Q3 2022 Cyberark Software Ltd Earnings Call
Two earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will 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 the star one.
Erica Smith, SVP Investor Relations and ESG you May begin your conference.
Thank you Rob and good morning. Thank you for joining us today to review <unk> third quarter 2022 financial results with me on the call today are Rudy Mccartney, Chairman and Chief Executive Officer, and Josh Siegel Chief Financial Officer. After prepared remarks, we will open up the call to a question and answer session before we begin let me read.
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 fourth quarter full year 2022 <unk>.
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 Companys annual report on form 20-F filed with the U S Securities and Exchange Commission and those referenced in todays press release that are posted to the <unk> website <unk> org.
<unk> expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward looking statements made herein. Additionally.
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 that outlines the financial discussion in todays call. We also want to remind you that we <unk>.
They calculated 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, who do Mecate Judy.
Erica and thanks, everyone for joining the call we had a strong third quarter demonstrating the durability of demand for our solutions and the momentum we continue to see in our business.
A number of key metrics underscore the strength of our results subscription. They are reached $301 million up from $255 million at the end of Q2, the largest sequential increase in our history.
Totally are reached $512 million with growth accelerating for the third consecutive quarter to 49% year over year.
<unk> remains the best metric to measure our success the benefits of our subscription transition are kicking in on top on the top line with total revenue growth accelerating again.
26% and reaching $153 million in Q3.
It is important to remember that the subscription transition continues to impact our reported P&L for the quarter. The mix was about 87% significantly higher than the 72% in the third quarter last year, which created a revenue headwind of about $11 million normalizing the mix of the third quarter of last year, our total revenue line would've.
<unk> by 35% this quarter.
With our strong execution year to date, the prioritization of our identity security platform the demand for our SaaS solutions and ongoing secular tailwind we are significantly raising our full year <unk> guidance to over 40% growth at the midpoint, which Josh will talk about later in the call.
To frame our discussion today, we will focus on growth innovation and profitability.
Starting with growth strong secular tailwind of digital transformation the adoption of zero Trust and the tanker innovation continued to push identity security to the top of Chief information Security officers priority list with.
With the heightened threat landscape attacker innovation is front and center in our discussions and privilege Escalations continued to be a common denominator in the attack chain.
Another growing challenge as the pickup of MSA fatigue, where attackers inundate a victim with prompt until the multifactor authentication request is approved the increased use of MFA bypass techniques has clearly demonstrated a need for a more robust defense strategy through an integrated access Pam and secrets management approach. This has been a strong.
Pipeline generated for <unk> and our identity security platform.
Digging into our results on the product side momentum continued across our solution set we were particularly pleased with the performance of <unk> identity, Pam and the EPS in the third quarter.
On the new business front, we had a strong new logo quarter, signing nearly 230 new customers a.
A few examples include in the seven figure Rip and replace deal a fortune 100 retailer landed with Pam Secrets management and EPA discussed.
This customer embraced the breath of our identity security platform and will leverage <unk> to scale its growing it environment helped protect across human and machine of daddy's locked out thousands of endpoints and protect against ransomware.
The race to digitize it is not just expanding the attack surface, but also accelerating the adoption of zero Trust and in Q3, we were chosen as the enterprise wide Foundation of our global manufacturers Zero Trust framework with privileged cloud and VPN with plans to expand to secrets management.
Based on a board level mandate a major born in the cloud manufacturing company landed with privileged cloud and EPS demonstrating that identity security is front and center and the highest level of strategic discussions.
A European government agency landed with our workforce password manager to get all its employees increased security controls on their personal passwords from cyber with our deep expertise in patents.
This is just one example of the robust demand for workforce password management in recent months.
Our subscription transformation is increasing the velocity of add on business and cross selling across the portfolio. This is contributing to the greater than 50% increase in the number of customers with more than $100000 of annual recurring revenue to nearly 1200 customers at the end of September .
A few expansion examples include.
A leading energy company in APG landed with Pan previously and is now expanding across the portfolio with EPS and secrets management as well as with additional privilege cloud users.
In Q3, a large retailer became our second largest privilege cloud customer with a major expansion deal, bringing its ACB to well over $1 million.
