Q1 2021 Cyberark Software Ltd Earnings Call
Good day and thank you for standing by welcome to the Q1, 2021 and cyber software earnings conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speaker's presentation. There will be a question and answer session to ask the question.
During the session you will meet the press star one on the telephone if you require any further assistance. Please press star zero out.
I'd now like to turn the call over to speak of today, Erica Smith, Vice President of Investor Relations. Please go ahead.
Thank you Amy good morning, Thank you for joining us today to review the sidewalks first quarter 2021 financial results with me and the call today are and even more party 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 any of them.
Mind, you that certain statements made on the call today may be considered forward looking statements, which reflect managements 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 and the full year, 2020, one and our 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 20-F.
And with the SEC and those referenced in todays press release that are posted the sidewalks website as well as risks regarding our ability to actively transitioning the business to a subscription model and the duration and scope of the COVID-19 pandemic, it's related impact of global economies and our ability to adjust and response to the COVID-19 pandemic.
<unk> expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward looking statements. 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 and an updated investor presentation.
The outlines of the financial discussion of todays call as we outlined at our Investor day that we held in March beginning of the first quarter, we changed the revenue and cost of revenue revenue presentation of our P&L the increased visibility into our subscription transition and the long term focus of our business. The historic breakdown of this new P&L.
The presentation can be found in the appendix of the Q2 update deck, which can also be found in the quarterly results section of our Investor Relations website, a webcast of today's call is also available on our website.
With that I'd like to turn the call over to our chairman and Chief Executive Officer would Evo Party Judy Thanks, Erica and thanks, everyone for joining the call and we hope you and your families are safe and healthy 2020. One is off to a great start we successfully completed the first quarter of our active transition to subscription we are thrilled.
With our execution and are well on our way towards transforming <unk> into a fast growing recurring revenue company with a comprehensive SaaS portfolio of solutions are for.
Few financial highlights total revenue was $113 million and the first quarter ahead of our guidance with our new subscription revenue line growing 180% over last year. In addition, it was great to see our recurring revenue reached $76 million or 68% of total revenue. We also generated more than five.
Of non-GAAP operating income and $31 million and free cash flow both ahead of our expectations.
Our revenue outperformance was particularly rewarding given that our subscription booking mix exceeded expectations at 51%.
Much of our success. This quarter was again from the strength of our SaaS solutions, given the increase and ratable revenue from subscription we believe the annual recurring revenue or <unk> can be used to evaluate the strength of the underlying business or you are reached $288 million up 41% year over year and even.
More impressive is that our ore from SaaS and subscription together grew faster the 250%.
And our subscription mix and recurring revenue demonstrates the momentum and the business and the incredible demand for our identity security platform, which is centered on pad.
At our Investor day in March we outlined for pillars that will create long term value for <unk>, our customers partners and shareholders of <unk>.
The use the same framework of growth subscription transition innovation and profitability to walk through our Q1 results.
Let's start with growth positive.
The positive secular tailwind and excellence and execution are driving our strong growth trajectory.
And then the security is at the center of every major industry tailwind, including digital transformation Zero Trust Hacker innovation and compliance.
Digital transformation and the explosion of technologies applications and automation tools are not only blurring the line between a privileged user and the war for a single user but also between human users applications and box.
For customers. This is creating a sense of urgency for cyber security enterprises have moved beyond the emergency initiatives and build out of 2020 and into strategic execution of comprehensive security programs and as a result, the flight to trust, we signed the fourth quarter continued in Q1 and the week of solar wind and the Microsoft.
Reaches enterprises are embracing zero trust and and assumed reach mindset Theyre looking to security partners, who have comprehensive measurable security solutions and deep domain experience.
As we look at our business. These industry dynamics are making identity security more relevant than ever before to drive our growth we are executing well against this opportunity with our land and expand strategy.
Early this year, we aligned our business across the privilege access management and our two speedboats Dev ops and the axis. This strategic move has further accelerated our momentum with an immediate impact as seen in our Q1 performance. The increased focused also contributed to another record quarter for pipeline generation of across the portfolio, which.
Will fuel our growth throughout the year.
We continued to see customers embrace of SaaS solutions with privilege cloud and endpoint privilege manager among the fastest growing offerings and our portfolio.
Enterprises continue to run in the hybrid world, resulting in strong demand for our on Prem spam, Pam offering for more often than not and the subscription package versus the perpetual purchase of the best.
I'm hearing from customers that one of the ripple effects from solar wins is the chief information security officers increasingly recognize the criticality of access Dev ops and cloud entitlements as key risk points that need to be secure which is contributing to our record pipeline growth. In these areas are investments and customer success over the last year are also paying dip.
And that's as the pace of engagement with existing customers remains at an all time high.
A number of customer examples from the first quarter demonstrate the power of our strategy and.
And a highly competitive deal a wholesale distributor expanded with workforce identity as part of the strategy to modernize the axis securities employees and deliver operational efficiencies. This customer recognizes that the explosion of SaaS applications is extending privilege access to all employees, making security equally as important as the seamless user.
Spirits I love this win for two main reasons first the customer embraces our identity security strategy and the second it demonstrates the increased sales velocity from our SaaS portfolio.
