Q1 2020 Earnings Call
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I would like to hand, the conference over to one of our speakers for today Mr. Erika Smith Ma'am. Please go ahead.
Thank you Angel good morning, Thank you for joining us today to review Cyberoptics first quarter 2020 financial results with me on the call today, our Udi Mokady, Chairman and Chief Executive Officer, and Josh Siegel Chief Financial Officer. After prepared remarks, we will open up the call to a question answer session before we begin let me.
Let me remind you that certain statements made on the call today, maybe considered forward looking statements, 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 second quarter.
Actual results may differ materially from those projected in these forward looking statements.
I direct your attention to the risk factors contained in the company's annual report on form 20-F filed with the U.S. Securities Exchange Commission and newest referenced in today's press releases that are posted to cyber its website, including statements regarding the duration in scope of the koby 19 pandemic in its related impact on global economies, our ability to address.
Separations in response to the Cobot 19 pandemic as well is our ability to integrate drive adoption in recognize revenue from the acquisition of adoptive cell.
Fabric expressly disclaims any application are undertaking true to release publicly any updates or revisions to any forward looking statements made today.
Finally, non-GAAP financial measures will be discussed on this conference call reconciliations to the most directly comparable GAAP financial measures are also available in today's press release or in the supplemental historic information both of which can be found at www Dot Cyberark Dotcom and <unk> Investor Relations section also a wet.
Well on our website.
Now I'd like to turn the call over to our chairman and Chief Executive Officer, who do you. Okay duty, thanks, Erica and I want to thank everyone for joining the call. This morning, We hope you and your families are staying healthy unsafe. During this extraordinary type well being of our global community remains over first priority and we are continuing to evolve our policies and procedures.
In response to the covert 19 pandemic I want to thank our employees customers and partners for their continued support and agility and dedication in these times.
We have a lot of delta covered today My plan is to start with the adaptive acquisition and I would directly aligns with our mission outline our response to covert the covered 19 pandemic provide brief details on the first quarter on recent trends and lastly, we view our priorities for the rest of the year before turning it over to Josh.
This morning, we announced the acquisition of adaptive and industry, leading identity as a service provider, which includes a I powered single sign on adaptive multifactor authentication and zero Trust functionality.
We are excited about the technology and the team as we work together to deliver the Industrys only modern identity security platform.
And speaking with customers they recognize that the provisioning of privileges even temporarily is creating a pathway for attackers to execute sophisticated attacks and in general is expanding the attack surface together with adaptive we will better secure traditional privileged use cases and also extend our solution to adjacent identities that have various.
Levels of privileged access.
If we look broadly we are seeing brews axis and activities proliferate across all identities driven by digital transformation cloud and automation initiatives. We believe our approach to managing these are that east with privileged access management at its foundation will significantly reduce risk simplify operations and improved business a joke.
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With this acquisition, we also had another SaaS offering to our portfolio increase our recurring revenue and expand our total addressable market to sell into the 25 billion dollar axis management market.
We welcome all of our adaptive employees leadership team and Danny Kibble adaptive CEO to the Cyberark family and I'm looking forward to learning from each other.
I would love to talk more about our excitement and vision for adaptive well, we have limited time today and I'll move on how our cobot 19 response is progressing.
We delivered uninterrupted customer support while transitioning our staff to remote locations, providing 24 by seven service and ensuring customers and partners have the resources required to help keep their businesses up and running.
We're also offering alere at no cost into June.
Delivered as assessed solution Alere offers quick time to value, enabling remote employees and contractors to securely access cyberark through biometric authentication without having to yet.
Our IC organization worked tirelessly to ensure all of our employees were able to work security from home and as we were closing our global offices in March.
Our security services has done a great job adjusting and is delivering all services remote including consulting implementation program delivery Red teaming cloud and education services.
Our sales team has always works and remote location and is quickly adapting to virtual engagements, while marketing has shifted to digital progress.
Our longstanding relationships with existing customers have been easier to transition to virtual interactions with prospects. We have established a virtual sales motion that is evolving with meetings demos and proof of concepts happening online. We are building trust with these organizations and demonstrating the value security and business efficiency of our solutions.
In some ways, we're benefiting from having no physical boundaries, because digital marketing and virtual events are more efficient scalable and allow us to extend our reach.
Our quick response operation agility and focused enabled us to deliver results in line with or exceeding all guided metrics for the first quarter.
Total revenue of $107 million non-GAAP operating income of $22 million and gone non-GAAP EPS of 50 cents per share.
At the end of the quarter. Some companies began making shorter term decisions due to the uncertainty of cobot 19, which affected our license revenue in the first quarter. Overall, we were pleased to see the strong deal flow at the end of Q1, we also accelerated pipeline generation significant the late in March demonstrating that privileged access management is a tough.
Priority in fact, we signed nearly 160, new logos in the quarter and add on revenue from existing customers grew by about 25%.
From a fundamental perspective, the drivers of our business early in Q1 in today's covert 19 world and longer term remained essentially unchanged, but coping 19 is accelerating many of the themes contributing to the long term growth we're privileged access management.
