Q4 2019 Earnings Call
Earnings call.
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Thank you James Good morning, Thank you for joining us today to review Cyberark Slickwater and full year 2019 financial results with me on the call today, It would be Mccartney, Chairman and Chief Executive Officer, and Josh Siegel Chief Financial Officer. After prepared remarks, he will open the call to a question answer session.
Yes, let me remind you that certain statements made on the call today, maybe considered forward looking statement, which reflect management's best judgment based on currently available information I refer specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the first quarter and the full year two pretty funny, our actual results may differ.
If you really from those projected in these forward looking statements I direct your attention to the risk factors compete in the company's annual report on form 20-F filed with the U.S. Securities and Exchange Commission and those referenced in today's press release.
Cyberark expressly disclaims any application are undertaking to release publicly any updates or revisions to any forward looking statements made here.
Additionally, non-GAAP financial measures will be discussed on this topic. So a reconciliation to the most directly directly comparable GAAP financial measures is also available in today's press release, which could be found in or web site in the Investor Relations section also a webcast of today's call will be available on our website in the Investor Relations section itself we.
That I'd like to turn the call. If we do our chairman and Chief Executive Officer, who do you look I'd be thanks, Erica and good morning, everyone. Thank you for joining the call. We had a record fourth quarter capping off a strong year, we delivered growth and profitability by executing against the plan. We outline this time last year.
We expanded customer penetration by adding a record number of new logos and increasing our add on business with existing customers.
We increased adoption of application axis measure and enforce risk manager, we established a midmarket sales motion and we significantly strengthened our leadership position and beverage access management, delivering critical functionality and new solutions like alone.
As a result, we exceeded guidance across all metrics in the fourth quarter total revenue reached a record $130 million drawing 19% non-GAAP operating income reached an all time high $42 million and we signed nearly 300, new logos the largest number in the company's history in a single quarter ending the year with.
More than 5300 customers.
For the full year revenue reached $434 million, drawing, 26% non-GAAP operating income was $123 million.
We generated record cash flow from operations of $142 million.
Our business continues to benefit from strong secular tailwinds that are gaining momentum.
Environments are changing at an unprecedented rate driven by digital transformation and cloud migration strategies.
These trends are expanding the attack surface while at the same time, there was a sprawl beverage activity.
As recent examples demonstrate attackers required privileged access ransomware leverages privilege access at the endpoint and is holding organizations of all sizes as well the state and local governments hostage cloud Hopper was a multiyear campaign against Msps, where privilege access allowed attackers to steal information from hundreds of companies.
And then the separate 29 team that was reported that a customer a consumer Brad accident. The left mission critical Apiay keys, hardcoded exposed and vulnerable on get hub and they're all has these case could have provided access to internal systems and ultimately control of the Mws environment.
As a result, chief information security officers are prioritizing measurable solutions that strike the right balance between flexibility growth and risk mitigation, they're putting privileged access management at the foundation of their security and Zero Trust strategies, a few great customer examples in the fourth quarter that highlight the Csos view.
In a greenfield when a fortune 200 pharmaceutical company needed to secure both human and application credentials as part of its digital transformation strategy.
We want this more key new logo because of the breadth of our Pam offering our strong relationship with Accenture and how easily our solution can be deployed on AAMC.
Global insurance company is rapidly migrating workloads to the club we were the only vendor who gave the c. So much needed peace of mind by providing end to end security visibility and analytics into privilege activity.
Three key competitive Differentiators and this rip and replace new business wins.
First our solution is battle tested securing the world's leading enterprises across hybrid environments second our proven track record of delivering innovation that meets the current and future requirements of dynamic modern enterprise I'd and the third adventure was our new logos solution, which stalled a major.
By enabling a secure third party accessed via biometric authentication without a video.
A software company needed to remove local admin rights on developer workstations and has its privileged access management program to support this digital transformation strategy.
The majority of our business continues to be Greenfield, However, and this rip and replace New business example, our assess endpoint privilege manager and Cyberark beverage cloud outperformed the NIM incumbent vendor, particularly given the software companies rapid growth cloud first strategy and global footprint.
And existing manufacturing customer has been using endpoint image manager for more than four years and has successfully block 100% of malware attack since implementing its lease privilege strategy.
During the fourth quarter the manufacturer at an m. users and extended its relationship with Cyberark in a three year deal for Cyberark privilege cloud. This 10000 oblique company was not vaulting or rotating privileged credentials with a software solution, which demonstrates our significant greenfield market opportunity and the traction our assess solutions.
Our getting in the market.
A large technology company was incredibly happy with the rapid tied to value of its core projected security purchase in Q3 as a result in the fourth quarter. They not only expanded with more pass users, but also purchased application access manager to secure ansible automation P.H.B. and shell scripts used in digital transformation.