This whole it sealer realized fast time to value ease of use and unparalleled scalability after buying privilege cloud and just the fourth quarter of 2020 paving the road for workforce and the expansion just a quarter later it was of great win.
The solar winds of Ryan of Tech was the catalyst for an existing telco customer to significantly expand the spam deployment and reducing the attack surface with secrets manager of key win against the competitor of Dev ops line for them.
A large grocery store chain is following our blueprint methodology as part of its identity and access management and modernization. We're protecting this customer's robotic process automation or RPE a strategy with the secrets manager will also significantly expanding its patent protection with the rollout of privilege cloud.
Our new business progression and close rates continue to improve and the first quarter, we landed over 170, new customers and about 70% of these wins were subscription deals up significantly from about 57% just last quarter.
And we won logos across all the industries, including retail global government and financial services as.
As examples of.
The U S based retailer is replacing an incumbent vendor that couldnt scale to meet the requirements of its hybrid environment. We are helping this customer secure across Google cloud and Azure as well as all servers and databases and its on premise environment.
A consulting organization was looking for and are there any security partner committed to delivering innovation that would evolve in step with its long term strategy to secure its AWS and azure of multi cloud environment, the depth of pipeline and its machine of debt and the first step of its <unk> program. The company is rolling out privilege cloud and secrets manager to secure.
AUM grow and applications as well as other software like tenable vulnerability management solution.
As we look ahead of the sales capacity. We added in 2020 has wrapped the productivity and we are growing the team to keep pace with the accelerating demand environment, our partner ecosystem of advisory firms Vars and seek cube technology partners is further extending our reach and will help us drive scale and our go to market.
Moving on to the subscription transition feedback from customers partners and our own employees has been incredibly positive. The levers. We introduced earlier this year are working creating both push and pull in the market.
Customers were already pulling us towards subscription and 2020 and the new packages. We introduced in mid January combined with the maturity of our SaaS offerings have accelerated the motion.
The sale of incentives as well as the deal desk and deal scoring are helping for cyber Ark towards our goal of becoming a subscription company. This is reflected and our new pipeline generation, which is overwhelming the geared towards the recurring subscription bookings heavily weighted towards SaaS.
Geographically the Americas had the strongest mix of recurring bookings, which impacted our recognize revenue, which Josh will discuss we are pleased with the subscription traction and EMEA and a P. J. Both trending ahead of our expectations. The subscription transition is reducing friction and the sales process and increasing our cross sell activity as you saw and some of the earlier customer.
Examples of the team is already shifting towards delivering transformative value and building deeper more enduring relationships, which will generate higher lifetime customer value and <unk>.
Wouldn't be more pleased with where we are coming out of the first quarter in terms of the transition.
Now moving onto our innovation pillar, where we continued to step on the gas around our innovation engine.
In the first quarter, we made considerable progress evolving our portfolio into a unified comprehensive identity security platform centered on the privilege, we've integrated multifactor authentication with our privileged portfolio to provide our customers with significantly enhanced security controls customers.
Customers are embracing zero trust frameworks, and while our just and tank capabilities of solving enterprise use cases today, we are continuing to enhance our offerings are.
Our investments and innovation that help customers secure the cloud environments are paying off cloud and Palmas manager is building momentum are tighter integration between our Congress secrets manager solution and privileged cloud offerings and strengthening our customer security posture as they move more and more applications to the cloud and adopt cloud native approaches the application development.
Our secret partnerships are extending our reach demonstrated by recently being named partner of the year by Red hat, we will be rolling out exciting offerings as we move through 2021, and I can't wait to preview many of these at our upcoming customer and partner of impact event in June.
Finally, we are making strategic investments this year to drive growth innovation and scale and Josh will discuss our profitability pillar and more detail.
I wanted to emphasize that we have not changed our approach to investment and building a durable business model as part of our DNA, a guiding operating principle of cyber and we remain committed to delivering profitable growth and returning to the rule of 40. Once we are through the transition period.
As I look into the remainder of 2021, we of major industry tailwind is driving our business and the wake of the recent cyber security attacks and the accelerating pace of hacker innovation. Our solutions are a business imperative and we are seeing a heightened sense of urgency across pan access and Deb <unk>. Our go to market machine is executing well.
We are extending our leadership position and delivering innovation and a record pace, we are well on our way towards transforming the business into a fast growing subscription company and our cloud solutions are leading the way.
With our strong execution and the first quarter, we are and a great position to unlock tremendous value for us our shareholders our customers and our partners.
I will now turn the call over to Josh who will discuss our results and outlook for the second quarter and full year Josh.
Josh.
Thanks Judy.
Before we discuss the details of the quarter. We wanted to remind you that we posted slides to the website that will be helpful. As we walk through our results. The appendix of the decks contains the historic breakdown of the revenue and cost of revenue lines and the new presentation of our P&L that we discussed at our investor and at our Investor Day in March.
We are making this change to the P&L of the increased visibility into the success of our subscription transition and the direction of our business. So.
So moving into our results our strong business momentum continued and the first quarter. We were pleased to beat our revenues operating income and EPS guidance, particularly given that we also exceeded the expectations for the percentage mix of subscription bookings.