Our customers have immediate needs as they transition and secure business operations and remote employees customers added laptops and unprecedented pace and the bleser accessing corporate resources from any end everywhere.
This is not only its expanded the attack surface, but it has placed incredible strain on organizations, especially I'd and security.
In response, we are seeing growing demand for our assessment folio, which aligns directly with this new business paradigm.
We're looking forward to adding adaptive to this mix.
As an example late in the first quarter, a large U.S. financial services company turn to Cyberark to secure its remote employees significantly expanding access users for endpoint brothers manager.
M. locks down the endpoint provides application control and improved efficiency by reducing helped us call volume.
If you I'm also stops ransomware progression and we have already seen an uptick in ransomware attacks like maze that is used to encrypt an extra trade data.
The long term fundamentals for mm are strong and our pipeline is growing as customers secure new endpoints and strengthened security controls.
Momentum also continued to build for our privilege cloud.
In one example utility company in the UK undergoing its digital transformation is moving off of any competitive solution to privilege club and became a new cyberark customer in Q1.
We have incredible interest in our little solution, including the covert 19 free subscription.
A European Transportation company, who participated in the free offer recognize the fast time to value and signed a longer term commitments for more than 1500 global users.
Alere combined zero trust axis biometric authentication and just in time provisioning to allow customers to easily a securely access cyberark without a VPN.
When combined with adaptive Ida offering we believe a level will be that much more powerful.
[noise] securing applications is that the core of digital transformation strategies, which are only accelerating with covert 19, we had a strong quarter for am with a number of great wins, including a cross sell example at a federal agency customer will secure secrets for the development of its most critical applications running in Red hat Openshift.
Corporate access security is the lions share of our business today and is even more relevant in organizations designing their enterprise security strategy in a covert world. We saw excellent acceleration in customer expansion in Q1, which reinforces this point in a seven figure deal if pharmaceutical customer implemented the next phase of its Cyberark program with core pass.
All business users and remote offices will now axis applications and network resources through cyber.
With the abrupt business stages in March applications, and infrastructure were deployed without full testing or security attackers are being more aggressive exploiting the situation in this elevated threat landscape pipeline generation across our solutions accelerated late in Q1 as companies realize they needed to adjust their past strategy to accommodate these changes.
There have also been an uptick in our remediation services engagements, while we're not a remediation for securing privilege access is one of the first steps in gaining control over a breach environment.
Our labs team accelerated its worked to analyze new attack vectors and vulnerabilities created by the remote work work environment. We recently published the teams findings that a motivated attacker could easily launch a widespread spread datasets campaign using an image filed in Microsoft teams working closely with Microsoft the immediate risk associated with this attack.
Vector was quickly mitigated.
At the RC Conference back in February we met with hundreds of customers prospect than partners, who reaffirmed three main themes first Pam is the foundation of a comprehensive security program.
Second we have a long runway for growth and third the sprawl or privilege access activity is a major pinpoint and security concerns.
This feedback from our say strengthened our commitment to deliver a modern identity security platform.
Over the last few weeks, we have critically analyze our business and want to share with you some of the major risks and opportunities over the next few quarters.
Early in the second quarter, we have continued to win new logos and we have had a lot of new business activity, including significant pipeline generation. However, we expect the new business environment to be more challenging near term we have established a virtual sales motion and the team is building trust with prospects, we're well positioned but this is a new process for both us and the prosper.
We also anticipate business will still down certain industries that are in survival mode, like retail travel and oil and gas.
On the opportunities site, we sell into the enterprise and have strong established relationships with a roster of nearly 5500 loyal customers, including many of the world's leading companies and added about 500 more customers from adaptive today.
We also benefit from that if the diversification of our business across verticals geographies and delivery, while the verticals I mentioned have been impacted more acutely, we have mature opportunities and the growing pipeline in banking insurance healthcare global government pharmaceuticals, and utilities that are less affected.
We also have a broad portfolio of solutions that aligns directly with the current environment like Edwin privilege manager Allegro and brokerage club.
Obligation axis manager secures digital transformation initiatives and Corp. image access protect against advanced attacks.
Lastly, we have a truly global footprint, which will help cushion against the potential volatility as economies open.
For the remainder of the or our R&D team will deliver innovation into our cloud and core privilege access solutions sales and marketing will strengthen our virtual sales motion and digital programs, we will focus on delivering high levels of customer and partner satisfaction, while enhancing our customer success team.
And lastly, the entire company is focused on the smooth integration of adaptive.
In this new world people that technology are more tightly woven together than ever expanding the attack surface.
Security and Pam are not discretionary spending, particularly as attackers become more aggressive.
April and early May have been strong we're pleased with the close rates and the number of opportunities progressing through the funnel is increasing for both new and add on business. While we faced near term uncertainty. We also have an opportunity to strengthen the company and emerged stronger.
As a result, we plan to continue to hire from key positions and invest in the business, but we will do it the cyberark way balancing our investments against our topline expectations, which Josh will discuss in a few minutes.