A long standing fortune 500, Pam customer what expanded to secure ansible with secrets management in 2021 further deepened its relationship with <unk> in Q3 as part of its Zero Trust initiative. This customer will locked down over 45000 endpoints with APM.
We have spoken about it in the past while the industry has been talking about zero Trust for a few years enterprises today increasingly are increasingly executing zero trust strategies, which is contributing to our growth.
Our channel program is key to our success and partners continue to scale their identity security practices. We have added new routes to market enhance collaboration and improved channel program efficiencies across our vars advisories and MSP.
Moving onto innovation, the cornerstone of our strategy and leadership position in identity security during.
During the third quarter, we began taking our <unk> impact customer event on a world tour to 16 cities in 14 countries.
Our discussions at these events the new innovations, we announced last quarter are gaining traction in the field.
<unk> compliance is now generally available and makes it easier for organizations to enforce and demonstrate compliance by continuously discovering access streamlining certifications and providing comprehensive identity analytics.
In early October we also rolled out a user friendly way to help lock the MFA fatigue technique from gaining unauthorized access to protective systems.
Customers are also excited about secrets hub, and conjure club, which strengthen our ability to secure both human and machine.
Profitability is the final pillar I will discuss today, while 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 accelerated innovation as well as our rapid revenue and booking growth. We continue to expect to be a rule of 40 company as.
We move past the subscription transition dynamics.
Before I turn it over to Josh I wanted to update you on what we're seeing with regards to the macro environment. The broader macroeconomic uncertainty did not have a significant impact on our business in the third quarter, which you'll see in our nearly 50% growth in revenue.
Revenue acceleration and the increase in our guidance our solutions are mission critical and identity security is being prioritized, we've seen incremental FX headwinds and some large deals require incremental approvals, but this did not meaningfully slowed down sales cycles and third quarter.
Our pipeline of demand are robust and we continue to watch the situation very closely and are analyzing the trends in our business more frequently.
In closing the topline benefits of our subscription transition are kicking in and our identity security platform continues to gain momentum.
Our performance in particular, our strong IRR growth demonstrates that we are in the best competitive position we have ever been.
Given our experience and durability of our business. We are confident that we can execute against a multiyear durable growth opportunity and deliver best in class profitability and cash flow over the long term.
I will now turn the call over to Josh who will discuss our strong financial results in more detail and provide you with our outlook for the fourth quarter and full year 2022. After you adjust thanks, Judy and as Judy just mentioned, we had a strong third quarter, which is reflected in our key metrics.
Growth accelerated for the third consecutive quarter to <unk>, 49% year on year, and <unk> passed the milestone of over a half of $1 billion.
To $512 million with our.
<unk> strong growth, we are on our way towards passing the $1 billion target.
The subscription portion of annual recurring revenue reached $301 million, that's increasing a 117% and now represents 59% of our total IRR just a year ago. This description portion was only $139 million and just 40% of total.
The maintenance portion was $211 million at September 30th.
Total revenue came in at the top of the range with $153 million total revenue growth again accelerated sequentially to 26% year on year, that's up 21% growth in the second quarter of 2022.
Keep in mind that FX impacted our revenue and bookings growth this quarter about $2 million in total revenue and an IRR of about $2 5 million.
Moving into the details subscription revenue reached $74 2 million growing 110% year on year, representing 49% of total revenue in the third quarter consistent with our move to a subscription business model perpetual license revenue came in at $13 8 million.
Our maintenance and professional services revenue was $64 6 million, that's $54 2 million coming from recurring maintenance and $10 $4 million and professional services revenue.
Recurring revenue reached $128 $5 million, that's 84% of total revenue growing 44% year on year from the $89 million in the third quarter last year.
Subscription bookings mix came in at 87%, that's just above our expectations for the third quarter.
Economically the revenue headwind created by the mix was approximately $11 million in the third quarter when we compare it like for like to the third quarter of 2021, when the mix was just 72%.
Taking a calculated revenue headwind into consideration total revenue would have grown by 35% year on year validating that we continue to take market share and identity security.
Geographically the business is well diversified the Americas revenue reached $94 million, representing 61% of total revenue the Americas growth accelerated to 37% EMEA grew by 10% year on year with $43 million or 29% of total revenue.
