Q2 2022 Cyberark Software Ltd Earnings Call
Okay.
Good morning, My name is Rex and I'll be your conference operator today at.
At this time I would like to welcome everyone to the cyber our Q2 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
At this time I'd like to introduce Erica Smith, SVP Investor Relations and ESG Ms. Smith, you may begin your conference.
Thank you Ross good morning, Thank you for joining us today to review <unk> second quarter 2022 financial results with me on the call today are additional cuts.
Chairman and Chief Executive Officer, and Josh Siegel, Chief Financial Officer. After prepared remarks, we will open the call up to your questions.
Before we begin let me remind you that certain statements made on the call today may be considered.
Statements, which reflects management's best judgment based on currently available information I refer specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the third quarter full year 2022, and beyond our actual results may differ materially from those projected in these forward looking statements.
Hey, good luck your attention to the risk factors contained in the company's annual report on form 20-F filed with the U S Securities and Exchange Commission and those referenced in the press release today that are posted to <unk> website, SEDAR expressly disclaims any obligation or undertaking to release publicly any updates or revisions.
Any forward looking statements made today.
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 an updated investor presentation that outlines the financial discussion in todays call.
Also want to remind you we provide the calculated revenue headwind for additional color on the impact of our subscription bookings mix shift, but it should not be viewed as comparable to or a substitute for reported GAAP revenues or other GAAP metrics.
A webcast of today's call is also available on our website in the IR section with that I'd like to turn the call over to our chairman and Chief Executive Officer <unk> <unk>.
Judy Thanks, Erica and thanks, everyone for joining the call. We had an outstanding second quarter best characterized by momentum momentum for our identity security platform momentum across our solutions span endpoint secrets management and access momentum in the channel and momentum with new logos and existing customers.
Before diving into the details I wanted to provide a few financial metrics that underscore our stellar performance.
<unk> remains the best metric to measure our success, so subscription era reached $255 million, drawing 133% year over year, demonstrating the continued acceleration of our subscription Ajay.
Total <unk> grew 48% year over year, reaching $465 million.
We are pleased with how quickly our recurring revenue business is scaling to 1 billion ALR target.
And total revenue exceeded our guidance range coming in at $142 million with growth accelerating to 21%.
It is important to keep in mind that the subscription transition continues to impact our reported P&L or said another way we are growing much faster than the 21% revenue growth. We posted in Q2 in fact, our bookings were again well above our guidance framework best evidenced by the combination of higher subscription bookings mix at 88%.
Revenue above the guidance range and nearly 50% AOR growth the.
The revenue headwind from the subscription bookings mix was about $16 million in the second quarter normalizing the mix to the second quarter of last year. Our total revenue line would have grown by 35% this quarter.
John will talk about it later, but given the strength of our execution, we are raising our full year revenue in our guidance.
Our pillars continue to be growth innovation and profitability starting with growth over the last few weeks from the RSA conference to a recent impact customer event, we met with hundreds of Chief information security officers and senior security professionals nearly every discussion centered on the major challenges facing the industry.
The rest of the digitized adopting zero trust and staying ahead of attacker innovation are accelerating trends pushing identity security to the top of the <unk> priority list.
Our strong secular tailwind and execution have kicked our platform selling motion into a higher gear, which you see in some of the trends from the quarter.
We surpassed 1000 customers with over $100000 in annual recurring revenue up over 50% from Q2 last year.
<unk> continues to serve as the foundation of our growth leading the way in almost all regions are moved to a subscription business model is delivering transformative value both to us and to our customers.
While <unk> remains the predominant landing spot for our customers increasingly new logos are beginning their identity security program with endpoint and access and then expanding back into path.
And when it comes to access our truly differentiated approach is resonating delivering another strong quarter. In Q2, we are creating seamless access across the entire workforce. The combination of single sign on and adaptive MSA with innovations like secure web session and workforce password management all based on intelligent privilege controls is in.
<unk> security and increasing productivity a combination not replicated by any other vendor.
We had impressive diversification in our new logos, signing nearly 250 customers in the second quarter up over 30% year over year and included enterprise wins like Fortune 500 manufacturing companies banks major retailers' critical infrastructure and energy and power companies.
Momentum continues to pick up in our commercial segment as well with wins like a nexgen cloud Fintech, a well known conservation Society and multiple school systems among many others.
A few new business highlights include in a Greenfield Pam deal in North American retailer at two catalysts for implementing <unk> security digital transformation and cyber insurance requirements. One of the many examples of cyber insurance contributing to our business. This customer embraced our platform buying privilege cloud endpoint privilege manager access and secrets.
Enterprise wide, including protecting you Ipass and service now through our CQ integrations.
A restaurant chain landed with adaptive MFA SSO workforce password management and advanced lifecycle management to help mitigate risk expanding the path is next on its horizon.
Our land and expand strategy is demonstrated across examples like a fortune 500 manufacturing company landed with the <unk> in Q4 and after just two quarters is replacing a legacy <unk> solution with our privileged cloud because of the amazing customer experience.