Acquisition of adaptive physician cyberark to deliver the Industrys only modern identity security platform further separating us from the competition.
We're closely monitoring the cobot 19 situation and are confident that our leadership position strong market fundamentals experienced leadership team and long term spec strategy will position the company to accelerate growth when the business environment stabilizes.
I will now turn the call over to Josh to discuss our financials and outlook for the second quarter Josh.
Yes, Thanks, Rudy I want to reiterate what do you said at the beginning of the call I wish everyone health and safety during the unprecedented times.
For the first quarter total revenue was $106.8 billion up 11% from $95.9 million in the first quarter last year since we typically close around 60% of our business in the last month, including a high percentage in the last two weeks for the quarter. We're pleased to deliver revenue in line with guidance, even with the rapid decline in the business and buyer.
During March due to Kobin 19.
License revenue was $51.7 million compared to $51.3 million in the first quarter 2019.
As the selling environment changed we did see some deals cancelled or worst and certain deals were downsize late in the first quarter, even with the uncertainty we closed a tremendous amount of deal volume late in Q1.
At our business increased to 79% of license revenue in the first quarter, that's compared to 63% from add on business for the full year 2019.
We're very pleased that recurring SaaS subscription revenue more than doubled in the first quarter, 15% of license and thats compared with 7% in the first quarter last year.
So subscription revenue represented 10% of license driven by increased demand for Corp.
Application or access manager as a subscription up significantly from 4% of license in the first quarter last year. In addition, we're pleased with the performance of our sales portfolio, including our employee privilege manager prevents crowd analysts solutions SaaS revenue increased to about 5% of license revenue that's all from.
3% of license in the first quarter last year.
The mix towards that and subscription impacted or lowered our revenue by about $5 million into first quarter 2020 that effectively impacts our license growth rate by 10%.
To give you more color on the product side application access manager and employee privilege manager each represented about 70% of license revenue.
Maintenance and services revenue was 55.2 million growing 24% from the 44.7 million last year.
So services revenue associated with this side was $9.1 million or 8% of total revenue.
Geographically the Americas generated 69.9 million in revenue, increasing 13% year on year, and representing 65% of total revenue EMEA grew by 8% year on year to 27.
$47.4 million or 26% of total revenue at AK, Jay generated $9.5 million in revenue increased 11% compared to the first quarter of last year and that represented 9% of total revenue.
In terms of radicals well government was our fastest growing vertical in the first quarter.
Also experienced strong year on year growth in insurance pharma transportation and energy.
As Gary mentioned, we expect over 19 related macro business challenges to persist in segments of energy retail and travel for additional color last year 29 team energy was about 7% of total bookings retail was 5% and transportation travel represented additional 3%.
Business.
All right items to the PML will now be discussed on a non-GAAP basis.
This data from GAAP to non-GAAP reconciliation of the tables of our press release.
Our first quarter gross profit was $92.5 million or 87% gross margin, that's compared to 88% gross margin in the first quarter last year as a result of the lower license mix, including the increase in SaaS revenue in the first quarter of 2020.
If we mapped out with DHL R&D expense grew by 30% year on year $18.3 million sales and marketing increased 19% to $44.7 million.
And that includes $500000 and nonrecurring cancellation charges related to transitioning our global customer event to virtual.
January expense increased 5% year on year $2 million in total operating expenses for the first quarter increased 40% to $70.9 million and that's compared with $59.3 million for the first quarter last year.
Our operating income was ahead of our guidance at $21.5 million or 20% operating margin.
A reminder, over 70% of our operating expenses are related to headcount in January February we were executing well against our aggressive hiring plan and we ended the first quarter with 1490 employees worldwide, that's up from 1200 or for a year ago or more than 100 employees since December 31.
2019.
Total employee count.
696 employees are in sales and marketing compared to 567 at the end of first quarter last year.
Much of the outperformance in our operating income in the first quarter was related to our deliberate slow down hiring in March lower travel expenses as well as variable compensation.
Net income was $19.6 million or 50 cents per diluted share for the first quarter compared to $21.5 million or 56 cents per diluted share for the first quarter last year.
I wanted to take this opportunity to outline where we stand financially.
We have a durable business model that generates significant cash flow from operations in the first quarter cash flow was $33.8 million or 32% cash flow margin and we're pleased that the margin exceeded our forecast of five to 10 percentage points above our non-GAAP net income margin of 18.3% in the first quarter. This cash.
Well contributor to our strong balance sheet, and we ended the quarter with $1.2 billion in cash and investments.
This cash balance will be impacted.
By the approximately $70 million related to the acquisition of adaptive.
We also increased deferred revenue by 23% year on year to $211 million approximately 5% of total deferred revenue related to recurring SaaS contracts and this compares to $171 million at March 31 last year, and 3% of total deferred related to assess.
Turning to our outlook.
We have a robust mature our pipeline more salespeople given the high early in Q1 and believe we have adjusted well to the new remote selling environment. However, we are only about eight weeks into the major effects of the covert 19 pandemic.