Total revenue was $113 million worth of 51% subscription booking mix up from $107 million and approximately 20% subscription booking mix and the first quarter of last year.
Subscription revenue reached $25 million and represented 22% of the total revenue and the first quarter, increasing 180% from $9 million and subscription revenue and 8% only of total revenue and the first quarter last year.
As anticipated given the shift in our sales motion towards the recurring subscription business model perpetual license revenue did decline and was $27 million for the quarter, our combined maintenance and professional services revenue was $61 million with $51 6 million from recurring maintenance and $9 $8 million and professional services revenue.
<unk>.
During the subscription transition period. It is important to evaluate additional metrics that provide increased visibility into the momentum and health of the business.
They include total recurring revenue percentage mix of bookings from subscription and annual recurring revenue.
And the first quarter total recurring revenue reached $76 million or <unk> 68 per cent of total revenue of growing 41% from $54 million and increasing from the 51% of total revenue and the first quarter last year.
Our recurring revenue growth is driven by strength of our subscription bookings from SaaS and on Prem subscriptions as well as our continued strong maintenance renewal rates for our mission critical software.
The mix of subscription bookings as a percentage of new license bookings as an indicator of pace and the success of the transition and the first quarter. The mix was about 51% of new license bookings as compared to the mixed and our guidance, which assumed only 47%.
This compares to about 20% and the first quarter last year.
Please note as we move through the transition the subscription mix will level set all deals to an annual value, including the perpetual bookings.
The headwind created by the mix of bookings was about $11 million and the first quarter, taking the headwind into consideration of first quarter of total revenue would have grown by about 16% year on year.
It is critical to keep in mind that the headwind is calculated based on the annualized bookings mix year on year.
At March 31, our a R. R was $288 million growing 41% year on year from $205 million and the first quarter last year and as I.
On an organic basis, excluding the contribution from adaptive our annual recurring revenue still grew faster than 30% and the first quarter of 2020 one.
Another important metric that we watch closely is the growth of just the subscription portion of a R. R which includes our SaaS and on Prem subscription contracts. We were pleased that our subscription portion grew faster the 250% year on year to about $88 million representing over 30%.
<unk> of total a R. R. At March 31, that's up from $25 million or 12% at March 31 last year.
This clearly highlights our tremendous success and growing our recurring subscription business.
Our our growth this quarter was driven by both existing as well as new logos.
Geographically the business continues to be well diversified the Americas generated $61 $3 million and revenue representing 54 per cent of total revenue and for the year over year comparison, and the Americans again had the strongest percentage of SaaS bookings during the quarter, which lowered our recognized revenue and the period by about $8 million.
EMEA grew by 40% year on year to $38 $3 million a P. J generated $13 $1 million of revenue, that's increasing 39% compared to the first quarter 2020.
All line items of the P&L will be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation and the tables of our press release.
Our first quarter gross profit was $95 $5 million of an 85% gross margin as compared to 87% and the first quarter last year. Our gross margin is being impacted by two factors first the headwind from our subscription bookings mix and second the increased cloud expenses related to delivering our SaaS services.
Moving down the P&L, we continue to make disciplined investments and the and the business R&D grew by 39% year on year to $25 $4 million as we invest to deliver innovation adaptive expenses contributed about $2 $1 million for the year on year increase and expenses.
Sales and marketing increased 20% of $53 $8 million as we expand our go to market engine across all geographies.
G&A increased 37% year on year to 10 point near $9 million to scale of the business and total operating expenses for the first quarter increased 27 per cent to $90.1 million.
Our operating income was $5 $4 million and the quarter operating income was lowered by about $1 $2 million net from foreign exchange rates.
As a reminder of the approximate 11 million dollar of revenue headwind had a corresponding impact on our operating income taking the headwind into account our operating margin would have been approximately 13% and the first quarter of 2021.
Over 70% of our operating expenses are related to head count, we executed well against our aggressive hiring plan to invest and the business ending the first quarter with 1808 employees worldwide of our total employee count 832 employees are and sales and marketing.
Net income was $3 $8 million or nine cents per diluted share for the first quarter and the first quarter free cash flow was $31 $3 million or 28 per cent free cash flow margin driven by strong collections from our fourth quarter bookings.
This cash flow contributed to our strong balance sheet and we ended the quarter with $1 2 billion and cash and investments.
We also increased deferred revenue by 23% year on year to $260 million or SaaS deferred revenue grew by over 300 per cent to $48 million compared to $11 million at March 31 last year.
Turning to our guidance for the second quarter 'twenty 'twenty. One we expect total revenue of $111 million to $119 million, we expect the non-GAAP operating loss of about three and a half two non-GAAP operating income of three and a half million dollars for the second quarter, we expect our EPS to range from non-GAAP net loss of 11.
<unk> per basic and diluted shares to net income of six cents per diluted share.
Our guidance also assumes $39 6 million weighted average basic and diluted shares and 47 million weighted average diluted shares.
We are assuming $2 $5 million and taxes for the second quarter. This guidance assumes about 55 per cent of subscription bookings and a revenue and profitability headwind of approximately $9 million for the second quarter of 2020 one.
Our guidance for the full year of 2021 reflects the strength of our pipeline, our overall opportunity and an assumption for the mix of our bookings, we expect total revenue and the range of $484 million to $496 million.