In the highly competitive access deal an existing Pam customer in the health care vertical expanded with single sign on and MFA. The Thistle cited key differentiators, such as our security first mindset and our unwavering commitment to maintaining long term vision and purpose.
A financial services company is expanding from Pam to protect kubernetes at the edge is the ICD pipelines with our secrets management solution secrets.
So you could measure has had a strong quarter and was included in eight of our top 10 largest waves.
Momentum also continued across our partner ecosystem, we are particularly excited about strengthening our relationships with ESI managed service managed security service providers and with AWS. Our partners are building identity security practices with plans to significantly increase their business with sabre.
Year to date, the number of <unk> certified professionals has nearly tripled with the average number of certifications across our products also trending up a very strong indicator of the momentum with partners.
We also deepened our relationship with AWS marketplace. The deals closed in Q2, and our strong pipeline gives us confidence that AWS will be a contributor to our growth over the long term.
Moving onto innovation, the cornerstone of our strategy, our DNA of innovation and we challenge ourselves everyday to lead the industry.
We were pleased to be named a leader in the July 2022, Gartner Magic quadrant for privilege access management position, both highest in ability to execute and furthest in completeness of vision for the fourth time in a row.
At our recent annual impact live customer event, we showcased the depth breadth and considerable differentiation of Arden identity security platform, we hosted more than 1000 people in person and 2000 and virtually at our marquee event and the feedback was incredible customers and Barco is recognize that we are putting much more business between us and the.
Competition, the benefits of our security first approach are well understood and increasingly our priority in this severe threat landscape. We also demonstrated how we can elegantly secure all identities across environments, while driving the business forward.
A few highlights from the product announcements seek.
Secrets hub positions <unk> as the backbone for secrets management for application for all application types across the enterprise developers seamlessly access secrets to familiar workflows and AWS at the same time the security team can secure and rotate all secrets in cyber centralizing visibility and control with a single pane of glass.
<unk> hybrid and cloud environments. This win win solution increases alignment between cloud Native Dev ops and security it is a game changer.
<unk> cloud is now in early availability in addition to faster deployment and time to value with SaaS delivery much of the power of counter cloud comes from the tight integration into our identity security platform.
In Axis, we introduced identity flows, which streamlines workflow with advanced and modern no code application integration and automation.
And identity compliance streamlines across streamlines access certifications campaigns with comprehensive risk driven identity analytics.
Secure cloud access marks the third solution, along with cloud entitlements manager and dynamic privilege access in our cloud privileged security pillar <unk>.
Going well beyond just in time basic just in time secure cloud access integrate session monitoring and enhanced lease privileged permissions for Dev ops and cloud consoles. This functionality significantly enhances security and better aligns to the principle of zero Trust.
To accelerate our development in cloud security in July we acquired <unk>, a provider of multi cloud security and compliance solutions for AWS Azure and Google Cloud platform. We are pleased to welcome about 40 talented cloud security experts and are looking forward to working together to deliver against our cloud privileged security robot.
Moving onto profitability, our reported P&L continues to be impacted by the subscription transition we haven't changed our investment approach, we are delivering excellent returns, including rapid revenue growth rates and accelerated innovation, we expect to be a rule of 40 company with strong growth profitability and cash flow as we move to <unk>.
The subscription transition dynamics before I turn it over to Josh I wanted to talk about the macro environment. The broader economic uncertainty. We are all hearing about has not impacted our business. We are watching very closely and analyzing the trends in our business more frequently we continue to execute our strategy our close rates are strong our pipeline.
Is at record levels, and we are seeing an acceleration in demand.
In fact, the first half of 2022 was one of the best in the company's history, and our Q2 performance demonstrates first and foremost identity security is more critical than ever second our identity security platform is gaining momentum and we are increasingly protecting across workforce identities privileged users and machines.
Third we are in the best competitive position in our history and lastly, we are increasingly confident in our ability to execute against our multi year durable growth opportunity I.
I will now turn the call over to Josh who will discuss our great financial results in more detail and provide you with our outlook for the third quarter and full year 2022, including raising our total revenue and <unk> guidance.
Okay.
Thanks Ernie.
As in prior quarters, we posted slides to the website to walk through our results as Judy mentioned, just now we had a stellar second quarter momentum continues to build in our business fueled by amazing execution strong secular tailwind at a robust demand environment.
In terms of the headlight P&L total revenue exceeded guidance coming in at $142 3 million in the second quarter with growth accelerating sequentially to 21% year on year from the 13% growth rate in the first quarter of 2022, we are thrilled to begin exiting the revenue trough created by the subsidy.
In transition and be back again above 20% growth.
Annual recurring revenue continues to be the best metric to evaluate the business. It remains incredibly strong in the second quarter growing 48% year on year, and reaching $465 million.
The business continues to fire on all cylinders and grow at high rates. The subscription portion of <unk> reached $255 million, that's increasing a 133% and now represents 55% of our total <unk>.