Strategy as well as our new a lower solution for all third party vendor access as part of his zero Trust framework.
Diversification across geographies verticals products and delivery is a critical pillar of our strategy and we realize the benefits of this diversification and 20 lighting revenue growth accelerated in both the Americas and a BJ.
This strength offset the 16% revenue growth in EMEA. During 2019, if we drilled down to the major countries. The UK grew faster than the business, while Germany, and France, both faced macro challenges and underperformed.
Overall, our EMEA pipeline has grown nicely with significant opportunity for both new and add on business, which we believe support stronger growth in the theater for the full year 2020.
On the product site area had another record year and was included in six of our top 10 license deals securing applications is a priority today as every company across all industries increasingly leverages software to drive productivity efficiency and the competitive edge.
While the majority of our large enterprise customers continued to preferred to consumer solution as a perpetual license diversity of delivery is important to our long term business. We're pleased with the early momentum of our assessment volume.
Just yesterday, we announced compliance with Soc to requirements for Ed and privilege club, which demonstrates the security and integrity of our SaaS solutions as reached a new record and saw material mix shift toward SAS as organizations recognize the importance of locking down privilege access at the endpoint.
Subtractive, its club gain traction with certain market segments and verticals.
Our new SaaS Alvaro solution delivers zero trust remote vendor access to increase control and visibility into pitch activity with no VPN agents for passwords since introduced since introducing other at the end of the third quarter. Many of our customers have expressed interest interest in the service and we are thrilled with the early response.
Innovations like Alere have strengthened our leadership position in the market. This year some of our other innovations include active active votes for high availability and disaster recovery in our core past solution.
We can now continuously detect alert and respond to risk score privileged activity in a ws.
We introduced application credential management in our previous cloud solution.
We lost secret this broker capability in application axis manager and innovative approach for secret management that frees developers and increases security.
We also extended our market reach and 2019 and today have more than 450 channel partners and advisory firms in the fourth quarter. We added 500 trained professionals across delivery engineers presale engineers at salespeople, bringing the number of certify professionals to more than 4500.
This partner enablement contributed to our indirect business, which represented about 67% of revenue and 20 that team.
We also experienced a greater than 50% increase in business influenced borrow IR, our advisory partners like Deloitte, Pwc KPMG and Accenture.
We were very pleased to have four of our advisory partners present at our global sales kickoff a few weeks ago. Each partner discuss the significant opportunity. They are see for Pam and their investments in cyberark practices setting the stage for continued growth in 2020.
Our CEQP technology partners were also a key differentiator and 29 team, particularly for digital transformation with Red hat, you like Pat absolute prism.
Risk reduction with Rapidseven, tenable, and cloud migration with Mws and Microsoft influencing deals in 2019.
Our success with CEQP supports our long held position that security is a team sport.
We were very pleased to add medco into the team as chief revenue officer in the fourth quarter mass extensive experience delivering comprehensive go to market strategies that will be instrumental to our long term growth, particularly as we bring multiple delivery options, including ourselves and perpetual license to market.
What do you I think it was a record year and I'm proud of our accomplishments our strong results demonstrate that we have a tremendous market opportunity to scale and growth Cyberark to a billion dollar revenue company and beyond.
As we look at our objectives in 2020, we are focused on strengthening our lyman and business process across the organization to drive growth and scaled the company.
We plan to further enhance our strong relationships with advisory reseller in technology partners through ongoing enablement programs a joint marketing.
When new an add on business in targeted marketing and sales programs evolve our customer success organization to ensure a privilege access is secured across our customers hybridizing environment and enhance the support of our SaaS customers and as always we will continue to deliver innovation that will not only extends our leadership position.
It also deliver a meaningful layer of security to customers.
With that let me turn it over to Josh to discuss our record results and outlook in more detail.
Thanks, Rudy as they have just heard we delivered another strong quarter ahead of our guidance generating record revenue of $129.7 million, which represents 19% year on year growth license revenue reached a record $76.5 million growing 15% year on year and that's against the tough compare with license.
The revenue growing 38% in the fourth quarter of last year.
Our license growth in the fourth quarter. It was driven in large part by new business, particularly in the Americas and Asia PJ ended the fourth quarter license revenue represented 59% of total revenue.
Maintenance and professional services revenue increased by 26% to $53.1 million. They represented 41% of total revenue. The professional services revenue associated with this slide was $9.3 million or 7% of total revenue.
The Americas reached another record of $71.1 million in revenue growing 17% year on year EMEA generated $45.9 million revenue in Q4 growing 10% year on year as already mentioned EMEA was impacted by macro trends in Germany and France. In addition, the Asia.
Pacific, Japan region delivered again and capped off a great year with revenue growing by 94% year on year, and reaching a record $12.6 million in revenue.
We had a strong demand across all verticals in the fourth quarter with government healthcare pharma IP services and media each growing by more than 40%.