That said, it's important to keep in mind that EMEA results were impacted by two factors first the higher subscription mix and second $2 million of currency headwind.
P. J grew by 13% to $15 5 million in revenue or 10% of total.
If we normalize for the mix the Americas would've grown by 45% year on year EMEA would have grown by approximately 21% and <unk> by approximately 25%.
We are also pleased with the great progress <unk> is making increasing it.
It's subscription mix, which now reached over 80% in the last quarter.
All line items of the P&L will be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release.
Our third quarter gross profit was $126 million Thats, an 83% gross margin compared with 84% gross margin last year. We are pleased with our gross margin outperformance in a large part because we have closely manage the expenses related to SaaS.
While we continue to make investments to drive innovation and growth. We are also demonstrating our ongoing operational rigor our investments resulted in operating expenses of $130 million or 27% increase year on year, which resulted in a $4 million operating loss.
Still coming in significantly better than our guidance.
One thing to point out our headwind adjusted revenue growth rate of 35% is meaningfully outpacing our 27% operating expense growth rate.
It's another proof point of the leverage underlying our business.
We are still being impacted by the mix shift towards ratable revenue, which lowered our operating results normalizing for that mix operational Mart operating margin would have been positive 4% in the third 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 if you level set our mix to 2000.
'twenty cyber Ark is operating as a rule of 40 company today, which was part of our execution strategy.
Our guiding tenant of our subscription transition was to rigorously manage our business and expense levels. So that we continue to operate efficiently and invest productively.
We are delivering on that.
Net loss was about $2 3 million or <unk> <unk> per diluted share for the third quarter also significantly better than our guidance, we continue to attract and retain top talent. That's a testament to our culture ending September with over 2600 employees worldwide, including approximately 40 million related to the acquisition of <unk>.
<unk> the majority of which are in R&D.
We ended the quarter with about 1100 people in sales and marketing.
For the first nine months of 2022 free cash flow was $20 $4 million or a 5% free cash flow margin, which is meaningfully ahead of the free cash flow guardrails, we set for the full year and demonstrates the strength of our subscription model.
Now turning to our guidance.
Our guidance for the fourth quarter and full year reflect robust industry tailwind strong execution and our growing <unk>.
Our base for the fourth quarter of 2022, we expect total revenue of $169 9 million to $176 9 million, which represents about 15% year on year at the midpoint and we expect a non-GAAP .
Operating income of about 2 million to $8 million for the fourth quarter, we expect our non-GAAP EPS to range from seven to <unk> 20 per diluted share.
Our guidance assumes an increase in subscription bookings mix and that it still remains over 85%.
The resulting calculated revenue and profitability headwind is expected to be between 17 and $18 million for the fourth quarter. If you normalize for the mix our estimated revenue growth at the midpoint of the range is over 25%.
Our guidance also assumes $45 8 million diluted shares at about $4 $3 million in taxes.
For the full year 2022, we expect total revenue in the range of 592, 5% to $599 $5 million, our guidance assumes a revenue headwind of between 66% $67 million and the increase in the headwind reflects a higher mix and bookings assumption underlying.
Our fourth quarter forecast, if you normalize for the mix our estimated revenue growth at the midpoint is over 30%. We are very pleased to increase the midpoint of our headwind adjusted full year guidance range. Despite the increase in FX headwinds, which I will discuss in a minute.
For the full year the range for our non-GAAP operating loss to be between $24 5 million and $18 $5 million, we expect our non-GAAP net loss per basic and diluted share to be in the range of 54% to 39.
For the full year, we expect about $40 7 million basic and diluted shares and about $11 million in taxes.
We are also increasing our full year guidance for annual recurring revenue, which we now expect to be between 552% and $558 million at December 31, or.
Or between 40% and 42% year on year growth respectively.
We are thrilled to raise our <unk> guidance. It demonstrates the constrict considerable strength, we continue to see in our business.
Okay.
I did want to update you on our expectations for impact from FX.
We expect to see a full year estimated currency impact to IRR of about $7 million related to the pound and the euro which is about $2 million higher than we discussed last quarter because of further currency movements.
We also estimate the impact from currency moves will lower our recognize revenue by about $6 million, which is $1 million more than we discussed in August east.
