within our operating leases are generally not determinable and therefore we use the incremental borrowing rate ("IBR") at the lease commencement date to determine the present value of lease payments. The determination of our IBR requires judgment. We determine our IBR for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization and term to align with the terms of the lease. ROU assets include any upfront lease payments made and exclude lease incentives. The Company leases its facilities under non-cancelable operating lease agreements. We have lease agreements with lease and non-lease components which we account for as a single lease component. The Company’s non-lease components are primarily related to property taxes, insurance and maintenance costs, which are typically variable in nature, and are expensed in the period incurred. Certain of these facility leases contain predetermined fixed escalations of the minimum rentals, and the Company recognizes expense for these leases on a straight-line basis over the full term of the lease arrangement. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The depreciable life of related leasehold improvements is based on the shorter of the estimated life of the asset or the lease term. 61 Net Income (Loss) Per Share Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders for the period, defined as net income (loss) minus earnings allocated to participating securities, by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted earnings per share includes the dilutive effect of common stock equivalents and is calculated using the weighted-average number of common stock and the common stock equivalents outstanding during the reporting period. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect. Our incentive stock units have the right to receive non-forfeitable dividends on an equal basis with common stock and therefore are considered participating securities that must be included in the calculation of net income (loss) per share using the two-class method. Under the two-class method, basic and diluted net income (loss) per share is determined by calculating net income (loss) per share for common stock and participating securities based on the participation rights in undistributed earnings. Recently Adopted Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for public entities for annual periods, including interim periods within those annual periods beginning after December 15, 2019 and earlier adoption is permitted. We adopted the standard effective January 1, 2020, using the prospective approach. This adoption did not have a material impact on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Accounting Standards Codification or ASC 326). This standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard also expands the required quantitative and qualitative disclosures surrounding expected credit losses. On January 1, 2020, we adopted ASC 326 using the modified retrospective transition method, which requires a cumulative adjustment, if applicable, to be recorded to accumulated deficit. In addition, it is important to note that under the modified retrospective transition method, our prior period results were not recast to reflect this standard. We implemented internal controls and key system functionality to enable the preparation of financial information upon adoption. We recorded a cumulative adjustment in the amount of $0.4 million, net of tax impact, to accumulated deficit as of January 1, 2020. This adoption did not have a material impact on the Company's consolidated statement of operations or statement of cash flows. In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The guidance removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted in the first period of the year this guidance is adopted. We adopted the standard effective January 1, 2020, using the prospective approach except for hybrid tax regimes, which we adopted using the modified retrospective approach. This adoption did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Standards Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase 62 reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either the fully retrospective or modified retrospective basis. The Company plans to early adopt ASU 2020-06 effective January 1, 2021 using the modified retrospective approach. Adoption of ASU 2020-06 will result in a material effect on the consolidated balance sheets as the Company believes it will no longer separately present in equity an embedded conversion feature. The impact to the consolidated balance sheets is expected to increase our convertible senior notes by $65.0 million to $70.0 million, decrease our deferred tax liability by $15.0 million to $17.0 million, decrease additional paid in capital by $65.0 million to $70.0 million and increase our accumulated deficit by $14.0 million to $16.0 million. The Company also expects the adoption of ASU 2020-06 to have $16.0 million to $17.0 million favorable impact to the consolidated statements of operations annually through the maturity of the convertible senior notes agreement. The Company does not expect a material impact to its consolidated statements of cash flows. The Company expects to utilize the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which will have an unfavorable effect on our future earnings per share calculation. The Company is assessing the impact of the adoption of ASU 2020-06 on its internal controls over financial reporting. 2. Revenue Recognition Disaggregation of revenue The following table presents the Company’s revenue by timing of revenue recognition during the reporting periods to understand the risks of timing of transfer of control and cash flows: Year Ended December 31, 2020 Revenue recognized at a point in time Revenue recognized over time Total revenue Year Ended December 31, 2019 Revenue recognized at a point in time Revenue recognized over time Total revenue Year Ended December 31, 2018 Revenue recognized at a point in time Revenue recognized over time Total revenue Licenses SaaS (1) Maintenance and Support (1) (In thousands) Other Subscription Services(1) Services and Other $ 120,874 $ — $ — 66,913 $ 120,874 $ 66,913 $ — $ 126,792 126,792 $ — $ 3,112 3,112 $ — 47,563 47,563 $ 102,800 $ — $ — 42,432 $ 102,800 $ 42,432 $ — $ 100,435 100,435 $ — $ 523 523 $ — 42,325 42,325 $ 105,000 $ — $ — 27,572 $ 105,000 $ 27,572 $ — $ 76,461 76,461 $ — $ — — $ — 39,887 39,887 63 (1) Subscription revenue is further disaggregated into SaaS, Maintenance and Support and Other Subscription Services revenue in the table above. Contract Balances A summary of the activity impacting our contract balances during the reporting periods is presented below: Beginning Balance Additional deferred contract acquisition costs Amortization of deferred contract acquisition costs Ending Balance Contract Acquisition Costs Year Ended December 31, 2019 2020 (In thousands) $ $ 35,152 $ 32,634 (13,684) 54,102 $ 28,043 17,239 (10,130) 35,152 There were no material impairments of deferred contract acquisition costs for the years ended December 31, 2020, 2019 and 2018. Beginning Balance Increase, net Ending Balance Deferred Revenue Year Ended December 31, 2019 2020 (In thousands) $ $ 152,033 $ 32,685 184,718 $ 114,301 37,732 152,033 Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. Revenue recognized during the 2020, 2019 and 2018 reporting periods that were previously deferred was $147.5 million, $113.0 million and $75.0 million, respectively. The difference between the opening and closing balances of the Company’s contract assets and deferred revenue primarily results from the timing difference between the Company’s performance and the customer billings. Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at the contract level, and typically result from sales contracts when revenue recognized exceeds the amount billed to the customer, and the right to payment is subject to more than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional and the customer is billed. Contract assets are included in prepayments and other current assets and other non-current assets in the consolidated balance sheets. During the years ended December 31, 2020 and 2019, amounts reclassified from contract assets to accounts receivable were $6.2 million and $4.1 million, respectively. Remaining performance obligations Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. Remaining performance obligations represent contracted revenue that has not yet been recognized and include deferred revenues, invoices that have been issued to customers but have not been recognized as revenues and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2020, amounts allocated to these additional contractual obligations are $332.0 million, of which we expect to recognize $203.1 million as revenue over the next 12 months with the remaining amount thereafter. 