Just a year ago, the subscription portion was only $109 million or 35% of the total.
The maintenance portion was $210 million at June 30, and in large part because of the timing of renewals.
Moving into the details subscription revenue generated from SaaS and self hosted subscription contracts.
66 million and represented 46% of total revenue in the second quarter.
With growth accelerating to 144% year on year.
Consistent with the progression of our business model to subscription and perpetual license revenue came in at about $11 million, our maintenance and professional services revenue was $65 $3 million with $54 4 million.
From recurring maintenance at $10 9 million and professional services revenue.
Recurring revenue reached $124 million Thats, 85% of total revenue with growth accelerating to 49% year on year. We are pleased to be quickly approaching our target of more than 90% of revenue coming from recurring.
Before moving on I wanted to point out that we did have a negative currency impact, which lowered our total revenue by about $2 million in the second quarter, making our outperformance even that much more impressive.
Our subscription bookings mix was 88% in the second quarter compared to our guidance of 87% booking mix.
With our mix and revenue both above expectations highlights that total bookings again exceeded our guidance framework.
Economically the headwind created by the mix of approximately $16 million in the second quarter, when we compare like for like to the second quarter last year with only 65%.
Taking a calculated revenue headwind into consideration total revenue growth would have accelerated to 35% year on year.
As a reminder, our second quarter guidance implied about a 30% growth rate normalized for the transition so exceeding that by a full five percentage points is just another indication of the strength of our outperformance in the second quarter.
Geographically the business is well diversified the Americas revenue reached $84 million, representing 59% of total revenue. The Americas grew by 21% and again had the strongest percentage of SaaS bookings during the quarter.
<unk> also grew by 21% year on year with $44 million in revenue or 31% of total revenue <unk> grew by 25% to $15 million in revenue or 10% of total and continues to gain traction with subscription and SaaS ahead of our expectations.
If we look across all the geographies normalizing for the mix the Americas and EMEA revenue would have grown by approximately 35% and a P J by about 40%.
Now moving to the P&L.
All line items in the P&L will be discussed on a non-GAAP basis and please see the full GAAP to non-GAAP reconciliation in the tables of our press release.
Our second quarter gross profit was $116 9 million.
Or 82% gross margin, that's compared with 84% gross margin in Q2 last year and it is primarily the result of the increase in our SaaS business.
We continue to make investments to drive innovation and growth, resulting in operating expenses of $127 5 million or 33% increase year on year, and an operating loss of $10 $7 million in the quarter.
Our operating results were lowered by approximately $16 million from the calculated revenue headwind normalizing for this mix operating margin would have been a positive 3% in the second quarter. As a reminder, this only level sets the mix to the prior year and not all the way back to the beginning of the transition which would result in EBIT.
Higher operating margin.
Net loss was about was $10 $7 million or 27 cents per diluted share for the second quarter.
We continue to attract and retain top talent, that's a testament to our culture. We added just over 130 employees in the second quarter ending June with over 2400 employees worldwide, including about 1100 in sales and marketing.
For the first half of 2022 free cash flow was $6 $6 million or 2% free cash flow margin and we continue to have a strong balance sheet ending the quarter with $1 2 billion in.
And cash and investments.
Turning to our guidance.
Our guidance for the third quarter and the full year reflects robust industry tailwind strong execution and our growing our base for the third quarter of 2022, we expect total revenue of $147 million to $153 million, which represents another sequential acceleration of our growth to 43%.
<unk> year on year at the midpoint.
We expect a non-GAAP operating loss of about 11 million to $6 million for the third quarter, and we expect EPS to range from a non-GAAP net loss of 27 to 14 cents per basic and diluted share.
Our guidance assumes that our subscription bookings mix will remain over 85% and that the resulting calculated revenue and profitability headwind will be between nine and $11 million for the third quarter.
If you normalize for the mix our estimated revenue growth at the midpoint of the range is over 30%.
Since we have now exceeded our target for subscription bookings mix for the last two quarters going forward in the second half of 2022, we will only start to provide a range for mix that headwind versus the specific targets.
Our guidance also assumes $41 4 million basic and diluted shares at about $2 million in taxes.
For the full year of 2022, we are raising the midpoint of our guidance and now expect the total revenue in the range of $589 million to $601 million, our guidance assumes a subscription bookings mix in the high eighties and a revenue headwind of between 61 and $63 million. So if you normalize for the mill.
Our estimated revenue growth at the midpoint is over 30%.
For the full year, we are improving the range for our non-GAAP operating loss to be $35 million and $25 billion and we expect our non-GAAP net loss per basic and diluted share to be in the range of 82% to 57 says for the full year, we expect about 47 million basic and diluted shares at about 11.
<unk> million dollars in taxes.
We are pleased that our operating loss and EPS range are improving while facing currency headwinds and absorbing the increased operating expenses from the acquisitions of Abbvie at C. III.
Our improved Bottomline is further validation that our approach to profitability has not changed today the profitability of our business is still masked by the subscription transition and we expect to return to our rule of 40 company over the transition after once the transition dynamics play out.