Global shutdowns business uncertainty and resulting economic downturn.
As far as well, there's positive momentum and a real business need for Pam, we have limited visibility into our customers decision, making processes and lack data on clothes and conversion rates in this environment.
As Gary mentioned certain industries have been impacted harder than others, and we expect customers make shorter term decisions, which could lower deal sizes.
In addition, we're seeing more project and project scrutiny, which we couldn't believe well less than sales cycles.
Our source is very sticky and while we have a strong renewal rates, we do anticipate that the current uncertainty may have some broader impact.
All these factors make it difficult to predict the timing of one deals will close.
So we are withdrawing our revenue non-GAAP operating income and non-GAAP EPS guidance for the full year 2020.
Well that said the management team remains committed to delivering profitable growth the more than 100 employees. We added in the first quarter position us well for this year, while we intend to hire a key roles in the remainder 2020, we already planned to add about 30 to 35 people in both the second and third quarters.
We will monitor the covered 19 situation closely and given our high gross margins and that most of our expenses are related to headcount, we have flexibility to adjust our hiring to better align with the top line as we move through the year.
While cash flow from operations will be impacted by the current economic environment. It is too difficult to forecast at what level as well as though while we expect to generate positive free cash flow for the year. We're withdrawing the guardrails that were previously discussed.
We are providing guidance for the second quarter, which reflects our mature pipeline of opportunities with six to nine months sales cycles and our strong deal closing activity for April and May while still considering the pervasive uncertainty in the market and changes in the business environment due to colder 19, we have widened the range for a second quarter guys.
I didn't expect total revenue of between $95 million to $105 million, we anticipate approximately $58 million in maintenance and services revenue for the second quarter.
We expect to generate non-GAAP operating income to read between $7 million to $60 million and non-GAAP net income per diluted share of 17 to 35 cents. This assumes between three to have to Florida half million dollars in additional expenses this quarter related to the approximate 130 people from I doubt that who joined Cyberark today.
Our guidance does not assume onetime integration expenses or incremental revenue from that from the acquisition of adaptive and the second quarter as we have not yet completed the purchase price accounting review.
We estimate 39.4 million weighted average diluted shares at an effective tax rate of about 24% for the second quarter.
I bet is a great acquisition the company brings a world class I'd ask platform and deep identity expertise with adaptive we're also expanding our portfolio with another SaaS solution, which we expect to more than double our status.
Adding approximately $16 million to $18 million to our $13 million they are from existing SaaS solutions.
We believe that with our strong balance sheet powerful financial model and balanced approach to growth and profitability Cyberark, we'll be able to successfully navigate the carbon 19 situation and we'll be well positioned as the environment improves.
I will now turn the call over to the operator for today.
And ladies and gentlemen at this time as a reminder, if he would like to ask an audio question. Please press star one on your telephone keypad.
We'll pause for a moment to compile the Q and a roster.
And your first question comes from the line.
As the Cat Kelly. Please go ahead.
Okay, Hey, good morning, guys. Thanks for taking my questions here help everyone's doing well.
[music].
Hey, maybe maybe first for you LTE congrats on the deal can you just talk a little bit more about the strategy for identive, a little bit it sounds like it's potentially the same buyer as your core Pam solution, but how do you sort of envision privilege identity.
Perhaps what we'll call non privilege identity sort of meshing together over time.
Yeah, Thanks seconds, and a good to hear from you and football as well, we view as well.
We're very excited we've been working on the on the strategic process for a while to execute our vision to deliver a modern identity security solution and further take us to be this modern identity security company. We believed that the access issue is the security issue we saw for lift.
Operation of privileges in a in the Palm World. We're also seeing credentials as the primarily attack 0.4 for the at the beginning of attack cycles. So we're taking a security first approach to managing identities.
And with adaptive it allows us to cater to the security oriented enterprise customers that we work so closely with with today and those that that want to approach managing identities as a as a security issue and again from from a single best in class.
Vendor.
And of course, it will take us to beyond security it expenses too.
Securing business users and the and thinking even a bigger part in the digital transformation strategies that our customers ongoing so beyond the security, but also take us due.
To the digital officers to the CIO in companies.
Got it that's really helpful. Maybe for my follow up for you Josh helpful commentary there at the end in terms of the error or kind of addition that adaptive brings can you just dig into the profile just a little bit more.
Particularly interested in billings here and growth rate. So can you talk a little bit about what are the billings terms here in terms of annual and advance versus sort of multiyear upfront what sort of the averaged a.
Contract duration, and what sort of the growth rate that adaptive has seen overtime.
Got a broad brush us sorry that was a lot there does that make sense.
Yeah. It makes sense and let's remember this is very new I think we're about 15 hours after close.
Formulaic.
So we're.
We're still.
We're still absorbing but I think that's questions a pretty straight forward I mentioned today already in the call that we're looking at adopting and other.
Quickly $16 million to $18 million if they are.
I think with regard to their selling patterns, what we say what we at least the data is that their contracts are are roughly just over a year on average so call. It a you know up 14 to 15 months on average.