64 3. Allowance for Expected Credit Losses The following table presents the changes in the allowance for expected credit losses for financial assets measured at amortized cost: Beginning Balance Adoption of ASC 326 Provision for (reduction in) credit losses Write-offs Ending Balance Accounts Receivable Contract Assets Year Ended December 31, 2020 (In thousands) — $ 407 757 (788) 376 $ — 65 (15) — 50 $ $ As of December 31, 2020, SailPoint evaluated economic conditions and made adjustments to historical loss information for certain economic risk factors, such as COVID-19. Recoveries of financial assets previously written off are recorded directly to earnings when received, which were immaterial for the year ended December 31, 2020. Total bad debt expense recognized prior to our adoption of ASC 326 for the years ended December 31, 2019 and 2018 was $0.2 million and $2.3 million, respectively. 4. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables present information about the Company’s financial assets that are measured at fair value on a recurring basis: Assets: Cash equivalents: Money market funds Total cash equivalents Assets: Cash equivalents: Money market funds Total cash equivalents Level 1 As of December 31, 2020 Level 3 Level 2 (In thousands) Total $ $ 9,757 9,757 — — — $ — $ 9,757 9,757 Level 1 As of December 31, 2019 Level 3 Level 2 (In thousands) Total $ 364,127 $ 364,127 — — — $ 364,127 — $ 364,127 The Company’s carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses are considered Level 1 and approximate their fair values due to their short maturities as of December 31, 2020 and 2019 and are excluded from the fair value tables above. See Note 10 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of our Notes as of December 31, 2020. 65 5. Business Combinations 2019 Acquisitions Orkus On October 15, 2019, the Company acquired 100% of the equity interest in Orkus, Inc. (“Orkus”), a Delaware corporation engaged in the development and license of software products to assist customers in monitoring and controlling access and authorization across hybrid cloud assets. Total consideration related to the acquisition was $16.5 million in cash, of which $2.0 million is to be paid upon the lapse of an indemnification period of 12 months and 24 months of the acquisition date. As of both December 31, 2020 and 2019, $1.0 million of the holdback amount is reflected within accrued expenses and other liabilities in the consolidated balance sheets. As of December 31, 2019, $1.0 million is included in other long-term liabilities in the consolidated balance sheet. The following table summarizes the final purchase price allocation as of the date of acquisition: Cash and cash equivalents Prepayments and other current assets Right-of-use assets Goodwill Intangible assets Accounts payable Accrued expenses and other liabilities Deferred tax liability - non-current Total fair value of assets acquired and liabilities assumed As of October 15, 2019 (In thousands) — 34 90 7,637 9,760 (21) (133) (861) 16,506 $ $ The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired: Developed technology Overwatch.ID Amount (In thousands) $ 9,760 Estimated Useful Life (In years) 5 On October 15, 2019, the Company acquired 100% of the equity interest in Overwatch.ID, Inc. (“Overwatch.ID”), a Delaware corporation engaged in the development and license of software products focused on access controls security for cloud applications, cloud computing, hybrid IT environments, and on-premises infrastructure. The consideration related to the acquisition was $20.9 million in cash, of which $3.0 million is to be paid upon the lapse of an indemnification period of 12 months and 18 months of the acquisition date. As of both December 31, 2020 and 2019, $1.5 million of the holdback amount is reflected within accrued expenses and other liabilities in the consolidated balance sheets. As of December 31, 2019, $1.5 million is included in other long-term liabilities in the consolidated balance sheet. 66 The following table summarizes the final purchase price allocation as of the date of acquisition: Cash and cash equivalents Accounts receivable Prepayments and other current assets Deferred tax asset - non-current Right-of-use assets Goodwill Intangible assets Accounts payable Accrued expenses and other liabilities Deferred revenue Total fair value of assets acquired and liabilities assumed As of October 15, 2019 (In thousands) 45 66 103 687 175 14,107 6,610 (256) (185) (466) 20,886 $ $ The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired: Developed technology Additional Acquisition Related Information Amount (In thousands) $ 6,610 Estimated Useful Life (In years) 5 The operating results of the acquired companies are included in our consolidated statements of operations from the respective dates of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our consolidated statements of operations. During the year ended December 31, 2019, acquisition related costs were $1.0 million, which include legal, accounting and consulting professional service fees and have been included primarily in general and administrative expenses in the consolidated statement of operations. These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The Company finalized the purchase price within the required one-year measurement period as of the dates of acquisition. The fair value of developed technology was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to replace, such as the workforce, timing and resources required, as well as a theoretical developer’s profit margin and entrepreneurial incentive and opportunity cost. The Company believes that for each acquisition, the acquired companies will provide opportunities for growth through investing in additional products and capabilities, among other factors. This contributed to a purchase price in excess of the estimated fair value of each acquired company’s net identifiable assets acquired and, as a result, goodwill was recorded in connection with each acquisition. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. Goodwill arising from these acquisitions are not deductible for tax purposes. 67 6. Goodwill and Intangible Assets Goodwill The following table reflects goodwill activity for the year ended December 31, 2020: Balance, December 31, 2019 Measurement period adjustments Other adjustments Balance, December 31, 2020 (In thousands) 241,051 70 (18) 241,103 $ $ All goodwill balances are subject to annual goodwill impairment testing. As of October 31, 2020, 2019 and 2018, the Company performed a qualitative analysis and concluded that no impairment for goodwill was required. There were no impairments of goodwill during the years ended December 31, 2020, 2019 and 2018. Intangible Assets Total cost and amortization of intangible assets comprised of the following: Intangible assets, net Customer lists Developed technology Trade names and trademarks Other Total intangible assets Less: Accumulated amortization Total intangible assets, net Weighted Average Useful Life (In years) 15 9.2 17 4.7 As of December 31, 2020 December 31, 2019 (In thousands) $ $ 42,500 $ 51,760 24,500 3,746 122,506 (58,544) 63,962 $ 42,500 58,440 24,500 3,689 129,129 (47,478) 81,651 Periodically, the Company evaluates intangible assets for triggering events for indications of possible impairment. Due to our strategic decision to discontinue further investment and enhancements in the standalone existing technology, we recorded an impairment charge of $5.1 million related to certain developed technology assets during the year ended December 31, 2020. There were no impairments for intangible assets during the years ended December 31, 2019 and 2018. Amortization expense for the periods presented is as follows: Cost of revenue - licenses Cost of revenue - subscription Research and development Sales and marketing Total amortization expense 2020 Year Ended December 31, 2019 (In thousands) 2018 4,031 $ 3,549 703 4,274 12,557 $ 4,032 $ 1,076 647 4,273 10,028 $ 4,032 384 136 4,273 8,825 $ $ 68 The total estimated future amortization expense of these intangible assets as of December 31, 2020 is as follows: Year Ending December 31, 2021 2022 2023 2024 2025 Thereafter Total amortization expense 7. Leases Operating Leases (In thousands) 11,293 10,953 10,424 8,367 4,275 18,650 63,962 $ $ As of December 31, 2020, our leases, primarily relate to office leases, have remaining lease terms of less than 1 year to 9 years. Certain leases include early termination and/or extension options; however, exercises of these options are at the Company’s sole discretion. As of December 31, 2020, the Company determined it is not reasonably certain it will exercise the options to extend its leases or terminate them early. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants and as of December 31, 2020, the Company is not subleasing to any third parties. As of December 31, 2020 and 2019, we have no financing leases. The rates implicit in the Company’s leases are not readily determinable. Therefore, in order to value the Company’s lease liabilities, the Company uses an IBR which reflects the fixed rate at which the Company could borrow a similar amount in the same currency, for the same term, and with similar collateral as in the lease at the commencement date. As of December 31, 2020, the Company measures its lease liabilities at the net present value of the remaining lease payments discounted at the weighted average discount rate of 4.14%. The Company's IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. The weighted average remaining term of the Company’s operating leases is 7.8 years. Operating lease costs for the periods presented were as follows: Lease cost Operating lease cost Variable lease cost Short-term lease cost Total lease cost Year Ended December 31, 2020 December 31, 2019 (In thousands) $ $ 5,155 $ 2,434 395 7,984 $ 4,720 1,698 691 7,109 Facilities costs (including rent and utilities) are considered shared costs and are allocated to departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category. Total rent expense recognized prior to our adoption of ASC 842 was $3.8 million for the year ended December 31, 2018. Other supplemental cash flow information related to operating leases for the periods presented is as follows: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Right-of-use assets obtained in exchange for lease liabilities Operating leases 69 Year Ended December 31, 2020 December 31, 2019 (In thousands) $ $ 5,181 $ 4,685 106 $ 32,015 The undiscounted annual future minimum lease payments are summarized by year in the table below: Year Ending December 31, 2021 2022 2023 2024 2025 Thereafter Total minimum lease payments Less: interest Total present value of operating lease liabilities 8. Commitments and Contingencies Indemnification Arrangements (In thousands) 5,891 5,790 5,308 5,035 4,890 17,393 44,307 (6,792) 37,515 $ $ $ In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers, business partners and other parties with respect to certain matters, including, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities with respect to our products and services and business. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in a particular contract. The Company includes service level commitments to our cloud customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels. To date, the Company has not incurred any material costs as a result of these commitments, and we expect the time between any potential claims and issuance of the credits to be short. As a result, we have not accrued any liabilities related to these commitments in our consolidated financial statements. Litigation Claims and Assessments The Company is subject to claims and suits that may arise from time to time in the ordinary course of business. In addition, some legal actions, claims and governmental inquiries may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, we do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our consolidated financial statements. 9. Line of Credit and Long-Term Debt Prior Credit Agreement In August 2016, the Company entered into a senior secured credit facility with a financial institution (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement consisted of a term loan facility of $160.0 million and a revolving loan facility of up to $7.5 million. The Prior Credit Agreement established first security for the financial institution over all assets of the Company and is subject to certain financial covenants. Borrowings under this agreement bear interest based on the adjusted LIBOR rate, as defined in the agreement with a 1.0% floor, plus an applicable margin of 7.0%. The maturity date on the term loan was scheduled for August 16, 2021 with principal payment due in full on maturity date, and interest payments due quarterly. The agreement also required prepayments in the case of certain events including, asset sales, proceeds from an initial public offering (“IPO”), proceeds from an insurance settlement or proceeds from a new debt agreement. During 2018, the Company voluntarily prepaid the remaining $70.0 million outstanding under our term loan and terminated the credit facility. The repayments were subject to a prepayment premium of 0.50%. For the year ended December 31, 2018, the Company incurred prepayment premiums of approximately $0.4 million and a $1.8 million loss on the modification and extinguishment of debt. The prepayment premium and the loss on the modification and extinguishment of debt were recorded as interest expense in the accompanying consolidated statements of operations for the year ended December 31, 2018. 70 The Company incurred total debt issuance costs of $4.5 million in connection with the Prior Credit Agreement, which were to be amortized to interest expense over the life of the debt on a straight-line basis and approximates the effective interest rate method. Amortization of debt issuance costs for the year ended December 31, 2018 was not material and was recorded in interest expense in the accompanying consolidated statement of operations. Letter of Credit On November 29, 2018, as a result of the prepayment of the term loan, a prior standby letter of credit was cancelled and replaced by the 2018 Letter of Credit on behalf of the Company by U.S. Bank National Association. The 2018 Letter of Credit is an irrevocable, cash collateralized, unconditional standby letter of credit in an aggregate amount of $6.0 million under the Company’s corporate headquarters lease. The cash used as collateral is included as restricted cash on the balance sheets as of December 31, 2020 and 2019. Current Credit Agreement On March 11, 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). The Credit Agreement is guaranteed by SailPoint Technologies Intermediate Holdings, LLC, a wholly owned subsidiary, and the Borrower’s material domestic subsidiaries (the “Guarantors” and, together with the Borrower, the “Loan Parties”) and is supported by a security interest in substantially all of the Loan Parties’ personal property and assets. In September 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes. Such amendment included a decrease in the commitments for revolving credit loans from $150.0 million to $75.0 million, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under certain circumstances and is subject to certain financial covenants. In addition, the Credit Agreement provides for the ability to incur uncommitted term loan facilities if, among other things, the Senior Net Leverage Ratio (as defined in the Credit Agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions permitted under the Credit Agreement. The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The Credit Agreement has established priority for the lenders party over all assets of the Company. The interest rates applicable to revolving credit loans under the Credit Agreement are at the Company’s option. The Company pays an unused commitment fee during the term of the Credit Agreement ranging from 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio. Borrowings under the Credit Agreement are scheduled to mature on March 11, 2024. The Company had no outstanding revolving credit loan balance under the Credit Agreement as of December 31, 2020 and 2019. The Company was in compliance with all applicable covenants as of December 31, 2020. The Company incurred total debt issuance costs of $0.8 million in connection with the Credit Agreement, which the net balance is included in other non-current assets on the accompanying consolidated balance sheets as of December 31, 2020 and 2019. These costs are being amortized to interest expense over the life of the Credit Agreement on a straight-line basis. Amortization of debt issuance costs for the years ended December 31, 2020 and 2019 were not material and was recorded in interest expense in the accompanying consolidated statements of operations. 