While we are maintaining our revenue range because of our stronger than anticipated total bookings and our higher subscription bookings mix and the first quarter as well as a robust subscription pipeline growth, we are increasing our subscription mix assumption to about 57% and a revenue headwind increasing to approximately 45 million.
This compares to our prior guidance, which assumed the mix of 55% and a 39 million dollar headwind to revenue.
The upward adjustments to the mix percentage and headwind represent an increase and our bookings outlook for the full year illustrating the strong first quarter performance as well as our confidence and the robust demand environment and execution of our strategy.
We expect non-GAAP operating income to be between $20 million to $30 million, we expect our non-GAAP net income per diluted share to be and the range of 39 to 64 cents for the full year, we expect about $40 9 million weighted average diluted shares and about $10 million and taxes.
As Judy mentioned and we discussed at Investor Day, we are not changing our investment philosophy, and our planning for profitability levels. The snap back quickly after we exit the transition, which we continue to expect to be in between eight to 10 quarters, So exiting and the fourth quarter of 2020 two or by mid 2023.
In terms of free cash flow, we were thrilled with the outperformance and the first quarter, which reflected the strength of our perpetual bookings and the fourth quarter and our strong cash collections for maintenance for the full year 2021 considering the seasonality and our business. We continue to anticipate that our cash flow margin will be in line with our non-GAAP net income margin.
Performance of the first quarter and strengthens our conviction that we are making the right level of investment to drive growth and innovation in 2020, one and beyond.
I will now turn the call over to the operator for Q&A.
Operator.
Thank you at this time, we will be able for conducting a question and answer session.
For as many questions as possible we ask that you. Please limit your questions to one question with one of many.
The follow up and.
In order to ask a question. Please press star and the number one on your telephone keypad.
Question comes from the line of circa <unk> with Barclays. Your line is open.
Okay, Great Hey, good morning, guys. Thanks for taking my questions here.
Hey, good morning.
Hey, good morning, maybe maybe for you first Judy.
And can you just talk about your thoughts on on new entrants into this market.
And maybe just specifically to call out okta and.
And what your thoughts are on maybe the.
The puts and takes for for a broader identity platform like okta.
And.
Entering the Pam market and any thoughts from that.
Sure sure look we are all of the pioneer and the leader and a very hot space that is growing in importance I think recent breaches really highlight the importance of we've expected more competition and entry we've always been and like I like to call. It productively paranoid about our leadership position and the and hence invested and continued breakaway.
The innovation to further accelerate our leadership, but I think specifically the the journey. We took the identity security gives us a major advantage, we think that coming from Pam, where our where we put security first and.
And following the proliferation of privilege across both human and nonhuman infrastructure is giving us a major adventures as we expand into identity security and looking at it as the security problem.
I talked to our enterprise customers of all the time and and.
And they won't compromise on security when it comes to the piece of the Kingdom and the keys to the to the cloud the Kingdom and so we're going to continue to break away and lead with of.
The broad expansion into identity security, but with Pam as a as a major advantage and at the center of it.
Got it that makes sense.
Josh maybe for my follow up for you.
For some of the detail on the AOR components in the quarter I was wondering if we could just zoom into the maintenance piece, just a little bit.
And I believe maintenance is the bigger piece of that AOR pie. If you will how did how did that component of AUR, maybe compare versus your expectations and the need to keep in mind for sort of modeling those two pieces through the rest of the year.
Yeah, Hi, Thanks for the question I.
I think maintenance came in about where about where we are anticipated.
With regard to his came in about 70 per cent of the total E. R. I think on the flip side, we saw a a come in a bit better.
And then we anticipated without 41% growth really coming from the from the from the SaaS and the subscription component, which was now 30% of the E. R. That's compared to 12%.
If we look back.
And the first quarter of last year.
So we're pleased with that and so I think of maintenance you know, we're getting the right renewal rate debt, we expect it to get but really the bonus is coming from doing better on the SaaS side.
Very helpful. Thanks, guys.
Thanks.
The next question comes from the line of Sterling Auty with J P. Morgan Stanley. Your line is open.
Yeah. Thanks, Hi, guys. So I'm just curious what kind of pushback you may have gotten so the mix and subscription was better than you expected, which I don't think comes the surprise to many of US the watch and a lot of the transitions, but where you got pushed back.
Or did it happen and why is it happening in terms of the customers not wanting to choose subscription or SaaS.
So the hay starting because of all of it we're excited with the strong start to the subscription transition I think.
It beat our expectations and so as the first quarter and that is chewing on some old pipeline. You can say, we have some old pipeline that we expect it to continue to to sell as a as perpetual but very pleased with how the mix.
<unk> has outperformed and very pleased with how it's looking in the and the current full year Q2 and full year pipeline.
So I would say no pushback.
But actually better than better than expected.
Transition and really the way we wanted to start this year.
Alright, Great and then just maybe one follow up for you I want to make sure I understand the full year EPS guide.
Anything really changed and your expense outlook or just the mix going more subscription that wood.
Potentially weigh a little bit more on EPS.
Yeah, Hey, Sterling, it's really actually even below the operating income line of.
It's really around the taxes as.
