Q4 2020 Cyberark Software Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Ciber arc fourth quarter and year end 2020 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation.
There will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star Zero I would now like to turn the conference over to your Speaker today, Erica Smith, Vice President of Investor Relations.
Please go ahead.
Thank you Eric Good morning, Thank you for joining us today to review side or on fourth quarter and year end 2020 financial results.
With me on the call today are really Mecate, Chairman and Chief Executive Officer, and Josh Siegel Chief Financial Officer. After prepared remarks, we will open up the call to a question and answer session. Before we begin let me remind you that certain statements made on the call today may be considered forward looking statements, which reflect managements best judgment based on currently.
Billable information I refer specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the first quarter and for the full year 2021 are actual results might 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 10.
F filed with the U S Securities and Exchange Commission and those referenced in todays press release that are posted to sidewalks website as well as risks regarding our ability to begin actively transitioning the business to a subscription model in 'twenty and 'twenty one.
As well as the duration and scope on the COVID-19 pandemic its related impact on global economies and our ability to adjust in response to the COVID-19 pandemic cyber expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements made today. Additionally.
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 as well as in an updated investor presentation that outlines the financial discussion in todays call. This information can be found at www dot fiber work dot com in the quarterly results on.
Under Investor Relations also a webcast of today's call will be available on our website with that I'd like to turn the call over to our chairman and Chief Executive Officer, who do more pattern Rudy.
Erica and thanks, everyone for joining the call today, we hope you and your families are safe and healthy we want to spend some time today discussing our record results for the quarter outlining the market dynamics and tailwind and lastly detailing the formal launch of our subscription transition just a few weeks ago and how it aligns to our 2021 objectives.
We have a lot of information to cover as we kick off 2021. So we will be also hosting a virtual investor event on March 10th where we can provide more detail on our growth strategy innovation and on our subscription transition.
2020 was not on any of us expected, but I'm incredibly proud of what <unk> accomplished as a team.
Because of our focus and agility, we are much stronger company today.
We executed against our strategic imperatives from early in the year to drive cross sell and upsell strengthen our channel program build new ways of targeting prospects and enhance our customer success organization.
We also responded to COVID-19, and successfully adjusted our entire operations and processes to work from home, including not missing a beat for remote deployments support and the full range of customer engagements.
We quickly responded to the more abrupt change in customer buying preferences of our products towards SaaS and subscription.
Early in the year, we acquired Identive positioning us to deliver our identity security strategy.
And in every quarter of 2020, we created record new pipeline across our solutions when coupled with our strong execution in Q4, we delivered our best quarter ever.
Total revenue reached an all time high of $145 million in the fourth quarter with record SaaS and subscription bookings, which also created increasing headwinds to our recognized revenue.
In addition, we generated non-GAAP operating income of $40 million well ahead of our guidance.
For the full year revenue reached $464 million. This included over $50 million of recurring license revenue, which grew faster than 200 per cent in 2020, compared with $16 million in 2019.
Our non-GAAP operating income for the year was $91 million.
It is important to remember that even with the record quarter during our transition to a recurring revenue model. The headline P&L is a lagging indicator and understates the stronger momentum that we're experiencing or we experienced in the business as we exited the year.
Annual recurring revenue or air or better demonstrates the success. They are all reached $274 million at year end with growth accelerating to 43 per cent.
In any event you will hear from Josh later that when we adjust for the mix shift our sales grew about 25% in the fourth quarter.
The four main takeaways from our record results.
First we experienced broad based demand across Pam, including on premise and cloud endpoint privilege manager and depth checkups or application access manager.
Second the pace and level of engagement with existing customer existing customers is at an all time high with room to accelerate identity security is increasingly recognized not only is foundational to comprehensive security strategies, but also as a business enabler of digital transformation and cloud.
Third we saw a healthy increase in new business, signing about 280, Mark key logos across industries.
You also have a record new business pipeline, where we are seeing an acceleration of progress through the pipeline ahead into 'twenty and 'twenty one.
And lastly, we are formally beginning our subscription transition with strong momentum with a large rapidly growing base of recurring revenue and importantly off a record fourth quarter.
Pam remains a top priority but.
But we did see macro uncertainty drive customers to buy for immediate need in 'twenty and 'twenty digging into the fourth quarter. We saw this actually lead to even faster velocity in some of our add on business, including these following great. Examples.
A European retailer began implementing a privilege access management program based on our blueprint methodology in Q2. This customer quickly added on another $750000 of core past licenses in the fourth quarter and is still in phase one of its program.
Like many organizations. This U S consumer manufacturing customer is shifting lift embracing depth SEC ops to move faster and grow its business.
They were leveraging Congress to secure secrets and drive their mission critical digital transformation program forward in the fourth quarter, they enhance their security posture buying privilege access management and significantly broadening their counter deployment.