10. Convertible Senior Notes and Capped Call Transactions In September 2019, the Company issued and sold $400.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2024 (the “Notes”) in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the Offering were approximately $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. The Company used approximately $37.1 million of the net proceeds from the Offering to pay the cost of the Capped Call Transactions. The Notes were issued pursuant to an indenture (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The Notes are senior unsecured obligations of the Company and will mature on September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year. 71 The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances: • • • • during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such trading day; if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; and upon the occurrence of specified corporate events as set forth in the Indenture. On or after March 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. It is the Company’s current intent to settle the principal amount of the Notes with cash. The Notes are convertible at an initial conversion rate of approximately 35.1849 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $28.42 per share of common stock, subject to adjustment upon the occurrence of specified events. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. For example, upon the occurrence of a make-whole fundamental change, as defined in the purchase agreement, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period. The Company may not redeem the Notes prior to September 20, 2022. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2022, if the last reported sale price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically. If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. The Company was in compliance with all applicable covenants as of December 31, 2020. For at least 20 trading days during the period of 30 consecutive trading days ended December 31, 2020, the last reported sale price of the Company’s common stock was equal to or exceeded 130% of the conversion price of the Notes on each applicable trading day. As a result, the Notes are convertible at the option of the holders during the fiscal quarter ending March 31, 2021 and were classified as current liabilities on the consolidated balance sheet as of December 31, 2020. During the year ended December 31, 2020, we have received requests for conversion that we expect to settle in cash the aggregate amount 72 of $10.2 million in principal of the Notes during the fiscal quarter ending March 31, 2021. As of the date of this filing, no other holders of the Notes have submitted requests for conversion. In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amounts of the liability components of the Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the Notes. This difference represents the debt discount that is amortized to interest expense over the terms of the Notes using the effective interest rate method. The carrying amount of the equity components representing the conversion options was approximately $88.8 million for the Notes and is recorded in additional paid in capital and are not remeasured as long as they continue to meet the conditions for equity classification. The Company allocates transaction costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were approximately $6.8 million and are being amortized to interest expense at an effective interest method rate of 5.25% over the term of the Notes. Transaction costs attributable to the equity component were approximately $2.0 million and are netted with the equity component of the Notes in additional paid in capital. As of December 31, 2020, the Notes have a remaining life of 45 months. The net carrying amount of the liability and equity components of the Notes for the periods presented is as follows: Liability component Principal Unamortized discount Unamortized issuance costs Net carrying amount Equity component, net of issuance costs As of December 31, 2020 December 31, 2019 (In thousands) $ $ $ 400,000 $ (68,270) (5,058) 326,672 $ 86,764 $ 400,000 (84,542) (6,407) 309,051 86,764 The interest expense recognized related to the Notes for the periods presented is as follows: Contractual interest expense Amortization of debt discount Amortization of debt issuance costs Total Year Ended December 31, 2020 December 31, 2019 (In thousands) 664 $ $ 16,272 1,349 18,285 $ $ 133 4,199 359 4,691 As of December 31, 2020, the total estimated fair value of the Notes was $781.5 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. The fair value of the Notes is considered Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the Notes in an over-the-counter market. 73 Capped Call Transactions In September 2019, in connection with the pricing of the Notes and in connection with the initial purchasers’ exercise in full of their option to purchase additional Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with the initial purchasers or their respective affiliates and another financial institution. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, approximately 14.1 million shares of common stock. The Capped Call Transactions are generally expected to reduce potential dilution to common stock upon any conversion of the Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial strike price of approximately $28.42 per share, which corresponds to the initial conversion price of the Notes and is subject to certain adjustments. The cap price of the Capped Call Transactions is initially $41.34 per share, which is subject to certain adjustments. For accounting purposes, the Capped Call Transactions are separate transactions and not part of the terms of the Notes. As the Capped Call Transactions are considered indexed to our own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of approximately $37.1 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid in capital. In conjunction to the Notes conversion requests received described above, we will terminate the proportional amount of shares related to the capped call transactions and shares are expected to settle and be delivered during the fiscal quarter ending March 31, 2021. 11. Related Party Transactions During 2018, Thoma Bravo was considered a controlling entity. As of August 13, 2018, Thoma Bravo is no longer considered a controlling entity. Sales and purchase transactions were not considered material to the consolidated financial statements from January 1, 2018 through August 13, 2018. The Company did not have any related party balances or incur any related party transactions as of and during the years ended December 31, 2020 and 2019. 12. Stockholders' Equity In November 2017, the board of directors and stockholders approved the Amended and Restated Certificate of Incorporation to increase the authorized capital stock to 310 million shares, consisting of 300 million shares of common stock and 10 million shares of preferred stock, each with par value of $0.0001 per share. Common Stock The Company’s Amended and Restated Certificate of Incorporation authorizes issuance of 300 million shares of common stock with a par value of $0.0001 per share. The common stock confers upon its holders the right to participate in the general meetings of the Company, to vote at such meetings (each share represents one vote), to elect board members and to participate in any distribution of dividends, payments of the Company’s debts, other payments required by law, or other property and amounts payable upon shares of preferred stock, including the distribution of surplus assets upon liquidation equally on a per share basis. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Preferred Stock The company is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue up to an aggregate of 10 million shares of preferred stock, in one or more series, each series to have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as determined by the board of directors. As of December 31, 2020, the Company does not have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock. 13. Stock-Based Compensation 2015 Stock Option Plans In 2015, the Company adopted (i) the Amended and Restated 2015 Stock Option and Grant Plan and (ii) the 2015 Stock Incentive Plan (together the “2015 Stock Option Plans”) under which it may grant incentive stock options (“ISOs”), nonqualified stock options (“NSOs”) for the right to purchase shares of common stock and restricted stock units ("RSUs"). The 74 2015 Stock Option Plans reserve 5.0 million shares of common stock for issuance as ISOs, 0.5 million shares of RSUs and 0.25 million shares for issuance under the 2015 Stock Incentive Plan. Under the 2015 Stock Option Plan, ISOs may not be granted at less than fair market value on the date of the grant and generally vest over a four-year period based on continued service. Options generally expire ten years after the grant date. As of December 31, 2020, 0.6 million shares were available for issuance under the Amended and Restated 2015 Stock Option and Grant Plan. As of December 31, 2020, approximately 0.1 million shares were available for issuance under the 2015 Stock Incentive Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises. 2017 Long Term Incentive Plan In November 2017, the Company’s board of directors adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options, NSOs for the right to purchase shares of common stock and RSUs. As of December 31, 2020, the Company had reserved 17.7 million shares of common stock available for issuance under the 2017 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2017 Plan will be increased on each January 1 hereafter by 4.4 million shares of common stock. Options and RSUs granted under the 2017 Plan generally vest over four years. Common stock subject to an award that expires or is canceled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares, and shares withheld or surrendered to pay the exercise price of, or to satisfy the withholding obligations with respect to an award, will become available for future grants under the 2017 Plan. As of December 31, 2020, 11.1 million shares were available for issuance under the 2017 Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises. The fair value for the Company’s stock options granted and Employee Stock Purchase Plan (the "ESPP") purchase rights, as discussed further below, during the periods presented were estimated at grant date using a Black-Scholes option- pricing model using the following weighted average assumptions: Stock Options Expected dividend rate Expected volatility Risk-free interest rate Expected term (in years) ESPP Expected dividend rate Expected volatility Risk-free interest rate Expected term (in years) December 31, 2020 December 31, 2019 December 31, 2018 —% 50%- 56.2% 0.36% - 1.53% 6.25 —% 38.8% - 46.0% 1.39% - 2.59% 6.25 —% 40.0% - 46.0% 2.63% - 2.97% 6.25 —% 48.1% - 56.2% 0.10% - 1.57% 0.50 —% 39.8% - 48.1% 1.62% - 2.44% 0.42 - 0.50 —% 40% - 46.0% 2.00% - 2.56% 0.50 75 Stock Options The following table summarizes stock option activity for the periods presented: Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Number of Options (In thousands) (Per share) (Years) (In thousands) 31,784 8.8 $ 8.0 $ 8.0 $ 7.4 $ 8.0 $ 47,589 47,589 20,558 47,589 7.7 $ 7.7 $ 6.4 $ 7.7 $ 31,489 31,489 19,964 31,489 7.7 $ 7.7 $ 6.7 $ 85,064 85,064 43,889 Balances at December 31, 2017 Granted Exercised Forfeited Balances at December 31, 2018 Options vested and expected to vest at December 31, 2018 Options vested and exercisable at December 31, 2018 Balances at December 31, 2018 Granted Exercised Forfeited Balances at December 31, 2019 Options vested and expected to vest at December 31, 2019 Options vested and exercisable at December 31, 2019 Balance at December 31, 2019 Granted Exercised Forfeited Balances at December 31, 2020 Options vested and expected to vest at December 31, 2020 Options vested and exercisable at December 31, 2020 3,500 $ 82 $ (637) $ (128) $ 2,817 $ 2,817 $ 1,095 $ 2,817 $ 1,068 $ (730) $ (369) $ 2,786 $ 2,786 $ 1,143 $ 2,786 $ 617 $ (763) $ (236) $ 2,404 $ 2,404 $ 1,064 $ 5.43 23.17 2.84 3.20 6.64 6.64 4.72 6.64 26.63 4.18 16.31 13.67 13.67 6.17 13.67 25.30 7.82 20.35 17.85 17.85 12.00 76 The following table summarizes the status of the Company’s non-vested stock options for the periods presented: Non-vested at December 31, 2017 Granted Vested Forfeited Non-vested at December 31, 2018 Granted Vested Forfeited Non-vested at December 31, 2019 Granted Vested Forfeited Non-vested at December 31, 2020 Number of Shares (In thousands) Weighted Average Grant Date Fair Value (Per share) 2,583 $ 83 $ (816) $ (122) $ 1,728 $ 1,068 $ (781) $ (370) $ 1,645 $ 617 $ (686) $ (236) $ 1,340 $ 4.32 10.35 2.99 2.32 5.47 11.36 5.35 7.60 8.88 13.44 8.36 9.44 11.17 The Company expects all outstanding stock options at December 31, 2020 to fully vest. During the year ended December 31, 2019, $0.5 million of vested stock options were forfeited related to the resignations of key executives. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $5.7 million, $4.2 million and $2.4 million, respectively. The total unrecognized compensation expense related to non-vested stock options granted is $12.6 million and is expected to be recognized over a weighted average period of 2.3 years as of December 31, 2020. During the year ended December 31, 2019, $1.9 million of unrecognized compensation expense related to non-vested stock options was forfeited related to the resignation of key executives. Incentive Unit Plan In 2014 and 2015, the Company granted shares of the Company’s common stock (the “incentive units”) to certain members of management pursuant to restricted stock agreements (the “RSAs”). The incentive units were granted with an exercise price equal to the fair market value on the date of grant, are subject to vesting, and if exercised in advance of vesting were subject to the Company’s right to repurchase until vested. The Company did not grant any additional incentive units during the years ended December 31, 2020, 2019 or 2018. During the year ended December 31, 2018, 1.5 million incentive units were vested with a weighted average grant date fair value of $0.05 per share. During 2019, all of the remaining 0.7 million incentive units were vested with a weighted average grant date fair value of $0.05 per share. Therefore, as of December 31, 2020, there is no further unrecognized compensation expense or intrinsic value related to non-vested incentive units. The total intrinsic value of units unvested as of December 31, 2018 was $17.0 million. 77 Restricted Stock Units The following provides a summary of the RSU activity for the Company for the periods presented: Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Number of Shares (In thousands) (Per share) (Years) (In thousands) 186 9.9 $ Balances at December 31, 2017 Granted Vested Forfeited Balances at December 31, 2018 Units expected to vest at December 31, 2018 Balances at December 31, 2018 Granted Vested Forfeited Balances at December 31, 2019 Units expected to vest at December 31, 2019 Balances at December 31, 2019 Granted Vested Forfeited Balances at December 31, 2020 Units expected to vest at December 31, 2020 897 $ 577 $ (271) $ (55) $ 1,148 $ 1,148 $ 1,148 $ 1,363 $ (336) $ (294) $ 1,881 $ 1,881 $ 1,881 $ 2,113 $ (589) $ (270) $ 3,135 $ 3,135 $ 12.18 19.30 12.61 17.58 15.40 15.40 15.40 27.22 15.94 20.47 23.08 23.08 23.08 24.13 22.26 23.63 23.90 23.90 1.8 $ 1.8 $ 1.8 $ 26,967 26,967 26,967 1.6 $ 1.6 $ 1.6 $ 44,386 44,386 44,386 1.4 $ 1.4 $ 166,927 166,927 The Company expects all outstanding RSUs to fully vest. During the year ended December 31, 2019, $0.4 million of vested RSUs were forfeited related to the resignations of key executives. Additionally, during the year ended December 31, 2019, the board of directors approved accelerated vesting of RSUs for an exiting board member that resulted in a modification and an immaterial decrease in stock-based compensation expense. The total unrecognized compensation expense related to RSUs was $59.1 million as of December 31, 2020 and is expected to be recognized over a weighted average period of 2.7 years. During the year ended December 31, 2019, $2.2 million of unrecognized compensation expense related to non-vested RSUs was forfeited related to the resignations of key executives. Employee Stock Purchase Plan The Company initially reserved 1.8 million shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP will increase each January 1 beginning in 2019 by 0.9 million shares of common stock. The ESPP will continue in effect unless terminated prior thereto by the Company’s board of directors or compensation committee, each of which has the right to terminate the ESPP at any time. As of December 31, 2020, 2.6 million shares were available for issuance under the ESPP Plan. During the years ended December 31, 2020, 2019 and 2018, approximately 0.4 million, 0.4 million and 0.2 million shares of common stock have been purchased or distributed pursuant to the ESPP, respectively. 