And as we kind of finished Q1 and we saw what happened in Q1, and we were forecasting taxes for the rest of the year. We you know when you're hovering a when you're hovering at the at the lower operating at the net income levels than we actually end up with the higher tax rate around globally.
So we just adjusted our adjusted for the tax for our projected tax provision provision.
Provision perfect. Thank you.
Thanks Sterling.
Your next question comes from the line of side of my <unk> with UBS. Your line is open.
Good morning, Thank you for taking my questions.
And Josh I wanted to start with you and the Americas performance.
Appreciate the quantifying that headwind for us as it relates to the model transition and that seems like it's more concentrated in the Americas.
And if we.
Just for that headwind.
You had a sort of flattish performance in the Americas.
Relative to much better performance and your other geographic theater. So I'm wondering if you can talk to any other marketplace dynamics are.
Go to market motion.
And next that would explain that to flattish year on year growth adjusted for the headwind.
And Fatima O'dea here I'll start that so actually when we looked at it and you.
And you touched it we actually exciting excited to see that it's the faster mover in the and the transition with the the heaviest weight on.
On the SaaS I would say some of.
Some of some specific elements of this quarter I mean, Americas is coming off a record.
32% growth the Q4 and it was the fastest of all of the region and so we're pleased with where we are in the Americas, especially when we see the great pipe. The great start of Q2 and are optimistic for <unk>.
For the rest of the rest of the year.
Yeah, and I guess I would add there.
I would just add on a specific in terms of markets.
The last year and in the first quarter, we had a very strong federal spend that was out of cycle.
And.
That didn't repeat.
And in this quarter.
So very helpful.
Contributed cash the sorry.
Since I have you.
Any high level.
Modeling points for expectation you could point as true as it relates to the subscription revenue and subscription mix between SaaS and on for Ann.
And to the extent the.
Performance this quarter is changing your mix expectation specifically for that.
Category and Thats It for me. Thank you.
Yes. Thanks.
Still seeing a really of SaaS heavy.
On the E R. So.
Still using kind of a two to one ratio of SaaS.
Versus the on Prem subscription and at.
At this point I would I would continue and looking at it that way.
Your next question comes from the line of Rob Owens with Piper Sandler Rob Your line is open.
Great and thanks for taking my question is moving towards Q2, and <unk> and <unk>.
And that you bought the depth of the year ago, any puts and takes around how we should think about growth and I know you said you were over 30% from organic perspective. This quarter and are you sticking to that kind of a guardrail and then number two.
I'll ask of both upfront.
Given it's been a year since the acquisition and maybe an update on how the Gaslog is doing thanks.
Sure I'll start I'll start with the with the latter question and on an adaptive and I think we've invested.
The the last several quarters on really integrating it.
To create one plus one equals 11 with the with being part of <unk>.
Connected into Pam and part of the identity security.
Folio and.
And we've also invested and putting a overlay.
Sales the sales effort there so we are.
It's still it's still early innings for Friday captives, standalone, but we're seeing it.
And some of the examples of given really played well and and the cross sell upsell motion with existing customers and also as the new lending front for us.
The tip of the spear is met the called it and AR and the in the Investor Day, and so it's and it's an early young speedboat within the within cyber.
But the but is really taking off well.
And and Rob on the AAR growth question, and we're still very much looking at 30% growth for the year.
A R and.
We started off nicely and the first quarter with 41%, a 30 plus percent organically and and we see that continuing for the year.
Alright. Thanks.
The next question comes from the line of Hamzah firewall with Morgan Stanley. Your line is open.
Hey, guys. Thank you for taking my question and good morning.
I just want a question on sort of the the.
Sales force productivity ramp.
And I know that you had just started to really introduce and centered around selling.
And with the sales force and Q1 and had some new product announcements.
I'm wondering how do you see that ramp sort of progressing, particularly in the back half and how should we think about sort of air and our growth and.
In relation to that.
Hi, Hamzah.
Yeah, you're right. We are we really the key.
Continued to ramp our capacity.
Capacity on the sales front and into the first quarter.
And we have a.
Still of six to nine months sales cycles, and where we're excited about the the.
Kind of the record continued record growth that we have and pipeline and will be continuing to expand our sales of our sales teams globally.
And.
Going going into each of the quarters.
Through the second half of the year, they do take two to three quarters to ramp.
So we always anticipate future growth by bringing them onboard earlier and I would say that when we look at the big Hirings that we did and H two of last year and.
Q3, Q4 and certainly.
And certainly the ones for the first half of last year, we already of seeing them really fully productive at this point and we actually saw.
A nice increase and productivity.
Into this first quarter from our sales teams and I think it has to do with the ramp up that we that we saw that we did last year on the.
The sales teams and and I would add debt and I'd like I mentioned and my nose, the really onboard with the SaaS and subscription I mean, all almost all of the reps have a subscription deals in there and the pipe some have only subscription deals and the and their pipe and and that's why I noted. The we're very pleased with how we kicked it off from from the beginning of.
For the year.
Got it and just maybe a brief follow up for for Josh I was wondering if you could maybe give.
More concrete sort of inorganic contribution from adaptive.
I think last quarter of the organic growth was somewhere in the high 30% range was that was that fairly consistent.