A financial services customer on a P. J was rolling out a multi cloud strategy with Azure and Google Cloud and wanted a scalable enterprise class Secrets management solution.
This existing cyber a customer for Pam was using a competitive depths hick ups solution, but in the fourth quarter decided to move to ciber to secure secrets across all applications because of our increased security and visibility enterprise wide.
On the new business from a number of key wins include a top 50 retailer.
Original European airline in Asia Pacific Cloud Services company and two major car manufacturers. We ended the year with about 6600 customers up from about 5300 last year, we are proud to be helping secure nearly 40% of the global two thousands a day.
The 280, new logos, we signed about 57 per cent of the business included our SaaS or subscription solutions up from about 23 per cent in 2019.
Two examples are <unk>.
A top 10 energy provider in Europe with a cloud first strategy selected <unk> as their trusted partner to help secure critical infrastructure, they will be consolidating tools and standardizing on cyber Ark for privileged endpoint security, enabling the team to have increased visibility and control with our SaaS solutions.
In a competitive win a major car manufacturer picked identive for its cloud based single sign on and MFA. We also won a leading U S restaurant chain with adaptive, which we believe will provide us with a new landing point for our sales team.
Alright, any security strategy with Pam is the foundation is at the center of the major industry tailwind of digital transformation cloud migration hacker innovation and compliance the solar winds breach is clearly hacker innovation.
Fly chain attacks are far from new but this attack was unprecedented in its scope while solar winds was not a driver of our results in the fourth quarter. It was a wakeup call for organizations. An important reminder, that privilege exploitation is at the center of every major attack Theres been significant a significant uptick in interest in our identity security on.
<unk>. The response to this attack has clearly been a flight to trust companies are now adopting an assumed breach mentality and are turning to trusted security partners, who not only have comprehensive solutions, but also deep experience through mediating post breach situations we.
We expect this event to be a tailwind for our business over the long term.
Moving on to the transition we officially kicked off our subscription program in early January and based on feedback from partners customers and employees. We are confident that the timing is right.
Customers and partners want the benefit of a subscription model and we have the mature SaaS portfolio, the differentiated subscription offering that will contribute to our success.
Some of the main components of our program include an.
Incentivising, our sales team to grow a R R by selling subscription and SaaS.
Introducing new on Prem Pam packages to pull purchases towards our subscription offering.
These offerings are feature rich with our alero remote access with SaaS functionality, including adaptive multi factor authentication and single sign on and loosely connected devices or LCD functionality.
Focusing the entire organization around faster time to value and adoption with our customer success team and established customer care lifecycle and rolling out a companywide enablement program to all of our I believe <unk> to deliver a best in class transition.
As we look into 'twenty and 'twenty, one our priorities are growth innovation, the subscription transition and scaling within the large either any security market.
To drive growth. The team is organized around three pillars access Def SEC ops, and Pam, which together form our identity security portfolio.
We believe this optimized structure will provide the right level of attention and resources and our axis and depth checkup speedboats, while also driving growth of our core patent business.
In addition in 'twenty 'twenty, one we will extend our reach by strengthening our partner program across Vars advisories and MSP.
Fueling our innovation engine is critical to staying a step ahead of attackers and also strengthening our leadership position in the market in 'twenty and 'twenty. One we are stepping up our R&D investments to build our SaaS identity security platform and at the same time continue to enhance our solutions, we believe delivering new functionality and solving complex security challenges.
We will also be key to completing the virtuous cycle of success in our subscription model.
We are well on our way to transforming <unk> into a high growing recurring revenue company with significant contribution from our SaaS solutions. We continue to expect the transition to take eight to 10 quarters beginning from the first quarter of 2021.
This year, we are laser focused on increasing our subscription mix growing air our and protecting our base of customers. We believe we will reduce friction in the sales process increased cross sell activity and build enduring relationships with our customers by delivering deeper value and stronger security.
Ultimately the tighter relationships forged by subscription sales will generate higher lifetime customer value.
We are in a growing market and our solutions are aligned to the broader industry. We are making the right investments in our go to market and innovation engines to drive growth, but are also focused on profitability and returning the company to the rule of 40 after we exit the subscription transition.
We are heading into 'twenty 'twenty, one off a record quarter with strong momentum and I'm excited about the year ahead.
I will now turn the call over to Josh who will discuss our record results in more detail, our subscription transition and outlook for the first quarter and the full year.
After you adjusted.
Thanks Judy.
Before we discuss the details of the quarter. We wanted to remind you that we posted slides to the website. This morning that will be helpful. As we walk through our results as Judy mentioned, we were pleased to beat our guidance for revenue operating income and earnings per share, including record revenue in the fourth quarter of $145 million that's up.
Out of 11% from $130 million in the fourth quarter of last year.
Our best quarter ever was driven by increasing demand across our solutions and we accomplished this despite the increasing revenue headwind from the subscription transition of $18 million for the fourth quarter at about $45 million for the full year.