As I move through the piano all line items will be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release.
Gross profit for the fourth quarter was $115.6 million, increasing from $98.2 million generating a gross margin of 89% that is just a slight decrease for the 90% gross margin in the same period last year and the one percentage point decline was primarily due to our investments in the cloud.
Our increased use of third party contractors as we discussed throughout the year.
On the expense side, we are investing in the business to deliver innovation drive growth and scale the organization.
R&D expense grew 34% year on year to $17.6 million or 14% of total revenue.
Sales and marketing expense for the fourth quarter increased by 27% year on year to $46.3 million or 36% of total revenue.
Gionee increased 10% to $9.6 million or 7% of total revenue in total operating expenses increased 26% in the fourth quarter 2000, $19 million to $73.5 million and that's compared with $58.4 million for the same period last year.
Our revenue outperformance a disciplined investments drove record operating income of $42.1 million for the fourth quarter compared to operating income of $39.8 million in Q4 2018.
Net income reached a record of $37.8 million or 97 cents per diluted share for the fourth quarter of this year, an increase from both the $33.4 million.
And 89 cents per diluted share for fourth quarter last year.
Now, let me summarize our results for the full year 20, United which were also ahead of our guidance across all metrics.
Total revenue reached $433.9 million with growth of 26% compared to $343.2 million in 2018.
License revenue portion was $237.9 million growing 24% year on year, and representing 55% of total revenue in 2019, approximately 65% of license revenue was generated from existing customers purchasing additional license licenses and approximately 35% of revenue.
New from new customers.
As already mentioned, we saw healthy increase in revenue from our newer solutions with application excess manager representing about 11% of license revenue and endpoint privilege manager representing about 7% of license revenue in 2019 and that even with about 60% of the sales being deliberate assess and revenue was recognized only rather.
Really.
Maintenance and professional services revenue increased 30% year on year last year, reaching $196 million in representing 45% of total revenue and the professional services revenue associated with this slide was 36.3 million or 8% of total revenue and that's consistent with the prior year.
Moving onto the geographies for the full year, the Americas generated $264.8 million in revenue with growth accelerating to 29% in 2019 from the 26% growth rate in 2018.
In total the Americas represented 61% of revenue and 29, Ts EMEA grew by 16% in 2000 $19 million to $129.7 million in revenue or approximately 30% of total revenue.
Asia Pacific, Japan revenue growth accelerated to 54% growth from 47% the prior year.
Reaching $39.4 million or 9% of total revenue.
For the full year, our business was also well diversified across industries with nine verticals, representing at least 5% or more of the business banking was again, our largest segment representing 28% of the business in 2019, that's compared to 30% in 2018 Global government was 14% an increase from the 11.
<unk> percent in 2018 manufacturing was 8% compared to 10% in 2018 and health care increased to 7% of the business from 5% in 2018.
During the year deals over $100000 increased to 1020 from 868.
Our gross margin for the full year was 88% consistent with the 88% in 2018, we continued to make disciplined and strategic investments in growth and innovation. So for the full year R&D represented 14% of total revenue that's consistent with a 14% in 2018 sales and marketing represented 30 for seven per se.
Total revenue a slight decrease from that 39% in 2018 and Jay represented 8% of total revenue also a slight decrease for the 9% in 2018.
Resulting in strong leverage as well as record operating income and operating margin of $123.4 million in 2019, and a 28% operating margin, which was ahead of our guidance and increased from $90.5 million or 26% operating margin for the full year 2018.
Our net income increased to $107.9 million from $76.5 million in our earnings per diluted share increased by 34% to $2.77 from the $2.06 in 2018.
Our effective tax rate for the year was 19% which was in the range that we projected.
We ended the year with 1380 employees worldwide compared to 1146 at the end of 2018 that includes 656 employees in sales and marketing at the year end up 21% from the 541 at December 30 128 team.
We generated record cash flow from operations in 2019 of $142 million or 33% Kasriel margin.
Now turning to the balance sheet first deferred revenue for the full year increased 27% $290 million at year end.
Also we ended the year with $1.1 billion in cash and marketable securities increased from $451 million at the end of 2018. The increase was driven by the strong cash flow from operations, but also from net proceeds from our November issue of zero coupon convertible notes of approximately 560 million.
Before the capped call.
So regarding the convertible debt issue, we were pleased to execute this financing as such attractive pricing. The deal is structured as a five year note due in November of 2024. The notes also have a provisional call anytime after November 2022 through maturity, assuming certain conditions are met.
The conversion price associated with these nodes is $157.53 that represents a 37 or have presented conversion premium at the time of issue and our convertible into approximately 3.6 million shares.
Importantly, we also took approximately $54 million of the net proceeds and entered into a cap call transaction, which enables us to participate in any upside beyond the conversion price up to $229 $229.14.
