CyberArk Software Ltd. Q2 FY2024 earnings call

• Strong second quarter results: Net new subscription ARR was $56 million (record non-Q4), subscription ARR grew 50% to $677 million, total ARR grew 33% to $868 million. Total revenue reached $224.7 million, growing 28% year-over-year. Non-GAAP operating income was $23.7 million, and free cash flow was $41.7 million with a 19% free cash flow margin. • Segment highlights: Workforce identity solutions include reimagining security beyond basic controls like secure web sessions and browser; Secrets Management and machine identity solutions showed strong momentum, with deals in various industries. • Acquisition of Venafi: Pending acquisition of Venafi, which has complementary machine identity management solutions, expected to close in the second half of 2024 and be accretive to non-GAAP margins. • Product innovations: CORA AI for identity security-focused AI embedded in the platform, and ITDR for identity threat detection and response.

In the second quarter, subscription ARR was $677 million, growing 50% year-over-year, which is 78% of total ARR of $868 million (growing 33% year-over-year). Total revenue was $224.7 million, growing 28% year-over-year. Net new subscription ARR was $56 million, a record outside of the seasonally strong fourth quarter. Maintenance ARR was $191 million.

• Third quarter 2024: Expected total revenue $230 million to $236 million (22% Y/Y at midpoint), non-GAAP operating income $20.5 million to $25.5 million, non-GAAP EPS $0.38 to $0.49. • Full year 2024: Increased guidance to total revenue $932 million to $942 million (25% Y/Y), non-GAAP operating income $107.5 million to $116.5 million, non-GAAP EPS $2.17 to $2.36, ARR $985 million to $995 million, free cash flow $145 million to $155 million. Guidance for third quarter and full year 2024 does not include contribution from Venafi acquisition.

• Risk of actual results differing from forward-looking statements. • Uncertainties related to the proposed acquisition of Venafi, including regulatory review and integration challenges. • General market and regulatory risks that could impact business performance.

Q: Saket Kalia asked about how CyberArk differentiates in workforce identity and Secrets Management.

A: Matt Cohen responded that for workforce identity, they reimagine security beyond basic controls like adding secure web sessions and browser, and for Secrets Management, their combination of solutions empowers developers with agility and security in native workflows, and the acquisition of Venafi enhances machine identity security.

Q: Jonathan Ho asked about the platform vision and NRR.

A: Matt Cohen said the platform is fundamental to their strategy as it allows customers to expand across identity groups with an integrated solution, and Josh Siegel mentioned they are not yet disclosing NRR but feel strong in harvesting deals.

Q: Madeline Brooks asked about whether the second quarter was driven by many deals vs. a few large ones and NRR.

A: Matt Cohen said the second quarter was driven by a host of different deals, and they are not yet disclosing NRR but see strong growth across product lines.

Q: Rob Owens asked about urgency from companies and free cash flow margin.

A: Matt Cohen said securities teams have a mission to secure environments, and Josh Siegel explained free cash flow guidance considers factors like Venafi investment and tax obligations.

Q: Shaul Eyal asked about public vertical performance and linearity trends.

A: Matt Cohen said public verticals perform well with consistent growth, and the business has a normal hockey stick with back-end loaded quarters.

Q: John Difucci asked about cyber insurance and demand.

A: Matt Cohen said cyber insurance is a tailwind, and there are multiple tailwinds like regulatory environment and breach incidents driving demand.

Q: Joshua Tilton asked about pricing initiatives and win rates in workforce.

A: Matt Cohen explained they moved to a solution motion pricing per persona group, making their standard and enterprise solutions more valuable and improving win rates.

Q: Fatima Boolani asked about anticipatory investments around Venafi.

A: Josh Siegel said it includes PMI costs, integration investments, and consideration of interest rates and taxes.

Q: Junaid Siddiqui asked about MSP channel traction.

A: Matt Cohen said the MSP console launched earlier has been well-received, and MSPs are embracing the full portfolio strategy to cover all identity personas.