This quarter as well.
The organic the inorganic impact on revenue from adaptive.
The question.
Oh and on.
And a R.
I think.
The the impact for was.
Again, I said it was about 41% growth and it was about 30, just over 30% growth from an organic perspective.
Okay. Thank you.
Your next question comes from the line of Gregg Moskowitz Mizuho, Greg Your line is open.
Okay. Thank you very much for taking the questions maybe to start with.
I know you call that one.
Interesting customer example, but more broadly how is the adoption of privilege cloud this quarter among both.
The mid market enterprises, and how do you see this evolving over the course of 2021.
Thanks, Yes, absolutely.
A super strong quarter for <unk> for privileged cloud I would say that we're beginning to see the lines blurring and into how big and how large enterprises can be and and adopting it and and and even even some very even financial verticals and and <unk>.
Very large.
Accounts and so it's.
It's becoming of the.
The larger force within the within new Pam.
Within the <unk> deals.
Lending in the and privileged cloud.
Alright, Thats, great to hear and then Josh can you tell us roughly what AAM was as a percentage of either revenue or license bookings and just kind of how that compare to your expectations.
It absolutely a hit against our expectations and actually now when we look at revenue you know with our much larger of percentage coming from SaaS and subscription and so forth and it becomes a little bit.
Less relevant when looking at the product mix out of revenue because there's it now of change for whether it's happening perpetually or or subscription basis, but I will say that from a bookings perspective.
A M absolutely had a nice.
And nice growth rate year on year, and absolutely contributed at the levels, even at the levels that we anticipated even a bit higher.
Okay, great. Thank you.
Your next question comes from the line of Brian Essex with Goldman Sachs. Brian Your line is open.
Great. Thank you and good morning, Thank you for taking the question.
Uzi I had a couple for you.
You mentioned in your prepared remarks of flight the truss and and maybe if you could just update us in terms of how customer buying patterns and they have evolved as you enter this year I think last quarter you noted a number of.
The customers that came on and abbreviated attach rates or maybe you Didnt do end to end solutions kind of true up their deals, but what is what is the tenor of buying pattern in 2021, and what youre seeing and the pipeline are you getting more and to end and higher attach rates now and is that more prevalent on the SaaS platform.
Yes, it's definitely.
More prevalent on the on the SaaS platform, where we see the the progression.
And in the cross sell move move faster I think the commentary last year or earlier in the year, we talked about the customer kind of.
And looking to do the basics of as they transition to the work from home and.
And now we're seeing them much be much more back to the strategic programs, we already saw that and and Q4 and it continued in the in Q1 and commentary and and and things, we're seeing and deal cycles, both related to solar wind and also related to being back on and on track is that they're looking to do.
Deeper deeper programs, whether like and making the commentary really following our blueprint when it comes to.
To add on and looking at the at multiple products and and solutions, but also in the and in new customers, we're seeing them be more and more strategic.
About going deep and Pam and other areas and and identity security.
I would say that the the average deal size.
And is up and and.
And SAS deal size are similar to two perpetual.
Toric perpetual deal size, which is which is great.
Your next question comes from the line of Andrew Nowinski with D. A Davidson Andrew Your line is open.
Great. Thank you and good morning, everyone. So just wanted to start up of the high level question.
You touched on the solar ones and Microsoft Exchange of tax I'm, just wondering if you could.
Maybe put a finer point on and how they may have impacted if at all of the Q1 results and then and.
How they are.
May have had an impact on your pipeline going forward.
I think the really important news is that they create a long tale for <unk> for <unk>. It's one of those events that the that has multiple years of of return where if anybody neither the reminder that debt.
The privileged no matter, how do you the sector and attack and no matter how they first entered a network or cloud environment. What are they looking for lateral movement escalation and it's all about credentials and movements. So we see it creating the long tail of of awareness and.
And the field is feeling that.
Both and Pam and also as we've expanded Pam into identity security because the our other examples there and those attacks of tech of attacking other elements of of identity.
And then specifically the were some examples and in Q1 and I gave the example of the telco.
And it helped reinforce the.
The or accelerate of deal or at least the expand the deal size into a more strategic but but I think the important thing is is the long tail we get.
Got it thank you and then.
Look at your new customers you added it looks like over 170. This quarter I was wondering if you could just break out how many came by way of adaptive purchases and how and how your new logo adds performed.
Excluding the adaptive customers you added relative to your expectations.
I'll jump in and you know when we look at actually I think and the new customers the.
The the overwhelming majority of where we're from our from our core pass.
And actually a large percentage of them were coming in.
Off of our subscription and SaaS business as well I think.
30% of.
If we look even back over the whole last year, 30% of the incremental <unk>.
And our that we've added has has come from new customers and and.
And probably still 90 plus percent are coming from coming from the organically.
And it's important to add that many of the the new packages we introduced.
And in the in the year actually include adaptive.
<unk> and them multi factor authentication and Cigna and single sign on and so it's.
It's attached to many of the of the.
The new new logos.
Great. Thank you.
Your next question comes from the line of Tal <unk> with Bank of America. Paul Your line is open hey, guys.
I have a question about the.
The next quarter guidance.
It seems like the revenues are under US just by day under street expectations and EPS as well.