We are also meaningfully increasing our full year guidance for <unk>, which we now expect to be between $543 million and $549 million at December 31, 2022, or 38% to 40% year on year growth respectively.
We are thrilled to raise our <unk> guidance, which demonstrates the constrict considerable strength, we continue to see in our business, while we experienced over $2 million sequential increase in maintenance they are.
The second quarter, we still anticipate that maintenance <unk> will decline in the back half of the year.
I would also add we do not anticipate products from eight from Abbvie <unk> III to contribute to our or recognized revenue in 2022.
I did want to mention FX, while we do not plan to provide our results in constant currency isolating the impact from FX reinforces the overall strength of our outperformance at our guidance raise we expect to see a full year estimated currency impact to annual recurring revenue of about $5 million.
For the full year and thats related to the pound and the euro.
We also estimate that the recent currency moves will lower our recognized revenue by about $5 million.
And that the net impact will lower our operating income by about $3 million for the full year 2022 desk compared to the rates last year.
These currency moves are already reflected in the guidance I provided just a few minutes ago.
Moving to free cash flow, we still anticipate that it will be in line with our non-GAAP net income margin over a 12 month period.
Second quarter was another strong quarter as already mentioned our results demonstrate that momentum is in our business is still building. We are confident that demand for our identity security platform is highly durable we remain focused on capitalizing on the massive opportunity in front of us that will deliver profitable growth and strong cash flow.
Creating long term value for our shareholders.
I will now turn the call back over to the operator for Q&A.
Operator, this time I would like to remind.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Kelly Your line is open.
Okay, Great Hey, good morning, guys and thanks for taking my questions here.
Good morning.
Hey, good morning, Udeid, maybe just to start with you.
From a product perspective, it sounds like Youre seeing more deals include access and conjure our secrets management rather.
Given the competitors in those spaces can you just talk about why you think <unk> is winning and why do you think the strength in cross selling here is sustainable.
Oh, absolutely I would say that the go to market motion of selling identity security as a platform and again with <unk> with our leadership position coming from our leadership position in privilege access management is really continuing to gain traction.
Customers are recognizing the need for a complete security solution all the way for from a human identities to work for us.
And and machines and to your point, we're seeing customers land with more solutions and adding on more users faster we had more.
More than 60% of our new logos landed with multiple products in in Q2 now it's highly differentiated on the axis side, we're highly differentiated with having security controls reps.
Around the various use cases with with secure web sessions with workforce.
Password management, which gives customers peace of mind that we're taking a security approach to access and on the secret side. It's.
Customers are appreciating that we can support all types of.
Applications and at scale and with with the new innovation like like secret sauce that we.
But we announced that we're taking an approach that bridges to the Dev ops, allowing them to work transparently and with high with high productivity. So all of that is taking is taking place and definitely we expect the bulk of the landing with more products and that cross sell motion to to continue.
Got it got it that's really helpful. Josh maybe for you as a follow up just to just to address the topic of macro backdrop.
Both of you have seen ebbs and flows in the macro macro backdrop before here at <unk>, Josh maybe for you. How are you handicapping does that potential in the guide because it is a very strong guide, particularly when you adjust for FX.
Whether you have a quality a quantitative answer there or a qualitative answer I think it'd just be helpful to hear kind of how you thought about that.
Yeah. Thanks for the question I think it's both quantitative and qualitative to allow to the extent you heard our remarks already today on a quantitative perspective.
We were doing and looking at our guide in the same way, we always have we look at our historical trends, but we're also looking at the current pipeline our current close rates.
And of course quantitatively I already discussed in my remarks kind of the impact of taking into consideration the change in FX, how that's affected.
How that's impacted our both our revenue net income and <unk> guidance, but we still were able to raise.
Even even with that FX impact from a qualitative perspective, I mean, you heard.
A lot of comments by by region by myself.
No.
The macro environment.
Hearing still very strong feedback from customers and we are seeing in terms of our responses on the pipeline that.
S identity security is there.
Remaining a top priority in there.
Budget budget seem to still be safe so.
We're using that as well in our guide, but we are experienced team.
All of us around this table and we we have a lot of our fingers on the pulse and we're increasing our touch points all the time with the field and.
We feel like we're in good shape and confident in the way we're looking at the second half and I would say that I love that we finished our transition because it sets up and with this high priority fragrance security and privileged access management. It sets us up for this long term durable growth.
Including in this market environment.
Very helpful. Thanks, guys.
Your next question comes from the line of Hamzah firewall.
<unk> Your line is open.
Hey, guys. Good morning, Thank you for taking my question maybe.
Maybe jump ball for either <unk> or Josh.
Can you talk a little bit about.
How the SaaS transition or the subscription transition overall has perhaps made you more resilient.
In this current macro backdrop it seems like.
Is there something going on in terms of shortening of sales cycles or more cross sell upsell momentum.
Through the partners even.