These currency moves are already reflected in the guidance that provided a few moments ago.
Okay.
Moving to free cash flow.
We anticipate that it will be about 6% to 10 percentage points above our non-GAAP net income margin over a 12 month period.
Third quarter was another strong quarter, we are confident that demand for 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'll now turn the call over to the operator for Q&A.
Operator.
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.
And your first question comes from the line of second Kelly <unk> from Barclays. Your line is open.
Okay.
Okay, great. Good morning, guys. Thanks, so much for taking my questions here and solid set of results.
Thank you because this is our second.
Yes, Q2 would you maybe we'll just start with you.
I was wondering if you could just talk a little bit about the performance of the business outside of traditional Tam.
And some of your in several of your examples I mean, there was EPS there were secrets, there was a little bit of access as well.
The question is.
To what extent are are these non Pam products, becoming landing points and how often are you able to cross sell traditional Pam along with that does that makes sense great.
Absolutely I think we talked about that our excitement last time about having more landing points in our new loans will.
We're increasingly lending with both access and at DPM actually as Atlanta point for US and then expanding back into.
<unk>, which gives us.
A very strong durable growth opportunity of course, the majority of new logos are still lending with pad, but then we see the huge opportunity in cross selling them into access and.
<unk>, Yes, we gave examples here also on the on the exercise like the customer example, with workforce password management and and others in the speedboat is people who is really working well.
Got it got it that's great Josh maybe for my follow up for you I.
I'm, sorry, we just dig into maintenance AUR, a little bit I think that's been up sequentially for a couple of quarters can you just talk about sort of what's driving that and how should we sort of think about when that realistically starts to starts to decline sequentially.
Yeah. Thanks, Seth Thanks for joining the call.
Yes, we actually.
Have done really well on the maintenance this year basically it's because we're preserving still high.
Renewal rates for.
For those customers.
But we do anticipate already even in the fourth quarter that that we can see a small decline.
A couple of million dollars in that maintenance and we anticipate as we move into next year as well, we'll continue to see a decline on the on the <unk> pieces of the maintenance as you can see from the transition that we're really reducing dramatically.
The bookings.
That are going towards a perpetual business and even across now I talked about it in my in my prepared remarks EBITDA into a P. J now.
Area were well over 80% of the bookings going to SaaS and subscription.
It makes a lot of sense. Thanks, a lot guys.
Thank you.
Our next question comes from the line of Hamas fodder wallet from.
Unknown. Please please provide your CRM company name please.
Hi, This is hamzah firewall up on Morgan Stanley . Thank you for taking my question.
Hi.
So.
Just one question for you.
It seems like the consistent theme in the last.
Six or seven quarters has been.
The priority level privileged access management is higher than it's ever been.
And can you talk a little bit about <unk>.
How you are now able to attract customers that perhaps you weren't able to a couple of years ago.
Beyond the large enterprise in particular is it <unk>.
Regulatory requirements is it the fact that the SaaS model is making it easier for you to go after those customers with new channels, maybe just talk a little bit about how your.
How the value proposition is now.
Tracking a broader base today.
Thanks Ben.
Speak to you today, so definitely if we were to plot the.
The demand drivers for <unk>, we would see them increase.
Over over time in <unk>.
Privilege access management and identity security continuously rising to the top priority I think the biggest drivers overall as the attackers in the attack landscape.
Almost any attack that you analyze.
Okay.
Ladies and gentlemen, we have lost connection with the speakers. Please stay on the line will be back in a moment.
Okay.
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Okay.
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Okay.
Alright, so sorry about that looks like that was it.
Disconnect and were back in <unk> happy to continue answering a question earlier here.
Talk about the growth drivers continuously growing over time and and of course with attackers going after our credentials as identities.
Privileged access management and identity security really rising to the attack the top of growth.
40 list for our customers and of course it became across vertical.
Opportunity, where it's really across the board from from that from that growth driver and of course.
Additional growth drivers that we've been collecting over time like regulations that you alluded to like cyber insurance.
And even answering insider threat and then like you mentioned.
Ability to deliver that in SaaS is really making our offering accessible.
To a broad variety of customers out there and of course, the global reach of our sales team and the channel.
<unk> enables that we've been diversifying our channel advisories value added resellers and and also MSP to be able to to answer that that that demand so that combo.