It's kind of what they've been experience and when they build they typically have drilling one year upfront so they're collecting a one year at a time and.
Actually the growth rate I think that's something that.
You know there they are pretty fresh in into the game being.
So for the last year and a half as as an organization and I know in the end.
And the last year, it's been certainly into the double digits growth, but I think.
Let's.
I think we'll be able to talk a lot more about the growth expectations.
In the next couple quarters as we observed seven cyberark.
And your next question comes from a line of became Abalone. Please go ahead.
Good morning, Thank you for taking the questions Mr., all healthy and safe.
Josh.
Operator or is everything a good.
Yes. So she can drop just please press star one.
[noise] [noise] edamame, if he would please press star one again.
[noise] [noise] operator next question comes your next question comes the line of shall you. All please go ahead.
Thank you.
Hi, everybody hope everybody is doing fine.
A question on adaptable so building going on sockets. Prior questions. So no worried that transaction completely makes sense completely in line with private transactions, whether its conjure than any other.
Pride people culture product et cetera, right from wrong.
Imagine you some of the I DAP 15 from there.
Five days.
Where are you targeting the Ida speeds that are now.
Uh huh.
Taken that and also did that gets you into elevated competition.
And with some other various providers as this women's lanes within the broader identity, we now gradually glaring.
Yes, I should will and that great to hear from you. Yes. They were I adaptive were spun out of of Centrify before and we were laser focused and interested in adaptive as a standalone company because it's it's been a growth engine focused on creating a modern platform for.
Or for that for identity as a service and we wanted to our foray into this market to be with with fresh in a modern platform to execute on on our strategy and we're very excited about about the team a lot of the team members are actually identity experts, but the fact that many of them.
Our super familiar with the Pam market is a is an extra bonus and enter conversations is going to make the be integration even more powerful as we then understand both markets with regards to I would say extended a competition, we're taking a security first.
Approach in this and and focused on our enterprise customers.
But we'll continue to to integrate and and work alongside many of our partners in in identity.
That especially.
With our joint partners and so I think in enterprises.
We find.
Good work without with multiple vendors.
I will focus on on really the core privileged access management expanding to adjacent identities and.
We'll continue to to integrate with with various partners and and you know carpet competition is reality and in in identity like in most tech verticals.
And your next question comes from the line of Rob Owens. Please go ahead.
Great. Thanks for taking my question your commentary with regard to buying centers in the targeting of customers that are managing identities as it has the security issue. How fragmented is this market relative to two buying centers and how much is the thesis that you see convergence overtime versus.
As kind of where things are right now curious on that front.
Rob It's a great question, because I I would say the the identity spaces is a gradual convergence and it's not happening.
Overnight.
You're in Cyberark, we wanted the future proof, our our leadership position and like I said earlier and do that while answering it with an acquisition of a truly modern platform if you're joining the game join it with a truly.
Our modern platform, but it is early in the in the in the conversion. So we expect that that a subset of customers will already at day, one now want the unified solution, but but all of that overtime that will be more.
Have a focused approach where were the c. so views.
Security Officer would want to manage all identities in a security first approach and of course, we the water for awhile.
And with close customers and partners and many of them, we're telling us cyberark how did we would buy from you.
[noise] [noise] and your next question comes from a line of Melissa Frenchie. Please go ahead.
Great. Thanks for taking my question and good to hear all of you I'm just shifting to the business and what you're seeing from a pipeline perspective, you talked about being an acceleration in the pipeline in April and intimate can you just give us a little bit more color around what was driving that acceleration.
And to what extend is that impacted by maybe some more pent up demand from disruption and in March.
Yes, so I think another good to hear from your wireless as well I would say the we even saw acceleration in pipeline in those last two weeks of of much and and into April in May I think the importance of that and why we gave it. So much attention is of course for the long the mid and long term business, but also.
Really.
Let's sit up there that the privilege access management is one of those.
Hi, priority programs, especially as companies are are being disrupted and moving into a.
Work from home environment, and stepping up their digital transformation. So really it was important in that sense.
Additional color I would say its is the variety of of new prospects.
Add on business and and really opportunities coming along.
And the increased interest in dollars and momentum for our SaaS solution M. very much because that you have many more endpoints right now.
That that are the point of start for for the for the bleed, but also for for the attacker.
Increased pipe and demand for far privilege cloud and for our a a liberal but like I said earlier across products. It is includes our our core past solutions and and we just see it does it indicated that this is when you have to choose what are you going to do the Pam is one of the top priorities for for Caesars.
Got it that that's very helpful. And then one follow up on the adaptive acquisition, what he could you just maybe give us a little bit more details around how the technology is differentiated I know you said that this is going to be targeting on a more security oriented buyer umbrella.
I have to maybe some of the other players in the market, but can you put a finer point around what I adaptive offers from a technology perspective relative to maybe after Microsoft. Thank you yeah, Yeah, Yeah, I think it like like John said. It is it is early on it is a much.