Taking into account the cap call. The net proceeds from the financing were approximately $506 million.
So for modeling purposes for the full year 2020, we expect to have approximately $17 million in noncash interest expense related to this offering which will we will be adjusting out of our GAAP financial results and will be reflected in the non-GAAP tables of our financials.
We are using the treasury stock method and as a result, the offering is not dilutive to our EPS in the fourth quarter or the full year 2019.
Moving onto our guidance for the first quarter 2020, and the full year as a reminder, our guidance does not consider any potential impact to financial other income and expenses associated with foreign exchange gains or losses, as we do not trying to estimate future movements in foreign currency rates.
So for the first quarter 2020, we expect total revenue to be in the range of $106 million to $110 million our revenue guidance for the first quarter takes into account the tough growth compared from first quarter last year, particularly in the Americas, Nate BJ, the mix of perpetual and SaaS business, which we estimate will be about $3 million impact.
On revenue in the first quarter as well as the performance in EMEA for 2019.
We expect non-GAAP operating income to range from $16.5 million to $19.5 million and non-GAAP net income per diluted share of 35 to 41 cents. This assumes 39.6 million weighted average diluted shares in a tax rate of approximately 21%.
We are also initiating our guidance for the full year 2020, which reflects the strength of our pipeline and our overall opportunity. We expect total revenue in the range of $511 million to $590 million or growth of approximately 19% at the midpoint, we expect our gross margin to be approximately 86% to 7% for the full year, we expect.
Non-GAAP operating income to be in the range of $109 million to $115 million and non-GAAP net income per diluted share of $2 in 26 cents to $2.38. This assumes 39.8 million weighted average diluted shares.
And assumes guidance for the full year also assumes an effective tax rate of approximately 21%.
For 2020.
We typically experience a sequential revenue decline in the first quarter moderate sequential growth then in Q2 in Q3 in Q4 is our largest revenue quarter of the year on the expense side, we typically see a step up in expenses in the third quarter. As a result of typical increase in employee expenses. We also wanted to point out that we are movie.
And our customer our Americas customer bad to the second quarter. This year. So that will result in a shift in marketing program expenses from the third quarter as we've seen in prior years to the second quarter. This year.
We also expect capital expenditures to be in the range of seven and $8 million, which represents just under 2% of revenue at the midpoint.
As we look at the full year 2020, we expect our cash flow from operations margin to run between five to 10 percentage points higher than our non-GAAP net income margin, we recommend analysts to evaluate our cash flow on an annual basis, given that our free cash flow from operations can vary quarterly based on seasonality of the business.
And taxes and payment of taxes as an example, we just paid approximately 3.8 million taxes already in the first quarter of 2020, which will impact our cash flow from operations. We do not plan to provide quarterly updates on guidance for cash flow from operations.
We're pleased with our 2019 results, which position us well for profitable growth in 2020 and beyond we're looking forward to the year ahead and with that I'll now turn the call over to the operator for Q way.
At this time I'd like to remind everyone in order to ask the question. Please press star followed by the number one on your telephone keypad and for today's Kuni session. We do ask that you limit yourself to only one question. If you have an additional question. We please ask you to re queue.
Thank you and your first question comes from the line of Circuit Calia with Barclays.
Please your line is open.
Hey, guys, how you doing thanks for taking my questions here.
Absolutely.
Hey, Josh lately, so I'll just keep its a one and maybe ill.
Let me maybe for you Josh.
Can you just talk about how you think about the SaaS part of the business here in 2020, I mean, you mentioned, it's roughly a 3 million impact here in Q1, and clearly the vast majority of the business is still you know traditional perpetual license what sort of assumptions do you did you make about how some of the core pass business.
It's comes in between perpetual versus Psas in 2020 as part of that revenue guide.
Yes, good thanks for the question socket.
So I think what we're trying to do here is really you know infuse.
New technologies it to be consumed in the form in the form of Hsas and AUM and we're seeing that last year, we saw EM.
So in its SaaS consumption almost 60% of the bookings were done its asset was a big increase from the year before and we anticipate that to continue to grow this year, we're starting out the year with three bona Fide SaaS.
Products with the Allegro and as well with with the privilege cloud as well in addition to the point a privilege manager the way we look at it from a financial perspective for 2020, you know, we still believe it will be less than 10% of total revenue from SAS, but we do you know we do see.
See you know it's off a small number so we see you know it's a large increase already in in 2019, we you know we almost double the a our from from Sasson subscription business.
On our books and as you pointed out and we've called out in the call. You know, it's already it's kind of already changing our AR.
You know our view on how we are now we look at each quarter and so already in Q1, you know, we're assuming about $3 million kind of going to ratable SaaS business incrementally.
And what we've seen for example in Q1 last year so.