<unk> is really working for us and puts us in that position of strength, both high priority in the <unk> and the buyer list and execution strength and I guess, sorry, we got disconnected for a second.
Good very clear thank you.
Thank you Robert.
And your next question comes from the line of Rob Owens from Piper Sandler Your line is open.
Good early morning to you guys.
Or do you think you made the comments in and around the best competitive position <unk> been in some time.
Can you talk a little bit about your win rates I guess touching on where competition is number one and then number two can you address size of land and if youre seeing that expand here versus what you've had historically given that you are bundling in or selling additional products. Thanks.
Yes, I think.
We look across both Pam in and across our offerings, we see that we're in a better position in terms of leadership and the acknowledgment by customers that any any innovation is going.
Going to come from from cyber work and of course, the ability to consume it.
Delivery of everything in.
In SaaS. So we're definitely seeing continued very strong win rates in and Pan <unk> is the one invited to do of course any any any Panama.
A bake off and with the increased innovation and the broadening of our of our suites.
We're just seeing that.
Those continued win rates.
So thats in path and identity, we're just excited.
For.
At Pryor by prior answer we saw IRR there.
Double and and we're continuously invited and being perceived as the differentiated security driven.
Our solution if you care about security and you want to address all all identities. You go you go with Bob you go with <unk> and again, it's just a huge opportunity ahead of us in.
And identity, and then with <unk> with regards to two.
<unk> sizes.
I think over the last year.
Seeing our deal sizes continuously walk up.
Particularly when when we land with more products I was asked earlier about how.
How we land.
Our ability to land with identity and with EPS, but.
Those beautiful lightning is when we land with multiple products.
Great. Thank you.
Thank you.
And your next question comes from the line of Adam Borg from Stifel. Your line is open.
Hey, guys. Thanks for taking the question.
Maybe just on M&A you made a few of these small tuck in deal but recently.
And that you referenced earlier I was just thinking given all the changes happening in the broader identity landscape solid execution valuation dynamics, how you're thinking about M&A going forward, an appetite for larger M&A.
Yes, I think we're I think we're very we're very strategy first.
A company that is that the process that clearance on our team is is is driving and so we continuously map out the opportunities in and look at build versus.
Build versus buy and Thats, how <unk> been very prudent and.
And very I would say deliberate and the acquisitions, we have done so far I think as I alluded in the past we think that in this environment, we're going to have even more opportunities.
Entry in.
Things that will be applicable to us, but it would always have to be because it's dear to our strategy and it's near to our customers and right now we really have a a wide portfolio.
Our focus on delivering that to our customers will always have that strong muscle of looking.
Two opportunities to exercise on that.
And those strategic opportunities.
Excellent. Thanks, so much.
Thank you.
Your next question comes from the line of Charles <unk> from Cowen <unk> Company. Your line is open.
Thank you so much good afternoon, guys. Congrats on the strong execution in our guidance.
One of the key takeaways you highlighted on your presentation under the key takeaway.
You highlighted that it kind of increased velocity of cross and upsell customers coming back faster off with the initial land.
Maybe can you push.
Maybe some sort of the sort of the quantitative timeframe addressing that.
In between the initial land and then kind of expand.
And secondly, what what's driving that accelerated pace is that the macro on the one hand kind of strictly the model transition or both.
Yes.
In terms of what's what's driving it is really the ability for us to.
The more of a platform selling and the fact that we have a platform that services the.
The customer on that and of course in SaaS their ability to realize quick quick time to value.
With us and opportunity for both our up sell and get better faster into into consuming our offering and then cross sell without with our solutions and again with an easier way for the customer to get the value as they go into cross sell in and yes, like we mentioned we sized up.
It take 50% a year over year, bringing us to.
Now 1200.
Customers with over with over 100 K.
And so we're we're excited about that and and.
It's our ability to to address their needs that's driving that were much closer to them and and we have the talent to know how they're using the product and past investments in customer success.
That's all been been kicking in.
To increase that.
Velocity.
Understood and maybe Josh.
Trends from a geographic perspective.
EMEA everything appears to be absolutely stable, maybe just some additional color on whats going on.
Pakistan.
Thanks, Joe.
