CyberArk Software Ltd. Q4 FY2023 earnings call

• In the fourth quarter, CyberArk delivered a record-breaking quarter, beating guidance across all metrics. Subscription ARR and total ARR saw significant year-over-year growth. - The company adjusted its selling motion early in 2023 in response to the macroeconomic backdrop and continued to see growth. It is now a fully recurring revenue company with over 95% of bookings from subscription. - Demand for the Identity Security Platform accelerated in 2023, solidifying its leadership position. The company fine-tuned its go-to-market motion, including platform selling, channel strategy, and customer success. - R&D delivered on securing identities through the Identity Security Platform. Workforce solutions had a record fourth quarter, with innovations like Secure Web Sessions, Workforce Password Manager, and CyberArk Secure Browser contributing. - In the fourth quarter, the company signed about 340 new logos, with many new customers landing with two or more solutions, contributing to increased deal sizes. - Throughout 2023, the company demonstrated leverage in its business with operating expenses improving as a percent of revenue, striking a balance between investing in growth and driving profitability.

In the fourth quarter, subscription ARR reached $582 million, growing 60% year-over-year. Total ARR reached $774 million, growing 36% year-over-year. Total revenue growth accelerated to 32%, reaching $223 million. For the full year 2023, total revenue was $752 million with growth accelerating to 27%, non-GAAP operating income of approximately $33 million, non-GAAP earnings per share of $1.12, and free cash flow of $51 million. Recurring revenue in the fourth quarter reached $201.5 million, making up 90% of total revenue, with recurring revenue growth accelerating to 41% year-on-year. Geographically, Americas, EMEA, and APJ each grew revenue faster than 30% in the fourth quarter, with the Americas at $130.3 million (31% growth), EMEA at $68.7 million (33% growth), and APJ at $24.1 million (35% growth). Subscription revenue in the fourth quarter was $150.3 million, growing 70% year-on-year and representing 67% of total revenue, while maintenance and professional services revenue was $64.8 million, with $51.2 million from recurring maintenance and $13.6 million from professional services.

• For the first quarter of 2024, total revenue is expected to be $209 million to $215 million (31% year-on-year growth at mid-point), non-GAAP operating income is in the range of $7.5 million to $12.5 million, and non-GAAP EPS is range from $0.21 to $0.31 per diluted share. - For the full year 2024, total revenue is expected to be in the range of $920 million to $930 million (23% year-on-year growth at mid-point), operating income is in the range of $75.5 million to $84.5 million, EPS is between $1.63 to $1.81 per diluted share, annual recurring revenue is between $968 million and $983 million (26% year-on-year growth at mid-point), and free cash flow is expected to be in the range of $85 million to $95 million.

The company may face risks related to the macroeconomic environment, which could impact customer spending on identity security solutions. Additionally, there is competition in the identity security market, which could affect CyberArk's market share and growth prospects.

Q: Given some of the noise in the workforce or single sign on market competitively, how do you think CyberArk is positioned, and what are you seeing in the pipeline there for just the broader identity platform?

A: Matt Cohen stated that CyberArk's approach to workforce security is differentiated. While MFA and SSO are important, they are no longer sufficient. CyberArk's unified solution combining MFA, SSO, and other innovations like Secure Web Sessions, Workforce Password Manager, and CyberArk Secure Browser reinvents workforce identity. The company sees building momentum in the pipeline and is in a strong competitive position going into 2024.

Q: Maybe building on that journey, you’ve just put out a press release on Indiana University hospital expanding relations with CyberArk. What is it that they’re doing with CyberArk on top of their core PAM deployment? And where else can they expand with you guys in the coming years?

A: Matt Cohen said that the example of Indiana University hospital is a good indicator of the full market opportunity. When customers start with multiple solutions, there is a significant expansion opportunity as they bring on more identities. Healthcare is a vertical that CyberArk sees exploding in the coming years, and the hospital can expand as they bring all aspects of their enterprise identities into the platform.

Q: Shaul Eyal asked about a macro driven one, specifically about the term elongated sales cycle. Why is that? Are things actually becoming better and you guys, unlike other companies are not covering your behind them as kind of adding those elongated sales cycle commentary?

A: Matt Cohen responded that while it's a tough macro, cyber is more important than other parts of the tech stack. CyberArk adjusted its execution to bring CFOs into discussions early, helped structure deals appropriately, and navigated the macro effectively. They start to see shoring up of macros towards the back half of the year and are proud of their effective execution in the tough macro environment.