Yeah, I would look at it and in terms of the privilege cloud what we really see is.
Thats still being more of a sweet spot for our commercial.
Market space and creeping up into some of the smaller or medium enterprises that are that are contemplating looking at looking at SaaS products, but.
Overall, we see it.
Growing off of a small base in 2019 and.
And.
Still being though within about 10% to grow revenue.
Got it I'll get back into queue. Thank you.
Our next question comes from the line of Melissa Frenchie with Morgan Stanley Go ahead. Please your line is open.
Okay. Good morning, and thank you for taking my question I have another one for Josh I wanted to dig into the margin outlook for 2020 by my count calculating 30% growth in expenses next year. That's an acceleration can you talk about what's driving that acceleration is it a function of that's accurate maybe.
Perhaps you under invested a little better in 2019, and now you're kind of catching up.
Yeah, Hi, Melissa Thanks, very much so when we look at where we're going to be investing faster than the business, it's really going to come in three areas. The first and largest area will still be it is really in sales and marketing.
No I would.
Tribute roughly if we look at the if we look at these kind of the six points that you're referring to probably half of that is going to be faster investment in sales and marketing and that's really just a reflection of the opportunity that we see in the marketplace.
And.
And we see that every year, we tried to keep.
Keep investing in sales and marketing the second place would be R&D.
And that really goes to some of the things that we talked about our continued innovation.
And also our you know looking at the new technologies that we're putting out there. So we have also the on Prem perpetual and now the new the new SaaS technology products that were out there and I would put data at roughly 2% of that have that 6%. The other piece on R&D.
Is that we do have a little bit of impact from the FX as well so that 2% gets a share of the east of the shekel.
Increased a stronger shekel rate as well.
Then the third piece a about 1%.
I would put at the at the cost of goods and that really goes to again.
Our increase in SaaS products, and the fact that we're investing more and more in our vehicle to be able to a third party host DSS products and going into the cost of goods.
Okay. That's very helpful. Thank you.
Your next question comes from the line of Sterling Auty with JP. Morgan go ahead. Please your line is open.
Yes, thanks, guys.
Ill dive into the comments I think you called out France, and Germany in particular, how much of this is end market just macro.
You've done a good job improving execution through the years in the in the region is there any other changes that you can make to kind of bolster what you're seeing in that in that market place and what are you kind of factored into your guide.
Hey, starting really here, so yes, definitely I think in Germany clear clear macro headwinds that we saw throughout throughout the throughout the year end, but especially in Q4 in the same applies for four for France, So kind of up to two strong in burn at Barnes European Nick.
I want to me.
Where our drag on us, whereas the the UK actually outperformed the rate of.
The business, we always have even on when you have back or we always combined and put attention to our own execution and theyre actually afras specifically.
As a lot of new headcount there was added throughout throughout the year that we expect you.
To perform much better.
And get.
And improve our.
Contribution from the region in in 2020, so we still expect that we factored that in in our in our guide for sure, but like I said overall.
We're we're optimistic that that will have a better here in EMEA.
Thank you.
Our next question comes from the line of Jonathan Ho with William Blair Go ahead. Please your line is open.
Hi, Good morning, I, just wanted to maybe starting a little bit went on the competitive landscape are you guys thing any sort of shift there or any other improvement or worsening of the competitors that are out there. Thank you.
Yeah, Hi, Jonathan I would say no major change since.
In the last in the last year, probably slightly more competitive rip and replace that we've been seeing and we gave some examples.
On the call, but still most of the opportunities out there.
I would say more than 60% of of the businesses is a greenfield.
Opportunities and so we see the same of the same competition and I would say that our leadership is even stronger with.
With our new Alvaro, which is a very exciting use case for the entire customer base and every prospect.
And with our strategic investment in A.M., especially for us for dynamic applications I would say strengthened a stronger leadership position.
And no change from from the competitors the themselves.
And our next question comes from the line of Rob Owens with Piper Sandler Go ahead. Please your line is open.
A question as we.
In fact, the guidance for the coming here in the implied acceleration that.
In the guidance relative to Q1 versus kind of the total year.
Being mindful of increasing SAS curious what else might drive that acceleration outside of the comps and with regard to the SaaS revenue is that one year up front is that multiple years I'm just curious what the free cash flow or the operating cash flow per year guides impact might be thanks.
And that was one question, but two parts.
Yes, so Rob I'll answer the second one because I still remember it.
Yes, basically in terms of the average duration on the Psas were getting around 18 to 20 months.
So far historically on those contracts and I think the the your first question was related to a expanding from the Q1 guide to the to the full year and the opportunity.
And.
No absolutely when we look at the full year, we were looking at the full year the full year a pipeline.
And the opportunity and the investments that we made towards the back half of last year and going into into the first quarter of this year and I think as I already talked about the come the competitive environment is still you know it's still the sand that's been a major transition there the market is still growing.