And you wanted to give us the context of the accounting impact on the migration to SaaS.
And maybe give us the context of IRR for next quarter, just to make a comparison of the like for like thanks.
Hi, Tao.
Thanks for the question and I think from.
Really if you're talking about the accounting we talked about the the headwind.
As it relates.
Two our SaaS and subscription rate for the for the subscription.
For the subscription side of the business on Prem.
Term based licenses, we're looking at it going out between 50% upfront and for the new packages, it's closer to 70%.
And 30% upfront and 70% of pro rata over time, so and on SaaS, obviously, it's fully ratable so that goes and obviously into the headwind calculation for the guidance and we're pleased with the guidance.
To be able to one increase are.
Our anticipated subscription bookings mix and still really come in at what we anticipated out of out of revenue perspective for for Q2. So from that perspective, we're really supports and we think about and also from an annual basis. It really supports the fact that our pipeline and <unk>.
Is growing is growing nicely, it's actually when you think about our subscription mix and the increased headwind.
For for the quarter and for the full year, we're actually.
Really raising our expectations for the business.
For the net for the next nine months. So we're excited about about what we're able to guide to.
And Josh is there a number is there a number like this quarter you gave the number of what's the impact of accounting is there a number for next quarter.
For the headwind, yes, yeah. The headwind is the 10 nine.
$9 million for Q2 got it thanks.
Your next question comes from the line of Jonathan <unk> with Baird. Jonathan Your line is open.
Yes, good morning, Hey, guys.
So last year, you talked pretty consistently about strong pipeline growth but.
The challenges to deal sizes, and the ASO conversion rates, particularly within certain verticals and so I'm. Just curious if you could comment on those dynamics of entering 2021, where do you continue to potentially see challenges and the business.
Yeah, Hey, Jonathan and I would say I would say we're seeing.
A return to normalcy.
On that front and the ability to of for us too.
The pipe was building great and I think this quarter. We also showed the strong execution on that.
On that on that pipe and.
And I would say that from a from close rate perspective, we could probably talk about the record.
Record close rates and this and this and this quarter and and so more and more signs of of return too.
Turn to normal and then of course, the the the more opportunity for acceleration because we have.
The growing SaaS portfolio, and a growing number of customers debt that.
And that we can take them through the SaaS journey and.
And cross sells.
That's good debt good to hear.
The the follow up I have is is odd Dev ops and I'm wondering.
And how you see the growing influence of of that center and the buyer security impact the privilege of is it really starting to highlight the need for our for what you do more of that what you've seen and the path.
Yes, I think this is probably one of the most strategic things we've.
The moves we made when we.
And both organically and Inorganically expand and the created the Dev setups Speedboat Theres no theres no enterprise customer that doesn't have that debt.
And that movement happening.
And we're up we're on top of securing their human and putting human controls. They are seeing the expansion of privilege and in their application environment and and the need to secure secrets. So it's the it's a very strategic element it was and and.
And many of our of our largest deals included.
Our debt tick ups.
The solutions and and I would say it creates a great bridge for for our customers to have an inroad to the developer of size and the Dev upside and so our RC Soc the.
So customers are very pleased that they can build the can bring this value to the.
To the developer audience, and and again keep them secure while making it very transparent for them to manage the secrets.
That's great to hear thank you.
Thank you.
Your next question comes from the line of Josh Tilton. Please state your company name Josh Your line is open.
Yes, the Josh Tilton from <unk> capital markets.
Two quick ones for me.
I was hoping that you could comment on the pricing environment and the active management over the last year.
And if I remember correctly I believe by depth of using pricing of the differentiator have you been able to improve pricing at all since the acquisition.
I think thanks, Charles and I think we're taking a different.
And approach and of course, as a standalone and that was a differentiator for for adaptive the differentiator now is very much. The fact that if we land and.
And access our customer we can take them on the full identity security journey and into and into and into path and so in some cases the pricing change also because we've included it in and new and new packages and and.
And in general, where we're going to differentiate on value.
And and just the follow up on that you mentioned I.
And I believe the you completed the integration of the MSA with the privilege of portfolio do you guys have any indication of what percentage of customers are using Pam today without MSA and also what are you guys seeing as the uplift the asps for Pam.
The customer looks to implement MSA for that patent product suite.
And.
I don't think I have of that debt.
Debt fully the fully handy here, but it's it's a big part of yes. There are there are customers that.
Or many customers were.
The MFA projects, we're taking too too long and when we come in with the opportunity to put the MSA and front of Pam it's of great landing spot for.
And for them to.
And to secure probably the most important access they have and the organization and then and opportunity for us to expand to all to all users. So it's and a big it's a big opportunity within the the customer the customer base.
Thank you.
Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Your line is open.
Hi, Good morning, I, just wanted to maybe start out with some of your commentary on the non human opportunity can you talk a little bit about how big that market could be and maybe yes.
And I guess relative to the more traditional use cases, how big of an opportunity you see there.
Yes, Thanks, Jonathan and I think in the past, we've talked about the nonhuman opportunity being as big as the as the as the human and as the human side and.
And I think every every day that goes by as another shift left day for.
For the world and and technology.