License revenue in the fourth quarter was $88 million compared with $76 $5 million in the fourth quarter last year and the recurring portion of license revenue was $17 $4 million, that's 22% of our total license revenue, that's more than tripling from $5 $7 million or 7% in the fourth.
Quarter last year Sam.
SaaS revenue grew by over 300% year on year, reaching $9 million and subscription or term based license revenue increased to $8 million in the fourth quarter from 3 million in the prior year.
Our combined maintenance and professional services revenue was $64 million, increasing 20% over the prior year period. The breakout on this line is approximately $52 million from recurring maintenance contracts and $11 $5 million and professional services revenue.
As Rudy mentioned, we are on track with kicking off our subscription transition formally in the first quarter with a known transition effect of increasing revenue recognized ratably. We all emphasize total recurring revenue the percentage mix of bookings from SaaS and subscription and annual recurring revenue or <unk>.
Yeah, Hey here are the key metrics to provide visibility into the health of our business.
Looking back in the fourth quarter total recurring revenue grew to $70 million or 48% of total revenue.
That grew 41% from the $50 million of recurring revenue, which was only 38 per cent of total revenue in the fourth quarter last year.
Our recurring revenue growth is being driven by the record bookings for subscription based licenses throughout 2020 as well as our continued strong maintenance renewal rates for our software.
As a reminder, total return on revenue include SaaS subscription and the recurring maintenance revenue associated with our perpetual license contracts.
The mix of new SAS in subscription bookings as a percentage of total license bookings as an indicator of the pace and success of the transition.
In total SaaS and subscription bookings represented about 35 per cent of our new license bookings increasing from the 10% in the fourth quarter of 2019.
Our strong execution at year end, including robust perpetual license sales as customers move forward with their mission critical identity security programs added to our top line, while we still remain on track with our mix expectations related to our transition time line goals.
The headwind created by the mix of bookings was about $18 million. That's in line with what we discussed in November demonstrating yet another record quarter for our SaaS and subscription business.
Taking the headwind into consideration our revenue in the fourth quarter with a comparable mix of bookings would have grown by about 25%.
For the full year of 2020, the significant shift in our new license bookings towards more recurring and ratable business effectively lowered our reported revenue by approximately $45 million.
The metric. We are also excited about is our ADR growth as it indicates the path towards becoming a high growth subscription business at December 31, our a R was $274 million with growth accelerating to 43% year on year from 192 million.
At year end 2019.
Now I'll provide some further color on the business.
The level of engagement with our 6600 customers continues to be on an all time high and we saw about 74 per cent of license revenue coming from add on business during the fourth quarter.
We are pleased as well with the momentum in our new business with improved close rates and strong pipeline growth in the fourth quarter. You also continue to see an increasing percentage of new customers land with our SaaS privileged access manager solution.
Our expectation is that our new SaaS customers will start smaller recognize Todd fast recognized faster time to value and quickly expand their overall sidewalk program following the blueprint methodology.
In terms of solution areas are application or <unk> solution.
Had a record quarter, representing about 16% of license revenue with more customers securing their digital transformation programs with cyber Ark.
Endpoint privilege manager was about 6% of license revenue and that's with about 90% of the P M bookings being SaaS.
The business remains well diversified across geographies for the quarter Americas revenue in the quarter was $82 million, representing 57% on total revenue.
I would also note that the Americas again had the strongest percentage of SaaS and subscription bookings during the quarter, which naturally impacts the recognized revenue.
EMEA revenue was $50 million or <unk> 35 per cent of total revenue in the fourth quarter, a P. J generated $12 million from revenue representing 8% on total revenue for the fourth quarter.
As I move through the P&L 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 and posted to our website.
Our fourth quarter gross profit was $127 million or 88% gross margin.
As we demonstrated throughout the pandemic. We believe it is in the best long term interest of our business and our shareholders to continue to make strategic disciplined investments to drive long term growth.
<unk> expense grew by 28% year on year to $23 million to enhance our solutions sales.
Sales and marketing increased 16% to $54 million to expand the reach of our global sales team with the increase a.
A bit offset by the reduced travel spending.
G&A expense grew single digits to about $10 million and total operating expenses for the fourth quarter increased 18% to $87 million and that includes about $6 million of incremental expenses associated with the <unk> operations.
Our operating income was significantly ahead of our guidance of $40 million or 28% operating margin as a reminder, approximately $18 million revenue headwind had a corresponding impact on our operating income net.
Net income was $33 million or <unk> 82 cents per diluted share for the fourth quarter also beating our guidance.
Now, let me summarize our results for the full year 2020.
Total revenue for the year reached $464 million with $226 million on license revenue of $197 million from recurring maintenance contracts and $41 million and professional services revenue.
Total recurring revenue accounted for 53% or $247 million, that's growing 41% from the $176 million.