Younger younger company, but it was both born in a in the cloud really in a in the most modern environments and also born with with security in mind because of the roots coming out of the Pam the PEM market.
So the components of that the that they have a a really include artificial intelligence elements.
To to make sure that that's sessions are analyzed and as they apply a multifactor authentication and and single sign on.
Lifecycle management, they have behavior analytics.
Capabilities. So in the route everything is about.
This we need to enable access to these employees, but this access can also be a point of start of attack, which is really much the the cyberark.
Mindset and and so I think.
Customers, who trust cyberark with securing privilege access would would now be able to make sure that they're also blessing regular user access with with the with the type of controls and security mindset that we we deliver and of course, we need to integrate.
At this together, we're going to integrate them also with our lateral.
And it's going to be very powerful.
And your next question comes the line of Sterling Auty. Please go ahead.
Yes, Thanks, Hi, I'm.
I'm sure. It's what the sales coverage ratio was through the March quarter scenes. How do you had such good success and what's going to be the strategy given the economic environment in terms of managing in the coming quarters.
I certainly it's Josh.
So we actually had very very strong coverage in terms of numbers for the first quarter.
Not only did we come out of the year in 2019 with capacity to.
To me a 2020, let's call the non Covance here.
We also continue to higher into the first quarter. So.
Overall the capacity for the you know that we're bringing out already in the first quarter as for the second half of this year and already into 2021. So I mean basically the coverage was was was very I heard then are higher than usual EBIT.
Basically as we you know I think as we discussed in the prepared remarks, I won't be actually looking at we've reduced already starting at the end to merge kind of hiring.
Trends.
Towards the end of the first quarter, we're looking to probably be incremental growth of about 25 to 30 people Egypt you too.
In Q3 and.
And that's going to be our ever based on how we see the economic environment changing what are the things that we're also tracking very closely with regard to our coverage because we want to make sure that we come out in the here.
I'll now as strong as possible, what's what's the external issues or.
Our behind US is is the fact that our pipeline, which I've already talked about.
Really has been growing very nicely and thats presenting us up future, that's presenting what's kind of low with where we want to have the coverage going forward, which is why we're very happy to keep building.
As we speak.
Okay and then.
The 16 to 18 million is that your run rate or is that what you're expecting to come to cyberark for the remainder of 2020.
Typically what are you expecting.
Acquisition to contribute here in the June quarter.
Yes, so that 15, Dave King is what we would be.
Immediately acquiring in contractual.
They are already today to add to the 13 outside.
We already have.
And also your second question certainly.
How much revenue would you specifically expected in the June quarter from the acquisition.
Yeah. So yeah, we're still we havent even yeah. We're just starting now the PPA because as we said earlier this deal closed or less than 15 hours ago. So.
We don't anticipate right now we're not building in any significant revenue for for the quarter for the six weeks of this quarter.
Based on what that could be a is expecting to be.
That makes sense. Thank you guys.
Thank you.
Yes. Thank you.
And your next question comes from the line of Gregg Moskowitz. Please go ahead.
Hi, Thank you in a highly hi, Josh so regarding the adaptive transaction can you share with us the integration timeline on delivering an AI based solution across Pam and I Das and then also you know since adaptive is a SaaS model I was curious if this transaction could accelerate the transition.
Subscription model for your core business, how should we be thinking about that.
Hi, Greg Woody here I'll I'll start I would say that we're we're working on the integration, we really plan to to unveil more of the the joint.
Offering and story in our July impact event, which has moved into a to be a virtual.
Trade show and and put the systems together again through the due diligence we've already mapped out a strong connection.
Points immediately immediate things like multifactor authentication to our.
To the Cyberark.
Customers and leveraging the their AI platform.
Platform in conjunction with our threat.
The next but but theres more to come there theres going to be integration with the with our Alvaro.
As well with regards to the.
The subscription transition I would say, we're very pleased that this will basically double our SaaS.
They are and we've seen.
And we've seen the momentum growing our SaaS products.
And so we're executing on this strategy that we call to infuse the business with.
With SASSA now, including adaptive, but we're not undergoing a.
A subscription transition at this time, but we regularly evaluate the demand our pricing and and.
I got this this infusion is working.
And your next question comes in a line of Gur Talpaz. Please go ahead.
Okay, great. Thanks for taking my question I Hope you all your both are well with adaptive have you contemplated any impact here on partnerships within the C Alliance and then just more broadly asked me sort of push forward here. How do you think about your philosophy about M&A versus partnership as you as you look to the future.
Yes girl.
Great to hear from you as well so obviously, we're super passionate about our CQ Alliance, we put a lot of energy behind it and ER and the field partnerships of are very important for us. So yes, we put a lot of thought into it we had the strategic initiative to future proof cyberark as.
As spaces converge.
Hence the the decision to expand from from privilege access to to the covering broader elements of access but in our unique way in security.
We really believe that the we can continue many of our field partnerships with.
With the identity players for example, if you take a Microsoft.
One of the unique attributes of adaptive is it does not force the customer to choose a directory and migrate from a from a firm from them from a Microsoft active directory. So we can come in peace and and really complement.