That's kind of <unk>.
Separating your performance versus maybe prior macro cycles, where you would have seen those.
Headwinds more upfront.
Yes, absolutely I think like I mentioned now.
We were pleased to be in this in this position where our market.
I'd say from an event a demand environment, we are in high priority and build such a big pipeline and then we can execute on it with this the SaaS motion.
We can land provides quick time to value so quickly to to the customers and then get them into the add on motion much faster and and again. The also the variety of landing spots that we now have across the portfolio again, SaaS landing spots with APM with access.
Now, we know came out with <unk> SaaS and of course with privilege cloud so having that multiple landing points all centralized.
Platform.
As REIT, we're really benefit for this in this.
Including in this in this environment and I think like Josh emphasize we really have.
Strong controls into the field to see the increased demand the record pipeline and so it's kind of a perfect way to execute.
With with the SaaS platform on the opportunity.
Maybe just a quick follow up perhaps for.
For Josh.
It's really early but when you look at the.
Early cohort of the subscription or SaaS customers that have started to come up for renewal what are those like net expansion rates look like so far.
Yes, you are right.
Still early but what we've seen now so far is really what we consider best in class in terms of what how.
Now, we're getting renewals and also expanding in and.
And retention rates with them.
But.
Where we're still early in that cycle in the first in the short duration period of the transition, but we like what we see so far.
Okay. Thank you.
Your next question comes from the line of Rob Owens. Your line is open.
Great. Thanks for taking my question.
Josh as you talk about making it through the revenue transition, but you obviously have a lag when it comes through operating profitability free cash flow can you remind us how long that lag is and when you expect to return to kind of that rule of 40 company from a profitability standpoint. Thanks.
Yes, Rob, Yes, you're right that we've always talked about kind of the lag.
Being.
A couple of quarters.
<unk> passed the transition so.
We're not obviously guiding yet into into later years, but we definitely.
Feel comfortable and confident that 2023 operating margin were already improved incrementally to 2022.
Ed.
Where we believe that over the next couple of years, we will already be seeing rule of 40.
No.
Results.
But.
They tuned we'll talk about.
Out years, as we finish up 2022, but.
We are confident that in a couple of.
<unk>.
The operating income margins will start to improve is as it should coming out of the transition.
Great. Thank you.
Your next question comes from the line of <unk>. Your line is open.
Good morning, Thank you for taking my question.
I wanted to go back to your comments.
All right.
Round.
Psychological landing new logos.
Within the ATM.
And suite of solutions I thought was really interesting because some handful of course your flagship.
I'm curious to get your perspective on what it's going to take either from us from a sales execution standpoint or from a market level.
Although one franchise.
As large of a panamax franchise, and then have a follow up for Josh. Please.
That's great I would say, we're seeing like I said lending with with privileged cloud <unk> Secrets management.
Access so those have all become landing spots from us and in fact, the the subscription <unk> for all of these doubled in.
If you look at.
Q over Q.
And all of those solutions. So we're very we're very excited of how they're performing as you recall we structured.
Our speedboats structure to allow us to really execute on the opportunity and to be very agile on both access and and and our secrets.
Secrets management.
Areas.
I Love your question I mean thats. The approach we have a secret measure we believe that human identities. The nonhuman identities are fast.
Our fast expanding in the in the recent conference we put out a survey that we have that there are 45 non human.
Danny's for every human identity in the enterprise. So those are exploding with digital transformation and we're going after that with a single with a single platform. So we see the opportunity we're executing on it part of how part of the how is what I mentioned to bridging the gap between security and and Dev ops and we're doing it the <unk> way not coming.
And with a very strong security solution, but understanding that developers want to work.
Transparently the announcement of secrets hub.
Which is our first our first foray was secret sub integrating with AWS.
A key key management solution, so that the developer can develop on AWS trends and transparently.
Work the same way, while security gets our central.
Backbone with <unk> being behind the scenes rotating in managing all those secrets.
That's an example of how we're expanding and we're going to go after all the all of the cloud providers and the same in the same fashion.
And I think you had a follow on question.
Hi, Rod.
Gregg Moskowitz your line is open.
Okay. Thank you very much and congratulations on a very good Q2 so.
The increased <unk> guidance was impressive and especially on a constant currency basis.
The macro environment that we're in so two questions here if I may.
Some security and broader software vendors, who have recently reported earnings have I have spoken about longer sales cycles, among larger enterprise customers obviously.
<unk> focus is the enterprise so I just wanted to.
I confirm that you are not seeing any elongation in sales cycles, among any of your customer segments, including at the <unk>.
Looking at the enterprise level, and then secondly for Josh.
Did the prior <unk> guidance, which I believe is $5 35 to $5 41 does that not include any.
Just wanted to clarify that as well thanks.
So Greg.
You are correct. We are we are not seeing that I think we were performing exceptionally well as we as we've shown in the results and have not seen any impact on <unk>.
Close rates and actually I talked about the the strong pipeline or on the speed of going through the cycle. So so things are.