And equally only 40% of total revenue for all of 2019.
You can see the details of our of our revenue breakdown in the Powerpoint presentation on our website.
Our gross margin for the full year was <unk> 86 per cent compared with 88% in 2019 as we continue to invest in our cloud platform.
Looking at the full year R&D represented 17% of total revenue up from 14 per cent last year, driven by the acquisition of adaptive increasing investments in our cloud and on premises offering as well as our identity security platform.
Sales and marketing represented 41 per cent of total revenue that's up from 37 per cent of last year and G&A represented 8% of total revenue in line with 8% in 2019.
Our operating income was $91 million or 20% operating margin net in total adaptive lowered our annual operating margin by about 2%.
As a reminder, the approximate $45 million headwind also had a corresponding impact on our operating income.
Normalizing for the headwind impact on the P&L, our operating margin would've been approximately 26 per cent for the full year.
Over 70% of our operating expenses are related to head count. We ended the fourth quarter with 1689 employees worldwide. We ended the year with about 772 employees in sales and marketing grew about 18% year on year.
Our net income for the year was $81 million with our earnings per diluted share of $2.05.
We generated $100 million on free cash flow for the year or 22% margin for 2020. This cash flow contributed to our strong balance sheet and we ended the year with $1 $2 billion in cash and investments.
We also ended the year with $243 million in total deferred revenue that's up 27% from $190 million at the year end 2019.
Our SaaS deferred it grew by over 400% again, this quarter, reaching $46 million compared to $9 million at December 31, 2019.
Turning to our guidance.
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 try to estimate future movements in foreign currency rates.
So for the first quarter of 'twenty and 'twenty. One we expect total revenue of $106 million to $112 million, we expect a non-GAAP operating loss of about two and a half million dollars to non-GAAP operating income of two and a half million dollars for the first quarter, we expect our EPS to range from non-GAAP net loss of three cents per basic and.
Alluded share to net income of seven cents per diluted share on.
Our guidance also assumes $39 2 million weighted average basic and diluted shares and $40 7 million weighted average diluted shares.
And we are assuming a tax rate of approximately 23 per cent for the first quarter.
This guidance assumes about 47% of new license bookings from SaaS and subscription.
Which results in a revenue and profitability headwind of about $10 million for the first quarter of 2021.
We are also initiating initiating our guidance for the full year of 2021, which reflects the strength of our pipeline, our overall opportunity and an assumption for the mix of our bookings. We expect total revenue in the range of $484 million to $496 million, which assumes approximately 55 per cent of new license bookings from.
SaaS and subscription, resulting in a habit a revenue headwind to our guidance of approximately $39 million per the year.
We expect non-GAAP operating income to be in the range of $20 million to $30 million. We expect our non-GAAP net income per diluted share to be in the range of 45 to 64 cents.
For the full year, we expect our 40 expect about 48 million weighted average diluted shares and an effective tax rate of approximately 23 per cent.
For the full year the increase in our expenses are related to four major areas.
Our increasing investments in cloud infrastructure is impacting our gross margin for the full year, we expect to now be between 80 and 82%.
Changes in exchange rates are increasing our expenses by about $10 million over 'twenty over 2020 in particular will hit R&D and G&A.
As Judy mentioned 2021 is a year of R&D investment across our offerings and our identity security platform.
Lastly, we are investing in sales and marketing our record results in the fourth quarter and record pipeline throughout 2020 give us continued confidence in our market opportunity. It is critical that we invest today to drive long term growth and get back to the rule of 40 after we exit the transition.
As additional color our guidance assumes that we resume travel at a lower level on the third quarter at a more normalized rate in the fourth quarter.
In terms of free cash flow, we anticipate that'll be fine with our non-GAAP net income margin over a 12 month period. We also expect our annual capex to be in the range of $8 million to $10 million, representing just under 2% of revenue at the midpoint.
We had a record fourth quarter and are thrilled with our momentum as we enter 2021, we are confident that our strategy to begin actively transitioning to a recurring revenue model will make growth more durable and profitable, which will drive value for cyber Ark, our customers partners and shareholders.
We want to wish you and your families health and safety I will now turn the call over to the operator for Q&A on.
Operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.
Your first question comes from the line of Circuit <unk> with Barclays.
Hey, Josh Thanks for taking my questions here how are you.
Well great.
It.
Good day here from you guys to maybe just for you.
Just digging into the subscription transition.
Understanding that it's still very early here what are you sort of seen from from customers in terms of preference for term licenses versus SaaS and how do you think about that mix sort of over time. If you will does that makes sense. Yeah. Absolutely. Thanks first of all we're really seeing strong a reception to all.
Our transition across the board I like I said customers partners and employees with regards to the mix I would say, it's about a two to one mixed towards a preference for SaaS and among our new customers and we expect that to continue and really in line with our with the.