78 A summary of the Company’s stock-based compensation expense, which includes stock options, incentive units, RSUs and ESPP, is presented below: Stock options Incentive units RSUs ESPP Total stock-based compensation expense 2020 Year Ended December 31, 2019 (In thousands) 2018 $ $ 5,725 $ — 20,819 2,513 29,057 $ 4,958 $ 351 11,213 2,192 18,714 $ 3,943 8,582 5,352 1,098 18,975 A summary of the Company’s stock-based compensation expense as recognized on the consolidated statements of operations is presented below: 2020 Year Ended December 31, 2019 (In thousands) 2018 $ $ 1,758 $ 1,963 6,282 6,802 12,252 29,057 $ 1,142 $ 1,379 3,517 5,990 6,686 18,714 $ 945 1,504 3,026 7,798 5,702 18,975 Cost of revenue - subscription Cost of revenue - services and other Research and development General and administrative Sales and marketing Total stock-based compensation expense 14. Balance Sheet Related Items Property and Equipment, Net The cost and accumulated depreciation of property and equipment are as follows: Computer equipment Furniture and fixtures Leasehold improvements Other Total property and equipment Less: accumulated depreciation Total property and equipment, net As of December 31, 2020 2019 (In thousands) $ $ $ 12,691 $ 4,392 14,761 1,534 33,378 $ (13,935) 19,443 $ 10,453 4,218 13,807 1,337 29,815 (8,515) 21,300 Depreciation expense was $5.7 million, $5.0 million and $1.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. There were no impairments of our property and equipment for the years ended December 31, 2020, 2019 and 2018. Prepayments and Other Current Assets and Other Non-Current Assets Prepayments and other current assets and other non-current assets include the balance of contract assets, prepaid expenses, and other assets. The current portion of these assets is included in prepayments and other current assets and the non- current portion is included in other non-current assets, both of which are contained within the accompanying consolidated balance sheets. Certain balance sheet items as of December 31, 2019 were revised to be comparable with current period. 79 Prepayments and other current assets consisted of the following: Contract assets Prepaid expenses Other Total prepayments and other current assets Other non-current assets consisted of the following: Contract assets Prepaid expenses Other Total other non-current assets Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following: Commissions Bonus Operating lease liabilities - current Payroll and related benefits Indemnification holdbacks Other Total accrued expenses and other liabilities 15. Income Taxes Income Taxes As of December 31, 2020 2019 (In thousands) 10,679 12,411 2,937 26,027 $ 2,955 11,874 2,136 16,965 As of December 31, 2020 2019 (In thousands) 14,225 132 659 15,016 $ 4,996 350 961 6,307 As of December 31, 2020 2019 (In thousands) 15,169 $ 20,525 4,435 6,163 2,500 10,668 59,460 $ 9,611 12,273 3,951 3,421 2,500 8,458 40,214 $ $ $ $ Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which the Company conducts business. While the Company is in an overall federal and state deferred tax liability for federal and state tax purposes, a partial valuation allowance has been established for federal tax purposes as there are some tax credits that are expected to expire prior to utilization. The Company still maintains a full valuation allowance for our Israel tax position due to the lack of taxable earnings for the foreseeable future. The following table presents consolidated income (loss) before income taxes: Domestic Foreign Total income (loss) before income taxes 2020 Year Ended December 31, 2019 (In thousands) 2018 (15,159) $ (524) (15,683) $ (11,289) $ (1,799) (13,088) $ 6,951 (2,191) 4,760 $ $ 80 The provision (benefit) for income taxes consisted of the following: Current Federal State Foreign Total current Deferred Federal State Foreign Total deferred Provision (benefit) for income taxes 2020 Year Ended December 31, 2019 (In thousands) 2018 $ $ — $ 399 1,999 2,398 (6,242) (940) (136) (7,318) (4,920) $ — $ 845 1,820 2,665 (5,731) (1,354) (168) (7,253) (4,588) $ — 630 1,740 2,370 (699) (581) — (1,280) 1,090 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes are as follows: Deferred tax assets: Research and development and other credits Net operating loss carryforward Deferred revenue Stock compensation Leases Accrued expenses Other Total deferred tax assets Deferred tax liabilities: Depreciable and amortizable assets Prepaid expenses Convertible senior notes Intangibles Total deferred tax liability, net Less valuation allowance for deferred tax assets Net deferred tax liability As of December 31, 2020 2019 (In thousands) $ $ 9,777 $ 9,654 9,864 4,284 2,203 4,341 1,241 41,364 (2,674) (11,361) (8,146) (13,077) 6,106 (7,435) (1,329) $ 6,848 9,609 7,853 2,826 2,300 2,605 528 32,569 (2,973) (7,382) (9,975) (16,687) (4,448) (4,452) (8,900) As of December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of approximately $16.2 million and $24.2 million, respectively, and research and development credits of approximately $10.9 million and $7.7 million, respectively, which will begin to expire beginning in 2034 and 2025, respectively, if not utilized prior to that time. While the Tax Cuts and Jobs Act (“TCJA”) changed the net operating loss carryforward from 20 years to indefinitely, the Company has pre-TCJA net operating losses that are subject to the 20-year limitation. Utilization of the net operating loss and research and development credit carryforwards is subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. However, management has determined via a formal analysis that the annual limitation will not result in the expiration of net operating loss and research credit carryforwards prior to utilization. 81 As of December 31, 2020 and 2019, the Company’s gross deferred tax assets exceeded the Company’s reversing taxable temporary differences in Israel. Given the Company’s lack of earnings history in Israel, management determined it was not more likely than not that the benefit of the Company’s gross deferred tax assets that exceeded its reversing taxable temporary differences would be realized. Thus, a valuation allowance totaling $6.1 million and $4.5 million was recorded as of December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, the Company is in an overall deferred tax liability position for U.S. tax purposes. However, in 2020, some of the Company's gross deferred tax assets exceed its taxable temporary differences. As a result, management determined at December 31, 2020, that a valuation allowance is required. Accordingly, a $1.4 million valuation allowance was recorded as of December 31, 2020 against the Company’s U.S. gross deferred tax assets. There was no valuation allowance required for 2019. The following table reconciles the Company’s effective tax rate to the federal statutory tax rate: U.S. federal taxes at statutory rate State taxes, net of federal benefit Foreign tax rate differentials Research and development credit Amended federal return due to law change Stock options Permanent differences and other Change in state rate Change in valuation allowance due to operations Other Total 2020 Year Ended December 31, 2019 2018 21.0 % 5.1 (5.9) 22.8 — 11.5 (1.8) (3.7) (16.3) (1.3) 31.4 % 21.0 % 3.6 (7.6) 18.7 — 16.9 (5.2) — (11.3) (1.0) 35.1 % 21.0 % 9.6 16.7 (26.2) (18.8) (0.1) 3.8 — 21.1 (4.2) 22.9 % The reconciliation of unrecognized tax benefits is as follows: 2020 Year Ended Year Ended December 31, 2019 (In thousands) 2018 Beginning Balance Additions based on tax positions related to prior year Reductions based on tax positions related to prior year Additions based on tax positions related to current year Ending Balance $ $ 2,307 $ 31 (229) 397 2,506 $ 2,287 $ — (204) 224 2,307 $ 1,863 — (263) 687 2,287 The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2020, 2019 and 2018 the Company did not record any material interest or penalties. The Company files income tax returns in the U.S. federal, states, and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2017 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2016. The Company is currently under audit for income tax in a single foreign jurisdiction. The audit is ongoing and is not expected to materially impact the consolidated financial statements. The Company has an Uncertain Tax Position reserve related to this foreign jurisdiction filing that should sufficiently cover any related assessment. The global intangible low-taxed income (“GILTI”) provisions will be applied providing an incremental tax on low taxed foreign income. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. For the years ended December 31, 2020 and 2019, the Company determined it was in an aggregated net loss position with respect to its controlled foreign corporations. Thus, there is no GILTI tax liability as of December 31, 2020 or 2019. 82 16. Net Income (Loss) Per Share Attributable to Common Stockholders Basic and diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using our weighted average outstanding common shares including the dilutive effect of stock awards. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect. The following table sets forth the calculation of basic and diluted net income (loss) per share for the periods presented: 2020 Year Ended December 31, 2019 (In thousands, except per share data) 2018 Numerator Net income (loss) Earnings allocated to participating securities Net income (loss) available to common stockholders Denominator Weighted average shares outstanding Basic Diluted Net income (loss) attributable to common stockholders per share Basic Diluted $ $ $ $ (10,763) $ — (10,763) $ (8,500) $ — (8,500) $ 3,670 (29) 3,641 90,512 90,512 88,907 88,907 86,495 90,003 (0.12) $ (0.12) $ (0.10) $ (0.10) $ 0.04 0.04 The following weighted average outstanding shares of common stock equivalents were excluded from the computation of the diluted net income (loss) per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive: Stock options to purchase common stock RSUs issued and outstanding ESPP Convertible senior notes Total 2020 Year Ended December 31, 2019 (In thousands) 2018 2,738 3,027 115 1,311 7,191 3,037 1,899 15 — 4,951 36 13 — — 49 As we expect to settle the principal amount of the Notes in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread of approximately 14.1 million shares will have a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $28.42 per share. The denominator for diluted net income per share does not include any effect from the Capped Call Transactions the Company entered into concurrently with the issuance of the Notes as this effect would be anti-dilutive. In the event of conversion, if shares are delivered to the Company under the capped call, they will offset the dilutive effect of the shares that the Company would issue under the Notes. 83 17. Geographic Information and Major Customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. Our chief operating decision makers allocate resources and assess performance based on financial information presented at a consolidated level. Accordingly, the Company determined that we operate as one reportable segment. The following is a summary of consolidated revenues within geographic areas for the periods presented: United States EMEA (1) Rest of the World (1) Total revenue 2020 Year Ended December 31, 2019 (In thousands) 2018 $ $ 263,332 $ 62,249 39,673 365,254 $ 204,500 $ 54,315 29,700 288,515 $ 171,497 49,871 27,552 248,920 (1) No single country outside of the United states represented more than 10% of our revenue. 18. Employee Benefit Plans The Company has established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. To date, the Company has made no contributions to the 401(k) Plan. 19. Subsequent Events On February 22, 2021, SailPoint Technologies, Inc., a Delaware corporation and wholly owned subsidiary of the Company, completed its acquisition of Intello Inc., a Delaware corporation ("Intello"), which is an early-stage SaaS management company that helps organizations to discover, manage, and secure SaaS applications. Pursuant to the terms of the Agreement and Plan of Merger (the “Intello Merger Agreement”), Icebreaker Merger Sub, Inc. merged with and into Intello with Intello continuing as the surviving corporation. The aggregate consideration paid for Intello was approximately $43.0 million, a portion of which will be held in escrow for a period, pending satisfaction of certain indemnification obligations of the equity holders of Intello under the Intello Merger Agreement. 84 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding disclosure. Our CEO and CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2020 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In connection with the preparation of this Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on such assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria. Grant Thornton LLP, an independent registered public accounting firm, issued an attestation report on our internal control over financial reporting. This report is included within Item 8 of Part II of this Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.” Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(d) and 15d-15(d) during our quarter ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None 85 PART III Item 10. Directors, Executive Officers and Corporate Governance The information called for by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC and is incorporated herein by reference. Item 11. Executive Compensation The information called for by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information called for by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information called for by this item will be included in our definitive proxy statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC and is incorporated herein by reference. 86 Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this Annual Report on Form 10‑K: PART IV 1. Financial Statements Our consolidated financial statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K. 2. Financial Statement Schedules All schedules have been omitted as they are either not required, not applicable or the required information is included in the consolidated financial statements or notes thereto. 3. See Item 15(b) (b) Exhibits: 87 Exhibit Number 2.1*** 2.2*** 3.1 3.2 4.1 4.2 4.3 4.4 10.1 10.2+ 10.3+ 10.4+ Description Agreement and Plan of Merger, by and among SailPoint Technologies, Inc., Whaler Merger Sub, Inc., Orkus, Inc., and Aspect Ventures II, L.P., dated as of October 7, 2019 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on October 16, 2019). Agreement and Plan of Merger, by and among SailPoint Technologies, Inc., Osprey Merger Sub, Inc., Overwatch.ID, Inc., and Shareholder Representative Services LLC, dated as of October 10, 2019 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on October 16, 2019). Third Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-38297)). Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-38297)). Form of common stock certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Indenture, dated as of September 24, 2019, between SailPoint Technologies Holdings, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on September 25, 2019). Form of 0.125% Convertible Senior Notes due 2024 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on September 25, 2019). Description of Securities of the Company (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-38297)). Lease, dated October 2, 2017, by and between BDN Four Points Land LP and SailPoint Technologies, Inc. (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1 (File No. 333- 221036), filed with the Securities and Exchange Commission on October 20, 2017). Form of Indemnification Agreement between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333- 221036), filed with the Securities and Exchange Commission on October 20, 2017). SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan. (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-221679), filed with the Securities and Exchange Commission on May 21, 2018). Form of Notice of Grant of Stock Option under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). 