You know in we're seeing numbers certainly at the 20% level.
And we feel comfortable that will really be able to.
To stay with that and and take the opportunity during the year and were pleased with the with the full year guidance of 19.
Thats at the midpoint and be able to do that as well with 22% operating margin.
Great. Thank you.
Welcome.
Our next question comes from the line of Sina Boolani with you, but yes go ahead. Please your line is open.
Thank you for getting the question I have a cash flow question as well so for you Josh I appreciate the annual color on the cash flow guidance, but as I think about how the business mix is shifting you're adding more subscription into the mix.
You have seen in general trend towards annual invoicing I'm wondering why the cash flow guidance.
5% to 10% higher than net income margins is still sort of intact relative to history.
You can just help me unpacked some of the drivers.
Certainly into drivers and deferred revenue growth there that would be really helpful. Thank you.
Yes, so I think that.
So again, we're still talking about.
That piece of the of the Cessna subscription being under under 10% of the of the other expected revenue. This year. So we still see the overwhelming majority coming from perpetual with our maintenance and services.
Components. So we at this point you know don't see don't really have a C that it's going to impact it.
Outside of that range and.
We are getting more than a year contract on average.
From our from our subscription business, which which in some cases are paid annually, but also still in many cases are paid.
Full up fraud, even if it's if its two or three years. So.
We're still we're still comfortable with that.
The deferred revenue growth.
From 2019 is still the majority coming from our.
Our maintenance and support contracts the overwhelming majority is still above 90%.
But again as we creep into.
One more percent and one more percent of Hsas and subscription business. It does it can impact certainly when we look at revenue from a quarter to quarter perspective.
And our next question comes from the line of Gregg Moskowitz with Mizuho go ahead. Please your line is open.
Okay. Thank you guys.
So this was a record net new logos quarter as you pointed out earlier, how much of this is a function of the midmarket rollout in 2019, as compared with having stronger advisory relationships and more direct sales capacity as well.
I would say there was a hi, Greg only here I would say there was definitely contribution.
From miles from the new.
Midmarket motion, but a lot of these were were enterprise accounts and really executing on our on our global range.
Two.
To the enterprise.
Yes, the we're super excited about the contribution of of the advisory.
Muscle some of that as new logos, but a lot of that is is also bringing existing customers into into program. So it's a combination of of reaching into.
Into the mid market, but we were there we were there before but it has accelerated but a lot of these new logos are in our sweet spot enterprise.
Great. Thank you.
Sure.
Our next question comes from line of Catharine Trebnick from Darden go ahead. Please your line is open.
Thank you for taking my question can you.
Discuss more global federal and U.S. federal and the contribution of U.S. Federal and then the screen a what's kind of strength you're seeing into 2020. Thank you.
Oh, absolutely I Kathryn.
We talked a lot about it following a very a record.
Q3 in a in 19 of where where we really saw a federal.
Programs.
Kick in.
And and froze access management as part of CDM and and defend funded funded programs were.
We're definitely.
In plan to.
To expand a lot of the.
Listing customer base within federal but then but also it's still very much greenfield.
On both the core core beverage access management and indefinitely without growth engines.
Application access manager, our Alvaro our endpoint privilege management. So it's a it's an important part of the business and that was just on federal in the rest of the World I think we we saw we talked a lot that its.
It's becoming off.
Our second global government as our is often our second or third largest vertical in a given a quarter and that includes the fact that we sell globally.
BJ governments European governments on top of Canada and on top of the U.S Federal So it's definitely part of opportunity and I think that the beauty is that we invested we have the.
The certifications.
In place we continue to.
To invest and and the team is going after it.
Thank you.
Thank you.
Our next question comes from the line of Girls Kurt Talpaz from Stifel. Go ahead. Please your line is open.
Okay. Thank you for taking my question Woody you provided some interesting customer commentary on the call with application credentials.
Are you seeing greater interference centralized application user security management, and how do you think about the am opportunity within the installed base.
So I could you just repeat the first part.
Yes, it's are you seeing greater interest incurred a centralized application and user security management within yeah within the base.
Yeah, So absolutely I think in.
It's the motion with A.M. is super exciting because it there's a security driver and there's a digital transformation driver of the suite now really close our our solution for.
For legacy applications are about it, but a bigger and growing motion.
As our solution for for dynamic application management and yes, that's a very often driven in both directions, Chief Security officer, and the security team wants a centralized way of managing these credentials and rolling out applications in the secure way and developers just want to get the work done. So we invested a lot in making it very easy for us.
The developer.
But but also disconnection of the a into our to our full platform. So the chief Security officer sees the the benefits of a holistic solution for both applications and humans and and so yes. So it's a it's an important growth engine for offer Submarket had a record year was 11%.
2019 license revenue and it's an important piece for us.