Approach to consume more and more SAS solutions, and and Theyre very excited about our offerings. There. So I would say that that trend should continue on two new one mix towards SaaS.
Got it going on Thats helpful. Josh maybe for you. Thanks. Thanks for the guide on mix next year.
I think he said it should be roughly a $39 million headwind and if I remember correctly I think the headwind here in 2020, I think is about $45 million. So its actually a smaller headwind next year. So I guess the question is how are you thinking about that maybe given the increased sales focus on selling SaaS and subscription in 2021.
Yeah, I think second well basically we are seeing a you know.
We had a very big increase this year would be would that high headwind and it jumped from I think 10 per cent of our mix being SaaS and subscription to <unk> 35 per cent for the year and now we're talking about in the guide.
It jumping to high Forty's in the first quarter about 47 per said at a blended up about 55% for the full year. So you know I would focus on that mix, which which then basically is really going on drive EBITDA our growth for the year in 'twenty and 'twenty 'twenty, one as well so.
Yeah, when we looked at the headwind that headwind, obviously will decreases a little bit compared to 2020, because our the.
The we did a you know almost two and a half times increase from 10 to 35 per cent compared to the 35 per cent to 55%. This year. So I you know, we we think we're very much right on the right track for our for our eight to 10 to quarter transition.
Got it very helpful. Thanks, guys.
Thank you.
Your next question comes from the line of Sterling Auty with J P. Morgan.
Yeah, Thanks, Hi, guys, so with the M&A.
Emanates.
Move to subscription I'm wondering if you saw anything like what what other companies like Autodesk did where customers realize that subscription might be coming perpetual might be going away and maybe accelerated the purchase of perpetual in advance of that transition.
Hey, Sterling Outta here I would actually say, we looked at it carefully and I think the over performance in Q4 is very much on execution on on deals that we're we're in we're in the pipe and so it wasn't a scramble. This is a this is your last job because I think the way the way we positioned it again there'll be able.
Dubai per.
Petrol going forward, but there'll be incentivize stores, the SaaS and subscription so it's really been our execution on that on that strong pipeline we've been building.
Alright, Great and then Josh one for you can you remind us under ASC 606, given the mix of the SaaS and subscription how the revenue recognition treatment is for those two those two elements and what I mean by that is how much is still being recognized upfront because of certain amount being on.
On premise and also maybe what is the average duration of the maintenance contracts that you've had historically.
Yeah right. Thanks, Thanks, Charlie So with regard to six O six with regard to our you know.
Ongoing subscription term based license that we have been debt. We've been selling you know for the last 12 months, it's really around it's going to be a 50% upfront in 2021 and 50 per cent.
Over the term of the contract.
You know as we you know as we move more and more into customers.
Buying a are.
Our newer subscription packages, which are going to include a SaaS.
<unk> integrated into those into those on into a subscription then it'll it'll be moving down from the 50% level.
And it depends on really how.
How much of the SaaS components day buy in the subscription so 50% will be the most that we will record a net well recognized on day, one but it could go down into the forty's or into the thirties as they as they pick up SaaS.
Subscription packages that have more and more SaaS components.
With regard to the second.
With regard to duration we're about.
Two years on duration average duration for the maintenance contracts.
Perfect. Thank you.
Your next question comes from Jonathan Ho with William Blair.
Hi, good morning, and congrats on the strong results I just wanted to start out with some of your comments that you had on solar winds. You know can you talk about you know maybe what you're seeing from the customers and you know what the typical cadence or timing is for a breach like solar winds to maybe translate into revenue.
Absolutely, Jonathan and I think as industry veterans.
We can both agree that this is a one of those pivotal are major events.
I think every five or 10 years, we havent event that shaped the industry and this is a this is one of them.
Leveraging the AR, the virtual environment actually meeting more and more our customers he sells and Cio's and first of all they all understand that this attack demonstrates that you need an assumed breach a mindset of the attacker will get that initial foothold and how do you protect a deeply inside.
And that the attackers are once privilege access because they want to undermine all of the the other controls like the attackers are did here and and.
And attacked our tier zero assets and undermined and went after trying to be a regular identity in the in the environment. So I think we're very much part of that that second wave. The first response was to was to run patches in and of course those that were directly affected look if they.
The.
On the malware installed, but the second wave, which we believe is the longer a tailwind when what we're hearing from our advisory firm partners and from instant responders is is really how do we invest in.
Entrust systems in our in on environment, let's make sure that we have the deep controls and in our environment two to protect our identity and what we called our identity security so that would be on infrastructure on cloud infrastructure and then additional attention now to securing the Dev ops and the Dev ops pipeline because of how.
This whole thing happens I think we'll see a a longer tail to this but the sidewalk with identity security is really right at the heart.
Of creating that that flight to trust.