88 Exhibit Number 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14+ Description Form of Stock Option Agreement under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.8 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)). Form of Notice of Stock Option Exercise under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Notice of Grant of Restricted Stock Units under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Restricted Stock Unit Agreement under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.11 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)). Amended and Restated Senior Management and Restricted Stock Agreement, dated November 5, 2017, by and among SailPoint Technologies Holdings, Inc., SailPoint Technologies, Inc. and Mark McClain (incorporated by reference to Exhibit 10.12 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333- 221036), filed with the Securities and Exchange Commission on November 14, 2017). Amendment No. 1 to Amended and Restated Senior Management and Restricted Stock Agreement, dated as of April 2, 2019, by and among the Company, SailPoint Technologies, Inc. and Mark McClain (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001- 38297)). Form of Amended and Restated Restricted Stock Agreement by and among SailPoint Technologies Holdings, Inc. and [Purchaser] (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-38297)). Form of Early Exercise Incentive Stock Option Agreement under the SailPoint Technologies, Holdings, Inc. Amended and Restated 2015 Stock Option Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Sales Incentive Plan (incorporated by reference to Exhibit 10.18 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). SailPoint Technologies Holdings, Inc. Amended and Restated 2015 Stock Option and Grant Plan (incorporated by reference to Exhibit 10.19 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333- 221036), filed with the Securities and Exchange Commission on November 6, 2017). 89 Exhibit Number 10.15+ 10.16+ 10.17+ 10.18+ 10.19+ 10.20+ 10.21+ 10.22+ 10.23+ 10.24+ Description Form of Non-qualified Stock Option Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time and Performance Vesting) (incorporated by reference to Exhibit 10.20 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Non-qualified Stock Option Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time-Based Vesting) (incorporated by reference to Exhibit 10.25 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Incentive Stock Option Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time and Performance Vesting) (incorporated by reference to Exhibit 10.26 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Incentive Stock Option Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time-Based Vesting) (incorporated by reference to Exhibit 10.27 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Restricted Stock Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time and Performance Vesting) (incorporated by reference to Exhibit 10.28 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Restricted Stock Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Option and Grant Plan (Time-Based Vesting) (incorporated by reference to Exhibit 10.29 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). SailPoint Technologies Holdings, Inc. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.30 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Notice of Option Grant under the SailPoint Technologies Holdings, Inc. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Notice of Grant of Restricted Share Units under the SailPoint Technologies Holdings, Inc. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)). Form of Restricted Share Unit Agreement under the SailPoint Technologies Holdings, Inc. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)). 10.25+* SailPoint Technologies Holdings, Inc. Employee Stock Purchase Plan. 10.26+ Form of Employee Co-Invest Stock Purchase Agreement (incorporated by reference to Exhibit 10.33 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). 90 Exhibit Number 10.27+ 10.28+ 10.29+ 10.30+ 10.31+ 10.32 10.33 10.34 Description Form of Director Purchase Agreement (incorporated by reference to Exhibit 10.34 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Notice of Grant of Restricted Stock Units (Non-Employee Directors) under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.35 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Form of Restricted Stock Unit Agreement (Non-Employee Directors) under the SailPoint Technologies Holdings, Inc. 2017 Long Term Incentive Plan (incorporated by reference to Exhibit 10.36 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-221036), filed with the Securities and Exchange Commission on November 6, 2017). Summary of Non-Employee Director Compensation (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (File No. 001-38297)). SailPoint Technologies Holdings, Inc. Severance Pay Plan, dated November 6, 2018 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001- 38297)). Credit Agreement, dated as of March 11, 2019, among the Company, SailPoint Technologies, Inc., the other loan parties party thereto, the lenders party thereto, Citibank, N.A., as administrative agent, sole lead arranger and sole bookrunner, and Royal Bank of Canada and Bank of America, N.A., as co-documentation agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on March 15, 2019). Amendment No. 1 to Credit Agreement, dated as of September 18, 2019, among the Company, SailPoint Technologies, Inc., the other loan parties party thereto, the lenders party thereto, Citibank, N.A., as administrative agent, and certain lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on September 18, 2019). Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on September 25, 2019). 10.35+* Form of Separation Agreement, by and between SailPoint Technologies, Inc. and [Officer]. 10.36+ 10.37+ 10.38+ Offer Letter, dated July 2, 2015, by and between SailPoint Technologies, Inc. and Juliette Rizkallah (incorporated by reference to Exhibit 10.15 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)). Offer Letter, dated May 3, 2019, by and between SailPoint Technologies, Inc. and Jason Ream (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001-38297)). Offer Letter, dated August 19, 2019, by and between SailPoint Technologies, Inc. and Matt Mills (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (File No. 001-38297)). 10.39+* Offer Letter, dated February 1, 2017, by and between SailPoint Technologies, Inc. and Chris Schmitt. 91 Exhibit Number 21.1* List of subsidiaries of the Company. Description 23.1* 31.1* 31.2* 32.1** 32.2** Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm. Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * ** *** + Filed herewith. Furnished herewith (such certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference). Certain schedules and exhibits have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. Management contract or compensatory plan or arrangement. Item 16. Form 10-K Summary None. 92 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: February 25, 2021 Date: February 25, 2021 By: By: SailPoint Technologies Holdings, Inc., /s/Mark McClain Mark McClain Chief Executive Officer and Director /s/Jason Ream Jason Ream Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Name /s/Mark McClain Mark McClain /s/Jason Ream Jason Ream /s/Eric Domagalski Eric Domagalski /s/William Gregory Bock William Gregory Bock /s/Cam McMartin Cam McMartin Heidi Melin /s/ Heidi Melin /s/James Michael Pflaging James Michael Pflaging Michael J. Sullivan /s/ Michael J. Sullivan /s/ Tracey E. Newell Tracey E. Newell Title Date Chief Executive Officer and Director (Principal Executive Officer) February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 February 25, 2021 Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director 93 [THIS PAGE INTENTIONALLY LEFT BLANK] Corporate Information Executive Officers: Corporate Headquarters: SailPoint Technologies Holdings, Inc. 11120 Four Points Drive, Suite 100 Austin, Texas 78726 Stock Transfer Agent: American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, New York 11219 (800) 937-5449 Investor Relations: investors.sailpoint.com investor@sailpoint.com (512) 664-8916 Stock Exchange Listing: NYSE Symbol: SAIL Mark McClain Chief Executive Officer and Director Jason Ream Chief Financial Officer Matt Mills President, Worldwide Field Operations Chris Schmitt Executive Vice President, General Counsel and Secretary Grady Summers Executive Vice President, Product Board of Directors: William G. Bock Mark McClain Cam McMartin Heidi M. Melin Tracey E. Newell James M. Pflaging Michael J. Sullivan sailpoint.com
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