Our business as usual and I think it's really down to us being a very impactful security layer for our customers and our projects are important.
Going through as Josh mentioned, we keep a close eye, we're very connected to the field and.
We're seeing the same cycles in priority actions actually continuing to.
To move up in some of the large deals we've seen more and more approvals and the process, but it did not slow down the business end and again at any security is a top priority.
And Gregg with response to the FX question. So the last our guide that we put out there included about $1 million to $2 million of FX impact considered debt.
Alright Super helpful. Thanks, guys. Thank.
Thank you.
Your next question comes from the line of Brian Essex. Your line is open.
Great. Thank you and good morning, and thank you for taking the questions and really nice set of results here.
Maybe Josh.
Year end really nice sequential increase in net new IRR.
Think about the guidance and the setup for the back half of the year.
You think about seasonality, perhaps perhaps the mix of term and SaaS in there.
How do we get confidence in it.
It looks like you've got a little bit more difficult comp in <unk> for net new AOR growth, but just maybe give us a sense of like how you're thinking about the guidance and the level of confidence you haven't hit that in consideration as we might need to make as we fine tune our models.
Yeah. Thanks, Bryan so level of confidence that we've been talking about it all morning.
We are confident to guide for the increase which is significant as you pointed out so.
And it's going to come from the SaaS and subscription piece of the business as we talked about.
The maintenance.
Could see some decline in the back half.
And we will go into more than make up for that with SaaS and self hosted subscription.
Subscription I think the business is continuing.
With two thirds of it being a SaaS heavy.
Versus versus self hosted.
Continue to see that going into the second half and.
In terms of the seasonality you're right Q4 has a has the difficult compare.
And of course, we're much so I think that.
It'll be probably a slower growth rate in Q4 compared to Q3.
Got it that's super helpful and maybe if I could just sneak one more you mentioned marketplaces attraction there it sounds like this quarter, particularly within identity. There is an increasing amount of business going around the resellers and through the marketplaces I know, it's kind of early stages for you, but could you give us maybe a sense of what you are.
And what are the dynamics of those deals.
Is it enterprises versus kind of pure.
Our commitment or is there kind of like new initial traction going through that channel.
Youre, referring to to our commentary on AWS.
Marketplace.
Yes, yes, so I would say it's up.
Down to the increased.
<unk> of the ability of enterprises to leverage the relationship with AWS and procure and.
And I would say leverage the faster process.
We saw an incredible pipeline buildup and I can say that.
That in this first half we had.
Our more business through AWS than in the entire year 2021, so, but which was kind of a year that we announced the market and thats augmenting the channel and that's what we really love about it is that you.
We can work with our with our.
System integrators, and with our and with our Vars.
But the last mile can be fulfilled through through that.
Ws.
Resellers AWS.
AWS.
I would say streamlined process. So it's inclusive to the channel partners and it's all part of an ecosystem that's working together they actually really recognize that.
There is also good for them.
I mean, they being the vars and the integrators, it's good for them too.
We also partner on the AWS from.
Your next question comes from the line of Roger Boyd Your line is open.
Great. Thanks for taking my question and congrats on the nice results. Judy you had mentioned MSP partners in your prepared remarks, which I think is a relatively new channel for cyber Ark, you talked a little bit about the certifications up three X, but can you just talk about the momentum you're seeing there.
Tangible for that channel, maybe as you work further into the commercial cohort.
Yes, exactly we see that as a long term important channel movement for us many of our existing partners are in strong relationship our partners are actually building.
Managed security service providers capability, because their customers are coming to them with that motion of shortage of staff and or as they go further down market and they want them to to manage its completely in the identity security platform, our platform really resonates to that that our partners can deliver value by by being a managed service.
So I would say, it's a relatively early program, but we're seeing that kick in we sometimes see large enterprises benefit from for example from a telco that launched in MSP and and is managing.
And to end up Pam four four for a customer or or an MSP that launches and goes after and helps US go after that the mid market like like you mentioned so it is a it's a dual motion.
We're making it continuously easier for up for.
For these partners to learn how to onboard new customers in and certify and leverage our platform I would say it's up it's early it's early days, but on fast growth and we will see it to be an important motion for us for many years.
Your next question comes from the line of Adam Borg Your line is open.
Hey, guys. Thanks, so much for taking the question, maybe just on cyber insurance and <unk> talked about that in the script I know, we've talked about that in the past and existing debt is more and more challenges in the heightened awareness about organizations getting cyber insurance to begin with.
Love to hear more about the demand drivers cyber insurance overall, what inning are we in with that and even if there's regional differences between what youre seeing in the U S and internationally. Thanks, so much.
Absolutely so I'll start with the earnings I think it's still.
It's still early innings, but we added to the list we already have a lot of secular trends pushing offing, but we would added as an additional driver.
Our customers.
Trying to obtain cyber cyber insurance.
The requirement is for them to have privilege access management controls.
MFA single sign on.