Thank you.
Thank you.
Next question comes from the line of Tal Liani with Bank of America Go ahead. Please your line is open.
Hi, guys can you hear me.
Yes.
Okay I hope you can hear me now.
I want to ask a question about.
The revenue is one of the answers you gave Josh was about the growth in.
Recurring revenues versus perpetual.
And I'm trying to understand if it's the same product that is now being shifted.
From grow up perpetual to recurring and this is why the decline is is related to the shift into business model. The the question is whether you see any slowdown in the core business.
And then I'm not related to that you see growth in new types of businesses and net net you are growing nicely.
For that.
It's more a shift in the business model.
Which has different implications for the for the core business.
Yes. So so first of all in 2019 the shift on the to the recurring business was primarily around the endpoint privilege manager, which has always been.
One of our a kind of growth engines, and and faster growing off of smaller base product. So it really wasn't.
Move from from the core Biz.
And.
And as we kind of look into 2020, where we'll see some.
Some movement from a a with the privilege cloud.
Yes.
But particularly to two incremental group of customers for what we're seeing or to the commercial markets that that might have bought on prem subscription.
And maybe two to some larger.
Two smaller enterprises.
You know, we kind of always and Allegro, which is which is in for 2020 as well you know again, we expect that to grow faster than the business as it's a new product so.
I think overall and we look at the business you know every year over the last several years.
We we are always kind of looking at.
Kind of what we called in the past even emerging products like our endpoint privilege manager our application excess manager as growing faster than the business in general and we don't necessarily and this year and this should we have the privilege cloud as well, we don't necessarily see a slowdown.
With our current with our core business, we see a growing with the market.
Got it and I know I only have one question, but I wanted to ask if you don't mind to repeat the reasons for the lower.
Operating margin you went over it quickly thanks, yeah. So.
If there is.
You take the 6%.
On the operating margin half of that is sales and marketing.
2% would be a 2% of the 6% would be R&D, which some of it is FX.
And then 1% on cost of goods related to our.
Our continued investment in deploying cloud infrastructure.
Great. Thank you.
Our next question comes from the line of Andrew Nowinski with D.A. Davidson go ahead. Please your line is open.
Alright. Thank you so out of questioning your billings in Q4 typically is heavy on maintenance renewals, but it looks like billings decelerated down to about 16% in Q4 below the 20% market growth rate that you had mentioned so I was wondering if you could comment on whether you know renewal rates may have changed or if there were any other factors.
Backing that growth rate. Thanks.
No Andrew a renewal rates are still a you know at the 90 plus percent level.
And.
You know deferred revenues grew by 27% a year on year Oh. So there was nothing remarkable that I would point out I'd have to kind of really dig a lot deeper see if there was something seasonal.
In the quarter.
Okay. Thanks.
Our next question comes from line of Gray Powell with BTI G. Go ahead. Please your line is open.
Great. Thanks for taking the question I just want to follow up on an earlier question on a macro environment and how it's factored into guidance should we expect EMEA revenue trends to improve from the pace in 2019, where should we expect current trend lines just to continue I'm just trying to clarify something that I thought I heard you say earlier in the queuing it.
Yes, I'll take it has liberty.
We expect them to improve in the back half of here.
As we as we get returns from investments from hiring we did.
At the end of this year and at the end of 19 and and hiring we're doing in the and the first off the from from pharma start so yes.
Got it and that's that's baked into the guidance.
Yes, and as we think you know when we think about easy on the macro obviously you know that's not in our control and its and its a you know we're coming out of 19, you know seeing that so that's baked into the first quarter guidance guidance and as we try to move forward, we'll see we'll be able to adjust its also has a component.
The full year guidance as well.
Got it okay I got that makes sense. Thank you very much.
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And once again as a reminder, if you'd like to ask a question. We do ask you to press Star then one on your telephone keypad. Our next question comes from the line of Cosco Jolly front side Guggenheim Partners go ahead. Please your line is open.
Hi, Thanks for taking my question <unk> question about the duration or offer contracts. If I look at fiscal 17 in fiscal 18. After the duration went up quite a bit odd based on the long term before it's extended in fiscal 19, how should we think about duration in fiscal 2000, <unk> you think the long term deferred mix remains at the same level or should that change.
Fiscal Connie.
Yes, I think at this point.
You know, we don't see any evidence of it up it necessarily changing behavior between what we've seen historically and 2020, but I.
I think.
The the the SaaS contracts, we see will be shorter duration and the maintenance.
And the mid to that so we see us.
Combination of one year and multiple year, it's hard for us to really.
Say that it's going to change dramatically.
One thing.
One thing that we are seeing more of is that in the multiple your contracts. There. There is a even on the mentioned as there is more of a shift.
To annual payments to two to some degree so that would show that would make it longer term, but I think right now I would take the trend that we saw in 2019 and meat and build up that.