And obligations are growing exponentially and no matter what industry. It is so cross industry, we see them, becoming more and more of a software companies and and we have the debt.
Great bridge of the securing one of the most important elements and the in the in depth of SEC ops, but but but.
With the win win.
And sparing to the developer.
And and a good control for the security professionals, so we see that.
The only becoming more and more critical and and that's why we.
We of course put it in the speedboat.
The whole speedboat behind it because of the critical opportunity.
Got it and then just relative to the shift to subscription and you mainly seen this is and.
And you need to replace existing solutions or is there a lot of greenfield opportunity that's coming from this as well.
So in terms of the.
The multiple elements and the subscription transition, but if we talk about the new logos that they are more and more types of organizations that are just happy to land in SaaS and SaaS delivery and like I mentioned earlier, we were pleasantly surprised that it's continuously moving up the up in terms of the.
The type of of enterprise and so it gives us from a new logo perspective, it gives us the way to bring greater time faster time to value for those for those customers and then bring them across the portfolio faster in terms of the.
Conversion of the of course of the our convergence of.
Even though it's a small it's a small piece there are conversions of customers to subscription and and when we do that.
We again want to bring them value and to get them into a bigger piece of the portfolio and and so that's where the packages kick in where they're actually getting more and more value the and getting better security because they get the right products and in place.
Thank you.
Your next question comes from the line of Alex Henderson with Needham and company Alex Your line is open.
Hi team, yet, Mike Seacoast and the one here for Alex Henderson I did want to follow up on this record pipeline that you guys had to see if you could give this big and order of magnitude.
Or at least provide some additional color I guess with this model transition underway and the bigger push on the subscription and and higher adoption rates of sense.
Are you seeing I guess increased velocity in the sales cycles, and and customers moving quickly or quicker from the top of the funnel down to the the.
The final deal.
Yeah. Thanks, I would say, we still we still talk about of six to nine months.
The sales cycle, but beginning to see the the advantages and value and.
Like you're talking about of customers of higher velocity.
When it comes to the SaaS to SaaS customers and their ability to get for.
What type of value and then and then faster adoption and our ability to push cross sell for.
Faster, we're not we're not changing our kind of our six to nine months.
Of general approach, but.
We are very optimistic that this is one of the upsides of this of this of this trend and transitions.
And I would and I would add debt.
We're seeing much better close rates going into the first quarter and.
Of this year.
So that really mentioned it before and I wouldn't I'll mentioned and again and when we think about the record pipeline and I'd also say what we like about it is that it's first of all going across all aspects of the pipeline new customers existing customers across each of the geographies and across each of the product lines that were taught.
And you about whether it's a privilege access or Deb set gobs and of course, one of the other things that we're tracking it very closely as is the supporting our transition goals and we're really pleased to see the pipeline supporting.
And the transition goals, meaning net we're seeing record increases and our SaaS pipelines as well as our subscription packages, including and especially our new subscription packages.
Your final question comes from the line of Erik <unk> with JMP Securities. Eric Your line is open.
Yeah. Thanks for squeezing me in.
And.
First off.
Your contribution from the subscription bookings.
It was 20% and the year ago quarter of it expanded the 51%.
It seems like that that's moving very quickly.
Take for you to accelerate your timeline.
From reaching the seven.
And the 80% of thank you.
Suggested it would be 810 quarters out so what day.
And you think the likelihood of that happening before the end of fiscal 'twenty two and.
And then secondly.
You had indicated that your your headwind the projected for Q2 was about $9 million I think.
It was 11 million and the and then.
March quarter here, why will it be coming down.
And the June quarter.
The March quarter.
Yeah, Thanks, Erik for those questions.
I'll start with the second one.
Basically as we moved last year, if you think about it on a year on year basis, we already started to restock.
And to see some increases last year between Q1 and Q2 on the percent subscription so.
That's impacting the math, we look at when we look at the headwind we look at it year on year. So we're not doing it from a cumulative perspective, we're looking at it as okay. We're taking this year's Q2 versus the versus the scenario from Q2, a year ago and already Q2, a year ago, we start.
Good to have more subscription business on a natural basis. So that's why.
We see a slight decline and the headwind but.
We're still supporting the strong revenue growth with regard to your first question on moving in the moving in the Goalposts. We're real pleased where we started the first quarter because it really set us up well for being able to establish firmly.
Debt that the transition is happening.
It's certainly happening.
Definitely within our original goalposts of eight to 10 quarters.
And we're able to move up a couple of percentage points and Q1.
We also were able to move up a couple of percentage points already for Q2 and for the year. I think Q1 is still one quarter of <unk>.
Work.
But.
We'll see how how Q2 goes in and we will be able to I think based off of the first half of the year really reevaluate again.
And the full transition period, but.
I think in order to bring it in.
Want to see.
And we'll want to see how more than just one quarter behaves and the transition, but so far we like what we see.
This.
Our question and answer session I will now turn the call back over to Judy Mccarthy for closing remarks.
Great. Thank you very much I want to thank everyone, who joined us today and want to thank our customers partners and employees for contributing to our strong first quarter and supporting our transition to a subscription company I am confident that as we execute our strategy, we will build even deeper relationships with our customers and partners and again, thanks, everybody for joining today.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
In the.
The board.
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