As I pointed out in my in my remarks, we had we had really good growth across all the regions.
Particularly when you consider kind of the mix shift changes that we saw in EMEA and <unk> were both of them now are selling well over 80%.
Yes, a subscription.
And had the kind of the largest headwinds and even though they are both.
At.
25% in EMEA, we did have some FX hit.
Okay.
They are in that region. So if you add the FX and if you add the mix.
The mix than you would get to about 25% growth rate for EMEA on a quarter year on year basis, and overall I think the beauty of cyber Ark and you've been following us a long time show US is that we've been diversified along these same kind of lines of.
Close to 60% in Americas, and 30 <unk>.
Percent in EMEA and the balance at eight P. J now for a long time and we're seeing.
Kind of all regions growing with the business.
Thank you well done.
Thank you.
And your next question comes from the line of Eric <unk> from Keybanc capital markets. Your line is open.
Hey, Thanks, and congrats on a processor resulted in Josh.
I guess I'll ask on figures management, just curious what's been the customer response, particularly from maybe the developer crowd. If you will on your recent announcements of your native integration with AWS with Secrets management solution and then if you could just kind of give us an updated view on the competitive landscape between yourselves and ash carbon space that'd be great.
Sure.
The question because we also have so much opportunity to see it on the road I mentioned, our impact on the road with customer events across our cities. So we first announced our integration with the with AWS in July and our in our Boston event, and then have been taken on the road and yes, we see first of all the relief on the security side where are they.
It relieves that our security buyer from having to educate.
Enforced change on the developer and the developer is able to work natively and similarly.
We're hearing that from from developers that that <unk> is now enabling them to adopt our secrets are secrets management without changing the way they work and we've only just begun we're going to we're going to take this to.
Starting with AWS, but we're going to take this to two other the other cloud platform and we want to be that backbone.
That central for the for the organization for both human and and <unk>.
Secrets in terms of the competitive dynamic with with Ashley I think.
Prime competitor, we see in that space and we're coming in from those different motions, we come in through through security we come in from.
As a business driver is really we want to enable the developers, but security want to secure the.
Organization.
We're having a great win rates and definitely within.
Within the strong customer base since we have that opportunity for expansion, we have some low hanging.
Ways to two to land in the organization and deliver value and then we expand to their critical applications, but this will be continuously.
<unk> edge for us the ability to be both trusted by security because of the strong platform that also serves humans and then also be easy to adopt by by the developer because they can work natively.
Your next question comes from the line of Jonathan Ho from William Blair. Your line is open.
Hi, Let me Echo my congratulations as well one of the things that you talked about was MSA fatigue can you maybe give us a little bit more detail on how <unk> helps solve that challenge for customers and maybe how often this is serving as a new driver for our business. Thank you.
Thanks, Jonathan and it's actually a brand new I think for those who I would refer also anyone who wants to read we put out a blog that analyzes the recent overreach and and Thats. An example, where we're again.
Legitimate user was inundated by by MFA and eventually ended up ended up accepting that the hacker challenge and that was the entry point, but beyond that it was all about credential theft on the inside so we see ourself as really a big part of our solution. Both on the front end and I'll talk about our solution for that so the MFA fatigue, but even.
More importantly, being that backbone that even if you enter the organization.
The cyber.
Security platform will prevent the ceiling of credential the lateral movement of privilege escalation.
For example was seen in that attack and then be because because as a response to that we actually.
We're very very agile and we rolled out functionality that.
Basically add no friction to the user but helps combat the MSA.
Fatigue, it's a number.
Recognition assistant where where a user logging into <unk> has shown a unique.
Number on the login screen and if youre not in front of the screen if youre not a legitimate user you are not going to be able to feed that and put the matching number into the cyber identity mobile authenticators. So it gives them peace of mind to the security professionals that they are end users, Kansas say, except they have to be the right human in front of the machine to do that so.
Thats, specifically as our solution, yes, we're seeing it as a.
Is driving demand for we need.
Security approach to this ideally challenges not just managing identities.
We need a security companies to go after that so.
We're seeing that as part of the demand and it's a differentiator for for the <unk> brand.
Thank you.
And your next question comes from the line of Jonathan <unk> from Cantor Fitzgerald. Your line is open.