Excellent and then just in terms of on I guess, the R&D investments that you intend to make in 2021, where do you see the most opportunities. There you know are there specific product groups that you want to dedicate more funds to or add more features to just wanted to get some additional color on on where that's going to head.
Absolutely I think I think we will provide.
Even more color in the in the Investor day, but I would say we're doing of the following first of all as Josh alluded, we are continuing to support the many on premise.
Customers, so to investing across the board in our existing.
Solutions, we need them happy successful and like I said protecting our base and then the bigger <unk>.
<unk> is going towards our identity security platform continued to provide additional capabilities.
And in SaaS delivered identity security. So it's a it's really in our in our SaaS platform a lot of things Oh I have are being integrated onto onto a single modern SaaS offering that will serve our customers for many years to come.
Thank you.
Hi, operator can we move to the next question.
Your next question comes from the line of the team at <unk> with UBS.
Good morning, Thank you for taking the questions maybe I'll start with you. The SaaS portfolio has obviously expanded significantly in the last 12 to 18 months, especially with the addition of a GAAP debt. So I'm wondering if you can talk to us about.
Which particular products or skus within the SaaS portfolio, you expect to drive the bulk of that momentum and activity for 2021, and then I have a follow up free cash flow.
Sure absolutely.
And sorry for that for that weight there on the on the on the call.
I think we're really seeing I mean, if you look at it Q4 in this past year, we're seeing E. P. M endpoint privilege manager and also in the context of the prior question on solar winds, it's become the no brainer solution for for ensuring that our debt.
Debt endpoints, including servers, which were attacks where effect in this in this case are in lease privilege mode on that were preventing credential theft on it so I would say ER and enterprise endpoint privilege manager our privilege cloud for sure we're seeing really strong adoption of custom.
<unk>.
Wanting to consume this as a as a as a service and of course, our access portfolio, which is like you said I adoptive.
But includes additional components like a like a liberal debt that was born organically and and so this is a there's going to be a big differentiator.
Differentiator for.
For us to have such a wide.
Portfolio as we think of the new subscription offerings.
Fair enough, Josh maybe shifting to you did touch on some of the cash flow dynamics, we should expect to see in that business, but I'm wondering if we could unpack some of the puts and takes around cash flow and cash flow trajectory, especially over the next day 10 quarters as you undertake this transition.
And also considering.
Maintenance revenue trajectory is going to look a lot different now that you are going to be emphasizing.
Recurring subscription and term licensing so I'm wondering if you could just sort of reconcile that it helps us that with the trajectory of our cash flow dynamics over the next eight to 10 quarters of transition horizon and that's it for me. Thank you.
Great. Thanks Fatima.
So you know it.
To start off with just to remind us on the call.
What we're looking at for the year.
Is going to be somewhere around our net our non-GAAP net income margin or should be similar to <unk>.
The cash flow to the cash flow margin I think in the near term there'll be some pressure on cash flow as it relates to our duration and annual payments on the more on the increasing.
Mix going to SaaS and subscription business. So.
I do think in the past, we've historically been running at higher than our net income Uh huh.
Margin and now we're talking about going closer to our net income margin and I think that's where you're going to see the that's where the pressures coming in on to reduce from the from less maintenance contracts, which are frequently paid all upfront on the.
What if it's multiple years to multiple years.
SaaS and subscription contracts, which will be now paid more likely to be paid annually.
But overall, we feel good about our you know the cash flow.
Margin relative to where net income will be but.
And the duration that we're seeing of our SaaS and maintenance.
Description contracts are fairly similar on average to our maintenance contracts is just that there'll be a.
On more of them being paid.
As opposed to upfront.
Very helpful. Thank you Josh.
Your next question comes from the line of Brian Essex with Goldman Sachs.
Hi, good morning, and thank you for taking the question.
I was wondering maybe if I could start with.
The strength that you saw on the perpetual I mean really nice results there.
And I think he noted that 74 per cent of license revenue was from add on bookings how much of that strength was I guess.
Customers that may or may not have.
Pursued that complete end to end solution coming back in right sizing there.
Right sizing their solution, given the macro and elevated threat environment that we saw over the past year.
Hi, Brian Outta here, absolutely that's exactly the.
The trend we saw that throughout the year those customers, we're taking in a I would say that a small first bite because of the uncertainty macro are they were they were expanding as it came towards towards Q4, and and really going for what they really needed and so we saw that both.
With with new logos.
The debt landed throughout the year and had faster faster add on and we saw that with with add on.
Add on business in in Q4 are consuming more.
Again, both both we saw that both in both sides of perpetual and on the subscription side, but definitely that's part of the the overachieve on the on the perpetual side.
Got it that's helpful. Thanks, and maybe just to follow up on the transition.
Maybe if I could get a better understanding of when sales force incentives went into place and what the trajectory of transition to SaaS on subscription as a percentage of total license bookings you might expect on I imagine it would be back half weighted towards the end of 2021, but just to maybe help understand how those how that migration may.