The important proactive security hygiene layers and they know that <unk> is market, leading and and can be they can also achieve success with us of course. The insurers also also view <unk> as a as a market leader in the space. So we primarily are like you mentioned, we primarily see it in.
And in the U S.
It's often this this additional.
Driver or accelerator on a deal or it's not often but it when it shows up it becomes an additional accelerator on a deal but it's still early innings and then we are actually investing in <unk>.
<unk> the both insurers and of course everything that we do around the broad customer base and prospect base, because we believe it will trickle to two additional markets like the European market, where where it will become a requirement and with all the experience, we have and insurance customers as as customers themselves really.
The major ones that it gives us a great advantage in capitalizing on that.
Your next question comes from the line of Jonathan Ho Your line is open.
Hi, good morning, and congrats on the strong quarter I Wonder could you maybe quantify or help us understand how much of your existing licensed basis shifting from permanent license to SaaS and maybe how that impacts <unk>.
And still if we if we're talking about.
The notion of converting from from perpetual to SaaS, it's still a very small percentage of the book.
It's still in single digit percentages of the IRR growth that we're seeing is coming from it's coming from conversion.
Which is great which is great upside for us because we are seeing the we're landing a lot of SaaS.
The vast vast majority of new logos are have been lending with with SaaS and subscription in and we're working closely with the customer base to convert when they are when they are ready to convert of course, we we shorten.
Within the cycles to usually be a year and then it gives us more more opportunities for those conversion conversations but also existing.
<unk> customers are buying complementing and adding SaaS solutions to complement there.
The on premise solutions. So we have all of that at the same time.
And thanks for the congrats Jonathan.
Your next question comes from the line of Eric Keith Your line is open.
Hey, Uzi, Josh I'll Echo my congrats as well so.
I mean, you continue to execute really well, it's pretty clear, but I think it's also pretty clear that Pam is kind of havent really strong kind of demand as well. So just curious your thoughts on kind of wide Pam contingencies, such strong demand and even accelerating demand.
Yes, Howard sees is thinking.
Thinking about Pam strategically as part of their broader move to the cloud and zero Trust.
Textures.
It is exactly that it's exactly that it's become increasingly clear that you can't.
The seasonal cannot sleep at night, if they don't have controls over over privilege access.
We're basically an insider or an outsider can take over their entire infrastructure turnoff security controls.
It becomes a fundamental layer one before before you can really put.
Additional security layers in place and then in parallel we're seeing the proliferation of privilege. So yeah. It was it was maybe a little easier to map out.
There are organizations had had privileged users to be managed in and more on prem infrastructure and with the proliferation and adoption of cloud.
And of course, more and more examples where our workforce employee or a developer has privileges.
They need a holistic solution to go to go after all of this now you can't achieve zero Trust. If you don't if you don't have.
Privilege access management controls in place if you don't applied least privilege on the on the endpoint, which is which is our which is our EPS and <unk>.
It's been it's been really the market has been understanding that our strong channel network that we've built including the.
The big fours and advisory firms that are educating.
Cisco's out there and of course the vars.
It's become it's become clear layer on how do you achievement impactful there and of course every time, a a company does red teaming exercise or brings a third party to analyze their security posture first and foremost if they capture the flag and they achieve privilege access it's game over and so that's why it's so important for them to to invest in this.
And that's why it is in such a high priority as a company we're going after it.
Like Josh mentioned, we're investing in the.
The opportunity leveraging our market leadership positioning leveraging the strong channel network to go after the both the Pam and the broader identity security opportunity.
Your next.
Western comes from the line of Joshua Tilton. Your line is open.
Hey, guys. Thanks for taking my question and congrats on the quarter as well.
I wanted to follow up on <unk> question, but I wanted to put the macro side.
How much easier for you guys has the cross sell conversations become with customers simply because it's now just one SaaS based platform, where as a customer I can just easily turn on additional functionality versus when you sold separate perpetual licenses.
Yes.
It is exactly that the fact that they are on boarded on our SaaS platform.
Can get early access they can to.
Additional functionality.
They see the light and we saw the light like all of the investment in <unk>.
And pushing out and investing in creating the SaaS platform leveraging our strong credibility out there in the market.
For our leadership is paying off to exactly that motion. This is why I would say in the last two years, we really invested in the team the customer success team to <unk>.
Measure and continuously take the customer on these on these on these journeys to success so that they can expand within the solution.
First acquired but also cross cross solution.
As they go with no need to set up infrastructure like you mentioned with the <unk>.
Really the power of SaaS.
Your next question comes from the line of Trevor Walsh Your line is open.
Great. Good morning, Thanks for taking my question, maybe just for you a quick one.
<unk>. The fact that the demand has remained strong and no no lengthening of sales cycles et cetera, but as we move into 2023 and things potentially get more challenging for customers. How do you. How do you balance the the innovation pillar versus versus growth as far as kind of maintaining your competitive edge around the products and engineering.
Versus the go to market team.
Do you think about that as you might have to either tightened belts in certain places or kind of pick one over the other or is there an option three.
