CyberArk Software Ltd. Q3 FY2023 earnings call

• Matt Cohen started by expressing condolences for Israel and the global Israeli community, emphasizing the health and safety of the team as a top priority. • The third quarter was one of the best in the company's history with significant demand for the platform, stellar results beating guidance across revenue, operating income, and EPS. • Identity Security remains a top priority for CISOs. Subscription ARR grew 68% YOY to $504 million, total ARR $705 million (38% YOY growth). Added $52 million in net new ARR. • The platform selling motion gained traction with solutions like PAM, EPM, Secrets Management, and Secure Cloud Access being adopted at an accelerated pace. Added ~230 new logos in the quarter with customers often landing with two or more solutions. • Launched the Artificial Intelligence Center of Excellence and new risk-based controls for identities in the cloud. Recognized as a leader for PAM by industry analysts. • Focus on profitability with operating leverage, marching towards return to a rule of 40 company, and cash flow expected to expand in 2024.

In the third quarter, CyberArk achieved strong financial results. Subscription ARR reached $504 million, growing 68% year-over-year. Total ARR was $705 million, up 38% year-over-year. Total revenue accelerated to 25% growth, reaching $191 million. Subscription revenue grew 65% year-over-year to $122.9 million, representing 64% of total revenue. Perpetual license revenue was $4.1 million. Maintenance and professional services revenue was $64.3 million, with $51.5 million from recurring maintenance. Recurring revenue reached $174.4 million, now 91% of total revenue, up from 84% in the third quarter of the previous year. Geographically, Americas revenue was $112.4 million (20% growth), APJ was $18.7 million (21% growth), and EMEA was $60.1 million (38% growth).

• For Q4 2023, expected total revenue $206.5M - $211.5M (24% YOY growth midpoint), subscription mix ~95%, non-GAAP operating income $19M - $23M, non-GAAP EPS $0.41 - $0.50. • For full year 2023, raised total revenue guidance to $735M - $740M (25% YOY growth midpoint), operating income $17.7M - $21.7M, EPS $0.72 - $0.80. • Annual recurring revenue expected to be between $758M - $768M at December 31, 2023.

• Uncertainty in the broader macroeconomic environment. • Intense market competition in the identity security space.

Q: Saket Kalia asked about whether the MGM, Caesars breach is driving additional interest in PAM broadly and what vulnerabilities for other identity players are driving interest in CyberArk's platform.

A: Matt Cohen stated that all roads lead to identity, and breaches highlight the need for proper privilege controls, with CyberArk being the only company able to offer a comprehensive identity security platform that CISOs trust.

Q: Robbie Owens asked about free cash flow guidance.

A: Joshua Siegel explained that cash flow is the last piece of the transition from perpetual to subscription, with expected expansion in 2024 and confidence in long-term cash flow targets.

Q: Roger Boyd asked about new logos.

A: Matt Cohen mentioned about 230 new logos in the quarter, with deal sizes increasing and land-and-expand motion contributing to growth.

Q: Hamza Fodderwala asked about CISOs' priorities for next year.

A: Matt Cohen said CISOs prioritize identity security as it has the most impact on risk reduction, and CyberArk is a top priority in their budget planning.

Q: Ittai Kidron asked about go-to-market priorities and maintenance transition.

A: Matt Cohen said go-to-market focuses on upsell/cross-sell and marketing-driven new logos, while Joshua Siegel explained maintenance ARR decline is gradual with SaaS expansion continuing.

Q: Brian Essex asked about SaaS mix and down market traction.

A: Matt Cohen said SaaS mix is two-thirds, and down market (corporate customers) adopts SaaS solutions quickly.

Q: John Difucci asked about second half of 2023 budget trends.

A: Matt Cohen stated budgets are firming up, with customers willing to spend on identity security, and deal sizes increasing.

Q: Fatima Boolani asked about sales cycle trends.

A: Matt Cohen said sales cycles are consistent with enterprise-grade, with expansion cycles shorter and new logo cycles taking more time but firming up.

Q: Junaid Siddiqui asked about adoption of new products like Secure Cloud Access.

A: Matt Cohen explained Secure Cloud Access offers privileged controls for cloud users, with great potential and early wins.

Q: Adam Borg asked about government opportunity.

A: Matt Cohen said government sector has momentum with more spread-out budget purchases and expansion beyond PAM.

Q: Brian Colley asked about divergence in demand between enterprise and midmarket.

A: Matt Cohen said midmarket (upper end) mirrors enterprise behaviors, with no real divergence.

Q: Alexander Henderson asked about pipeline build.

A: Matt Cohen said pipeline is driven by broader portfolio adoption, marketing and channel-generated pipeline, and events helping to build demand.