What our customers are doing with with Microsoft and.
We're probably having those conversations as we as we speak now is this is still fresh I see I think similarly with.
With Ping.
We have we have a good a good good relationship and I think we will find those use cases that we complement each other in the in the enterprise.
On top of that the the CEQP is really speaker lines is really broad and includes other elements like Devops partners in our partnership with Red hat and and there's so many other flavors that of course will will continue to be a super Super strong.
And your next question comes from the line of Brian asset. Please go ahead.
Great. Thank you. Thank for taking my question and glad to hear everyone's while on the call.
Maybe if I could follow up on adaptive as well I think the presentation. You have indicates that they have over 500 customers, maybe just a sense of how much overlap there is in that customer base with the profile isn't a potential opportunity for you to penetrate those maybe at an accelerated rate.
Yeah, great to hear from you as well, yes. They are the I have about 500.
Customers. The overlap is is actually relatively low about about 30 about 30, a accounts and so there is.
There is an opportunity to to go after.
The rest of those accounts and and of course in the coming days. The teams will be will be will be partnering and.
And looking at what are the best ways to do that we're we're even more excited obviously about taking them to our 5500 customers and and and the opportunity and the opportunity. There we think thats, an even bigger force.
Especially given our very tight relationship with with our customer base.
And your next question comes from the line of Jonathan Ho. Please go ahead.
Hi, I just wanted to maybe start out with on your understanding a little bit of a better color around the error free offering and maybe some of the the opportunity that you see there, particularly around conversion rates as well.
Yeah, absolutely I think first of all we came out of it from doing the right thing that I think like many companies that was the mindset is okay. Our customers are all deploying and and tried to lend on their feet in this environment and what are they going to need to do there are going to need to enable their employees.
Access the right the infrastructure from a from remote and and so a lot. A literal was was it was very much born to enable remote vendor.
Access, but if your employees or remote they are exactly in that kind of situation. So instead of.
So the right thing to do was to give a long a free free trial of will narrow that really solve their there. They won and day 30, and even day 60 issue for customers to to deploy.
And allow their employees to get access to Cyberark remotely.
And and obviously, we gave some examples of the doing the right thing up pays off and it was much much appreciated and we saw a growing pipeline of of a valero.
I would say interest.
I don't have.
Conversion rates are ready for you've now, but I would say it's it's in its early early in the process, but it's a it's it's been a successful campaign and we'll probably no more in a few quarters.
And your next question comes on the line of Daniel Barnes. Please go ahead.
Hey, guys. Thanks, very much for taking my questions maybe for both UTI, Josh just wondering if you guys can comment on the competitive landscape.
He changes either traditional apart players emerging stronger under the new ownership that many of them have or even players like October moving into your space a bit more on it maybe you can just discuss it there's been any change in win rates in this environment. Thanks.
Oh, obviously I I think.
This this environment actually creates a differentiation between I think vendors that are there are strong and and can really ensure their or their customers that they're going to be therefore for the long run and and folks to lever shorter.
Sure runway so.
We believe that even before I adaptive we built the uneven a strong position just a report a week ago from Coopersurgical put us as the as the leader.
In the in the Pan space really a fresh fresh report.
There and and and they want the company that can give them the 24 seven support global.
Global reach out so I would say in these times, it's actually a differentiated us.
Further from other players in a in Pam and and probably no no significant.
Change in a in win rates, but really in a good place.
And your next question comes from the line of Catharine Trebnick. Please go ahead.
Thank you for taking my question could you give us more.
More color on how you transition team to a virtual sales process and how that has impacted your clothes.
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Oh, a absolute together so first of all I was really and I told them. This many times because we do much more communicating than than ever that super pleased with how the team.
Adapted.
Weekly a into into this environment.
We have already had of course, the sales organization is globally spread and was going to use of this remote environment, but we've had to have other departments like R&D and and deployed.
I think with our global presence, we were kind of we were kind of able to see a little bit into the future because we saw a kind of the our Singapore office isn't how how they responded then than we saw on his role in the local government regulations and and kind of had a heads up on what's coming into the U.S. and and got ready for that.
So I would say really minimal disruption to all employee productivity and especially.
And especially the sales we did see.
As as we mentioned in at the end of Q1, we did see that it was.
Some some deals were harder to do close, especially.
Large.
New business the business deals or some some deals were shrinking in size, but we looked at the closely and they all stayed in the pipeline and so things things were closing, including seven figure deals, including in the really in the in the in the last two weeks of of the quarter and things closed early into.
To into Q2 and and remained in the in the in the pipe. So.
We feel that the team adjusted.
Really well and and everything that that also Josh and I mentioned here is we're very pleased with the pipeline build up and and the activity levels.
And your next question comes from a line of Andrew Nowinski. Please go ahead.
Great. Thanks for taking the questions. So maybe just a follow up on your prior prior question regarding sales coverage you know I. Appreciate your efforts to control spending, but I was just wondering if you're slowing hiring on sales reps.