Thanks.
Yes.
Josh alluded to it there is a real advantage of being experienced.
We've been around we've been around cycles, where.
I would say, we keep close close attention to changing themes.
Probably earlier than than others do and we're very very diversified so we're very diversified geographically.
Very diversified.
Vertically and now we have such a huge.
Folio.
SaaS portfolio to go on the market with so we have we have a lot of different levers as Josh mentioned, we're investing in the opportunity because we are seeing that that high demand and record and record pipeline and we will continue to stay close to that on the innovation side, it's been a big a big differentiator.
For us and.
Customers appreciate that so its so it kind of success.
Success breeds success, they see us coming out of the first to come to market with any new innovation.
On the Perm side RNA data security side, our secure web session.
We're coming out with with secrets hub. The virus announcement, we just did it impact our strengthening the customer conviction to invest in us and go for the platform. So.
The short in the short or the short answer we're continuing we're going to continue to be to do both.
Does that innovation leads to that that success in this.
In this very important market and.
And of course.
We've always stayed away from from nice to have innovation. It has always been protecting against attacker innovation. So we'll always keep it real.
Your next question comes from the line of Alex Henderson. Your line is open.
Great. Thanks, I have two questions one on the product side.
On the Opex side.
Sure.
On the product side I was wondering if you could talk a little bit about your success in penetrating the coding community and to what extent.
Youre, finding an ability to compete more aggressively on.
On the infrastructure side of things.
But the primary question is really on.
The impact of FX.
On operational costs.
Can you talk a little bit about how you're structured against.
The the currency.
<unk> what.
To what extent that's going to.
Play through the cost structure in the back half of the year or if it's hedged how you would be impacted in 2023, if the exchange rates.
Particularly the shekel will stay where.
They are today.
How much of a benefit would that crew.
Great. So I'll start and I'll hand, it over to Josh to talk about.
FX I think we're making great progress on on penetrating the coding community, but doing it this <unk> so coming in with that credibility.
From the security teams, where the security team know that.
This is a solution that they trust and increasingly making it more transparent to the coders, so reducing the need to even educate them secret top of course is a great example, where in AWS.
Developers are using and the AWS platform will not even.
A feel or no that behind the scenes <unk> as the backbone.
As managing secrets, but also before that we made it.
Continuously very very native approach to to deliver developer. So I would say, we're kind of digging the tunnels.
On both sides coming in from from security, where it's our stronghold, but also having.
Is ease of use and slash transparency for four for that developer.
And again, we're very confident that.
Executing on the secrets hub.
Solution and doing more of that.
We'll really make it easy for developers to adopt.
Yes, hi, Alex with regard to the FX, so as I talked about.
Earlier today.
While we're getting about a $5 million hit on the P&L from a revenue perspective, it's only a $3 million hit.
On the on the operating income because we're getting this year some benefit on the expense side in Sterling and euro by about $2 million in that guide.
The shekel is not really moving for us this year relative to guide because we have been pretty well hedged for this year from the beginning of the year. If we think about next year.
Again.
The shekel side, it really depends I mean, we've gone a little bit of some benefit towards the beginning of next year because of of where the shekel is.
As weakened in the last quarter.
But.
It's still too early to tell what will be the impact for all of next year, because we typically wont go hedge out further than nine to 12 months.
Your next question comes from the line of Andrew Nowinski. Your line is open.
Alright, thank you.
I was wondering if you think the acquisition of Ping identity could have the same near term impact that we saw when some of your primary Pam competitors were acquired in 2018.
Given the disruption of these acquisitions typically create and then related to that are customers asking cyber Ark, we're a more integrated iga solution be complete platform. Thanks.
Great.
We werent seeing thing a lot in and competitive.
Situations, but fully agree with the premise of and we've seen it again and again that as companies have been acquired by private equity.
There was disruption out there.
We've even seen channel partners really worry about about those those companies that.
That went that went private are they going to continue to invest in the enablement and all of the things that channels need for success and of course customers want to know that in critical investments that they have a long term partner out there. So there will be some disruption.
And again, we're going after.
That market, we haven't seen them as much but I agree on that on that premise and with regards to the Iga our approach and you saw that we've that we've released our identity compliance or now sorry at any compliance solution at.
At impact, it's really taken care of I would say.
A very focused use cases, allowing our pam or access customers due to certify access and if they they wanted full fledge Iga solution, we continue to refer them to our partner.
Sailpoint.
I think in the long term, we will see more and more convergence with more modern use cases and that.
But we will be able to answer within the platform.
There are no further questions at this time I would like to turn the call over to Uzi Mccarthy for closing remarks.
Great. Thank you we are thrilled with another stellar quarter and the momentum of our identity security platform and as always I want to thank our customers and partners for being the cornerstone of this success I also want to extend a special appreciation to the entire <unk> team around the world for their hard work and strong execution.
<unk> this quarter. Thank you very much and thanks, Jay Thank you for all those who joined the call today. Thank you.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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