Thank you.
Our next question comes from the line of Erik Suppiger with G. M. P. Securities Go ahead. Please your line is open.
Yes, thanks for taking my question.
One I'm just curious what are you assuming in terms of.
M. contribution.
2020.
We start see those approach 20 person contribution.
Secondly, I understand Asian did well, but.
Do you have any any reason to think that.
The virus issues, there are going to be causing any disruption there.
Okay, Yeah, Hi, Eric I'll take the first one we know we're not going to guide a by product, but we absolutely do expect.
Yeah, and M. do you know to grow.
Even past, possibly faster than the business. However at the on the flip side, we're seeing a a certainly on m., it's going to be on assaf basis. So the average deal sizes will be smaller.
And it will be recognized Ratably. So you know we can't necessarily say, how that's going to shake out from from the revenue perspective, but we do see them, a becoming bigger bigger more in in is connected to more and more deals and certainly from a from a opportunity perspective, even grow.
Faster than the business and I will take other question on on on NHP, Jay. So so obviously, our our number one priority is our employees in the region and.
And their families and in part of the regions. They they've taken steps to reduce a travel we're watching it closely China is a very small percentage of our of our business. So at this point, we don't see is having a major impact on our results.
Josh can I just come back is.
Is there a goal or target of getting getting contribution from both.
P M. Two twentyish percent at any point or or can you give us just kind of a color some color around where that might go.
Oh, you know, we obviously, we have our own internal goals of growing those pieces of the business and we have overlay teams that are focused on those specific sides of the business but.
Eric.
No I don't want to you know again, we're not going to get to position, where we'll guide specifically those products, but we.
We.
'cause it would just be too hard for us to two to do that but absolutely we expected to be bigger piece of a bigger more and more opportunities each year and I would say a I think the beauty is is that all products can can win.
We have such a greenfield in pure privilege access management and and the a and the customer now has the ability to especially as we go down mid market. They can consume even privileged access management and as as a cloud service, which is which is.
In an exciting offering for us and the growth engines can behave like like growth engines on on top of that both for new customers and an adult so the way the way we we look at it internally is.
All products saw winning and making sure that the growth engines are.
Our at a high pace.
Thank you.
And our next question comes from the line of Nick Jaco with Cowen Go ahead. Please your line is open.
Hey, guys. Thanks for taking my question with Matt taking over as the head of the sales organization anything you can share around his strategy or new initiatives. He hopes to implement in 2020.
Absolutely.
First of almost I would say, Matt Matt came I'm excited and we're excited to have.
Matt joined here and he was was super pleased to see the quality of the team or the quality of the customer base and the market opportunity. So staying focused on retaining the things that have work.
And then we were very selective and and bringing met onboard so that he will really.
To help us build the best.
Path to a billion dollar and beyond scalable organization and he's focused on those things that have to do with.
With with scaling the business.
Ill name a few but one of his first priorities is on the Omnichannel front.
Further strengthening and leveraging our global channels I mentioned the advisories.
Adding our our sales kickoff, we just really.
How have the partners here to build this even bigger.
Now the one and he has tremendous opportunity there is in customer success is how do we refined.
Our customer success one for scale.
And also for for stronger cross functional alignment like you need in a in a company with increasing services oriented offering the more the more SaaS solutions.
We have out there and there are additional.
Elements around.
Our demand generation a engine refining our our market.
Segmentation that that he's working on and so yeah. We're very excited to the have met on board and just worked with us too.
To take this to the next level.
Great. Thank you.
Thank you.
Last question comes from the line of Howard Smith with first analysis go ahead. Please your line is open.
Yes. Thank you for squeezing me in here. So I just wanted to follow up on some of your mid enterprise initiatives I know, it's still small early days, but could you talk a little bit about whether the competitive.
Environment, you see there is different than your traditional set of competitors that you've talked about and also in terms of go to market strategy is that purely kind of a channel approach that that's helping support for strong channel numbers or do you target some of those direct.
Yeah, absolutely Howard I, I would say that.
Mid market, we do encounter.
The smaller.
Layers in and Pam that.
I don't really play on the enterprise front like.
I think kotick, but ours are seeing great wins.
Especially with now do we have the optionality to offer all of the SAS Sasol assess solution to do that to that market. So the go to market is very much leading with especially 2020, leading with privilege cloud.
So software as a service solution for Pam too.
To this through this market and and and you're right.
The Moreover channel focus to this to this market segment.
Great. Thank you congrats on a great year.
Thank you very much thanks.
And with that I'd like turn the call back over to really Mccarty for some closing remarks.
Thank you James I want to thank our customers partners and employees, who contributed to Cyberarks record results in 2019, and thank you everyone for joining our call today. Thank you.
This concludes todays conference call you may now disconnect.
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