Now what does have an impact on your counter 21 growth trajectory sort of a exacerbating the cobot impact that we're seeing right now.
So I didn't hear the last part Andrew.
I said, but if you slow hiring now and sales reps, which presumably will take you know 12 months the to reach full full productivity.
I would this have an impact on your calendar 21 growth trajectory I'm sort of you know making.
The cobot impact or extending over them back into next year.
Okay. Thanks, I get it.
Well actually I think we're at a good position because we as I said earlier in the call. We actually ended 2019 with the right capacity for 2020 and.
So you know as we as as we add new coverage in 2020 in the first quarter.
We're not well.
No that's not going to position us well as we go it hopefully to oppose cobot world environment and.
The truth, we haven't RVR over the next nine months and so we're continuing to be.
A prudent, but certainly choosing to invest where necessary. So that we're in a position not to exacerbate for a 2021.
Okay got it and then just a follow up on the Oh Lerro integration with adaptive does that require do you need to have that integrated first before you start selling the adaptive solution. Once the deal closes or is that just something that'll happen throughout the course of the year things that that would be something that happens throughout the course of there we do not need to enter.
Great it to sell a adaptive adaptive have a full robust solution set.
We're we're looking for ways to to bring even additional power and value overtime.
Thank you.
Thank you.
And your next question comes the line of Eric sequence. Your please go ahead.
Yeah. Thanks for taking my question.
So a little surprised by adaptive obviously centrify is a a pam provider.
Can you discuss why.
Why you're in a position to see better synergy between adaptive and and.
Your.
You versus what Centrify was able to do when it was part of Centrify.
Yeah, I think the biggest change there is a centralized acquisition by my Thoma Bravo and that they had basically two different behaving elements, one one a pan and vendor kind of.
And not not a leader in a in the space and then a the put a strong team.
To to develop a modern identity as a service solution that that then of course.
It is is going after the the major leagues and addressing an extended a tam and so we actually were looking at the broad market and what is our best way and for rate to to enter a and enter it and we're incredibly.
Excited bye bye.
Bye.
I'll be they were built out and that in our hands and with our market leadership and with our credibility and and strong business model, we can give them the energy and and attention to brings to market So high quality assets.
That.
That was given a I would say limited go to market.
Energy and and with US we can we can really take this problem.
And your next question comes from the line up Alex Henderson. Please go ahead.
Great. Thanks for slipping in under the wire there.
Primary question I wanted to ask a it's around the work from home phenomenon. Obviously, you guys get a clear benefit from from that as people scrambled.
But as that has now kind of plateau.
NAMIC and is now receding was that part of the reason why your business accelerated in late March.
In April and therefore that dynamic is starting to become less of a positive.
The second question I had four years.
Entity, obviously is critical in the container world and.
It's Steve the root of security in that environment.
But it's more around the.
Entity of applications then.
Secondly individuals.
Can you talk about whether theres any capabilities on that front a within.
And how you plan to pull at play there.
Just going to be off of conjure.
Yeah, No no. Thanks, Alex I think.
The work from home a shift basically brought home the fact that.
That there is really no no more perimeter and and that identity is the is the new printers. So I think the work from home, even and we all hope it will be this way even if we're seeing gradual gradually return really really brought it home that.
That that the new modern a a company doesn't really have a perimeter and that's what we've been saying all along is that you have to operate assuming an attacker, we'll be able to to get to your non core assets and so privileged access management is elevated because you you actually have no boundary anymore with such a broad.
Attack surface with distributed.
Points, and an employees and even as the please come back.
It's it will be very clear that okay attack start on the endpoint and very quickly jump into critical assets in cloud infrastructure and you need that last layer of of defense to make sure that there will never be strongly access to a two to that infrastructure. So we we were pleased to see that.
Acceleration because it was highly was it was in the top remained and top priority and got prioritized.
But we think the Pam opportunity is a long term opportunity as such an essential them there.
With regards to the second question I think it's great because I should have emphasize it more I think the combination of adaptive and what Cyberark has.
To brings to the table is we can really cover human identity, and then machine identity in one platform and machine identity. We've been we've been doing with with our A.M. with our application access capabilities really securing a containers and.
And applications.
And we've we've done that for the humans that needed privilege access and with an adaptive we can we can go for all use all types of.
Of users and and and and again as we integrate.
Put it all under one one platform.
Adaptive.
Also brings.
Other.
Assets in this world like access to cloud.
Consoles and cloud or assets. So we were going to have a additional joint use cases both for.
Human identities and for for Machineries.
And now I would like to turn it back over to de Mccalley for any closing remarks.
All right first of all thanks, everyone for joining the call. This morning, I want to thank our customers partners and.
Employees I'm incredibly proud of how the our entire team quickly adapted to working from home and remain productive. During this difficult time that impacted every aspect of our lives I also want to thank our customers and partners who trust cyberark.
To secure their infrastructure, we're working hard to reduce the impact of this pandemic on their business and we will stay close to the thanks everyone.
And ladies and gentlemen. This concludes today's conference call you may now disconnect.