Roll forward through through the next fiscal year.
Yeah, absolutely. So we we I think the timing of announcing it to the world in November and getting the organization ready really worked well for us the entire team had gone through a true.
Training, leading up to the end of the year, but we kicked off the year with a with a full kickoff and that's when the the full incentives and training went into went into went into play and it's really exciting to see I think how the sales team and the broad theme.
<unk> really embraced this this transition so obviously, we have six to nine months.
Sales cycles, and so like you said, we are we believe that the bigger our mixed shift will occur towards the back half.
The year that that's the way to think about the the bigger impact we did see as we move through 'twenty.
2020 on natural increase in pipeline of SaaS and subscription so it's already bearing fruit.
For the first half, but the bigger impact is in the second half.
Got it got it that's very helpful. Thank you very much thanks, Brian.
Your next question comes from Rob Owens with Piper Sandler.
Great. Thanks for taking my questions. You mentioned some wins that you had with regard to gross or two restaurant change from our manufacturer just curious I know, it's still early but where youre seeing success. How competitive. These deals are these preexisting customers and why you're winning in these.
Yeah, absolutely I think in.
On the they're probably two dimensions to to talk about one is is the existing cyber work customers that we're always saying if you'd have it we would buy it from you and and so that's a dynamic we would of course are seeing the early fruits are the early fruits of and will be bigger into 'twenty two.
'twenty one now that we trained the full team in and then everyone.
On the team can sell the full on the full portfolio, but those customers trust us for for privilege access management and while you've expanded and you can actually put security on our work force, we we want to expand with you.
The second one is really actually creating that as a as a landing force and adaptive came with a with a with a commercial team.
That that we're expanding and so I would say.
In both mid market, but also in the enterprise.
As another way to land.
Land new accounts of course, the bigger lever on the bigger flywheel used as the existing strong.
<unk> customer base, but we're also are seeing some healthy good examples of our differentiated.
Selection of a depth because of its security Foundation and the fact that they can then expand to the full cyber portfolio.
Great and then secondarily, what we've known it turns on our calendar from your analyst day in March and I'm sure, we'll get a lot on commentary around here on the transition prior to that as we set our 'twenty one models any guardrails around.
So we should be thinking about.
Yeah, Hi, Rob it's Josh.
I think that.
You know I would probably.
We want to think about the mix shift that we talked about which is going to be towards 55% blended for the year and if I were to think about a R. I would kind of use 30% is the right way to look at it.
Alright, Thank you 30% growth.
Your next question comes from the line of Andrew Nowinski with D. A Davidson.
Great. Thank you I just wanted to start off with any large deals that you may have had in the quarter any anything abnormal in Q4 and were any of those deals did they perhaps they pull in from Q1 into Q4 or are they all expected.
Actually a very normal quarter in terms of diversity and hi, Andrew.
Very normal quarter in terms of diversity in our deal sizes geographic mix and all of those and so no and no no pool and no pull ins this was a <unk>.
Execution on that our expanded pipeline we've been we've been talking about in the last couple of of quarters and that led to the.
Over performance.
Okay, Great and then I just wanted to maybe touch on the competition in the space.
Some chatter around our insight partners looking to sell Mycotic I'm just wondering if you could comment on on any of the competition Youre seeing if that's changed at all in your <unk>.
Based on things.
Yeah, I would say that our leadership in Pam has never been stronger we recently shared in our internal kickoff. The continued strong win rates. The the of course, the leadership and with the with the industry analysts I would say no no big change in the competitive environment.
Really sidebar continuing through doing all the right things innovating expanding organically inorganically to that full portfolio.
What you alluded to from the private equity Holdings I think that's one of the things that our customers and prospects look out they they view this as mission critical and they they want to partner with a company. That's a that's going to be there for the long run and that consistently investing in innovation like we we use the term today on hacker innovation.
I really think it's something to pause and think about there is hacker innovation. So our industry has to invest in innovation, hence our investment in which I was asked about earlier continued investment in 2021, and it's a differentiator in this in this market. This is a nice it's non a nice to have later this is a mission critical layers and that's where they.
So the Pam market, obviously with our with our expansion.
Into identity security, we're now playing in the <unk>.
Jason the opportunity and of course, we're early we're early there but focused on the on the customers that are there.
Put a preference on on security and and lastly on.
The SEC ops is just a huge a huge opportunity where it's at.
It's probably about a one in one additional player out there as we go after are the the on the desk Tech ops opportunity.
That's great really helpful. Thank you. Thank you.
Your next question comes from Hazmat Potter Rolla with Morgan Stanley.
Hey, guys. Good morning, Thank you for taking my question Josh.
One question for you I wanted to follow up on your comment around.
Our growth thinking about it maybe.
On the 30th with Starwood.
If I look at the ear on a growth trajectory this year right and accelerating.
And the <unk> now right you mentioned I think around 50% of your of your of your bookings were.
Recurring this year, you're saying 55%.
For next year.
And you really like we're just starting to basically incentivize the sales force towards selling side. So I'm just curious like do you think that initial.
Outlook is conservative or is there anything else that we should be mindful of.
Yeah, Great question.
I think the other thing that we need to be mindful of we anticipate if we hit our mix shift that we're talking about a 55 per cent of the of the new license bookings coming from SaaS and subscription then.
For very high.
Growth on the on the SaaS and subscription side of the business. The one thing that we need to keep in mind, though is that there will be a drag on day, our growth as it relates to the maintenance, which will be flat and depending on what the mix shift is.
There could even be a minus drag so.
I think that's the one piece that that our the model needs to consider is as the as the mix shift of.
It is the share is the mix of the bookings because that's going on also play into how much does the AAR from the maintenance contracts related to the perpetual.
Goes up but I would say that.
Overall, we're looking at.
Rate growth on the SaaS and subscription side of the yard.
Thank you much higher than the 30%.
Alright sounds good.
Thank you.
Your next question comes from Greg <unk> with Mizuho.
Alright, Thank you very much hi, guys.
Just first question for <unk>, just from an ecosystem standpoint, where do things stand with respect to the number of certified professionals on cyber Ark and about half how fast would you say that's been growing.
So Greg actually don't have an updated.
On a number for you, but we've continuously been been investing in that are in our ecosystem and made it more and more.
Accessible for our for our partners. So I think it's been it's been growing every quarter.
And next time around on mixture to to share a number of certified professionals out there.
Perfect. Thanks for that and then just for Josh what are your expectations out of SaaS and subscription adoption by companies that are based in EMEA and Asia Pac how do you sort of see that evolving from here.
Yeah, clearly and I pointed out on our call.
Americas contributed to the largest percentage of the of the SaaS and subscription business in 2020, but we're started already in the back half of 'twenty 'twenty starting to see it come in in EMEA and in an eight P. J, we were set up on the SaaS side across all the regions with ROE.
<unk> to our data centers to be able to sell all of our all of our SaaS products with local day data centers.
The regions and we.
We expect it to to pick up.
You know into 2021 as we start to one.
Really rollout the subscription packages and new account executives get comfortable there and two of course the incentive plan is the same incentive plan.
Four.
For the EMEA day P J regions as in the Americas, So there'll be.
Could it be well incentive to to learn how to sell subscription SaaS in those regions as well.
Alright, that's great. Thank you.
Thanks Rebecca.
Okay.
Your next question comes from the line of Joshua Tilton with Baron Berg.
Yeah, Hi, guys. Thanks for taking my questions.
I just wanted to touch on you mentioned incentivizing the sales force itself.
Are you also disincentivize local sales of perpetual.
And then also when you just talk to customers who choose to pick term what are the reasons for not wanting to go with the cloud offering.
So but by the way great Great question and no. We're not this incentivising oh the perpetual.
Were incentivising. So it's it's a it's the carrot character.
We're incentivizing the SaaS and.
And subscription.
I would say, it's still it's still early to have like a lot of.
Examples of.
Customers on the on the fence.
But again like I said, there's a two to one.
On a mixed story towards SaaS, the ones who do.
Who do prefer a subscription.
Our organized this way they still they still want a.
Are still leaning too to having to having on prem.
And of course, once who would push for perpetual.
I would say.
More more on the government and government sectors and a P. J like <unk> like Josh mentioned I would say those those were kind of organized tour and still used to buying perpetual, but that's really.
We expect that to be a.
A.
Decreasing minority as we are as we go through this.
Thanks, that's helpful and if I.
I missed this I apologize, but if you look at the stats business from 2020 could you, possibly break out how much of that would be adaptive and maybe give us a sense of what that business has grew up on yet.
And then also did you just see the lower pricing some of your peers, where you play in your favor during this macro environment.
So I wouldn't say that of the debt lower the lower pricing was the dynamic in an adaptive and adaptive wins.
I think the portfolio in general is really key.
Consider the the the.
The robust.
Security minded.
Portfolio.
But.
It's for the security.
The security.
Oriented.
We're really differ.
A differentiator.
And Josh I don't know if we can if we can.
Give anything on the on the on the on the mix.
Alright, thanks, guys congrats on the quarter.
Thank you.
Yes.
Thank you at this time I will turn the conference back to Judy.
<unk>.
Thank you. Thank you Erika and of course, Thank you Erika Smith, and Josh Siegel here I want to thank our customers partners and employees for contributing to our record fourth quarter and supporting our transition to a modern subscription company I'm confident that as we execute our strategy, we will build an even deeper relationship with our customer.
And partners thanks, everyone for joining today. Thank you.
Thank you for participating you may disconnect at this time.