Yes, Thank you and congrats guys.
So.
The question I have is around privileged controllers the flag secure web session.
Make privileged access just in terms of the opportunity you might be seed to leverage those capabilities to drive new lands and then to potentially replace existing iam solutions.
I realize that this motion is still early and it's most likely a lot easier to just al privilege cloud into greenfield opportunities.
What do you think that expired this expansion opportunity led by privilege controls.
All of that.
It's a great question and was part of our strategy to be the identity security company can be differentiated on the fact that we come in and add security controls, even if you have.
<unk> access management solution that specifically to our our secure web sessions like you said, it's early but we're seeing that are differentiated and as a place for us to land.
And customers that have basic single sign on in in place and then overtime and upon renewal, we can expand with them to the broad identity suite and also the broad.
Offering from from cyber dynamic privileged access.
It's a very light way.
<unk>.
To add onto to our Pam and a differentiator in the market, where we give.
Very simple way to manage a modern modern environment. So it's in everything we do it's in every.
I would say the sales process.
Today, and and gives us these offerings gives us also a way to.
Get a healthy premium over over standard.
The entity.
Our solutions and really push that that strategy that this is the the identity security vendor.
Yes.
Helpful.
A quick follow up is.
Related to channel could you just.
Updated update us on the channel motion as it relates to Europe your SaaS offerings.
So.
What you see in terms of the opportunity to engage with Si's in.
In public cloud providers beyond what youre doing with the secrets with the public cloud guys.
Okay. So.
It's been very strategic for us.
We've moved through this whole transition in SaaS suffers transmission to bring our channel partners on board.
But with US it's in our training and in everything we do it was central to our partner event around around around impact that our channels will be will be trained on the SaaS offering and thats, what they expect that they also like the.
Quick time to value that you get with SaaS and they're embracing the best solution.
And so I would say that that's across the full.
Full channel landscape, even all the way through the to the advisory as they get it to the customer.
As is our consuming or adopting SaaS then there is a faster.
The time to value with regards to the <unk>.
Size around the world, we're seeing them really vote vote with with with.
Their seats I would say in our trainings and getting certified.
And that's in the sense that while sidewalk is really being in building a healthy long term company here and we can and we can count on them to build a business practice, so theyre building business practices.
Around us and they can see the same motion that we talked about here on the growth that we've talked about today is also reflecting in and their results the ability to cross sell and all of that is.
Is reflecting.
With regards to AWS in addition to the secret sauce.
Extending.
The ability to work natively with AWS, where we're active on the AWS marketplace like we mentioned in the past and we continue to see that as a as a good way.
Expansion and getting deals complementary to us too.
Are there partners I think that we're seeing that.
Marketplace.
Let them building up.
Your next question comes from the line of Joshua Tilton from Wolfe Research. Your line is open.
Hey, guys. Thanks for taking my questions and congrats on the results.
My first one is.
Every vendor and identity seem to be scrambling to kind of replicate this complete identity platform that you guys have built.
So maybe how is that helping you kind of evangelize the sale of a complete identity platform.
Typically are you guys doing to capitalize on this lead that you have over the other vendors in the market.
No great question I think.
As I mentioned in sometimes in and.
And my face to face meeting with investors.
I would not.
Differently without journey, I mean coming as the experts in Pam tackling the most difficult problem in identity and the most sought after tax.
<unk> for for.
For the attackers and then expanding to two identity and doing that all on the SaaS platform.
<unk> is a unique site.
<unk> benefit we really came into identity as a cyber security company versus coming to to security is that as an identity management company and we think that thats. The the credible in the REIT motion customers can can tell.
When there is the cyber security.
Expertise behind it and of course, the the leg up if there is a lot of disruption in our competitive base all the all the private equity.
Takedowns are causing a lot of distraction both in parallel.
Ladies and.
We have lost connection with the speakers please remain on the line.
Yes.
Okay.
Okay.
[music].
Okay.
Alright, so I think I pretty much wrapped up sorry about that I think we're pretty much wrapped up.
The question there.
We are definitely seeing that competitive opportunity on stepping.
Stepping on the sales and marketing general and again in a prudent smart way like Josh.
Was alluding to capture that opportunity and a lot of it is also.
Okay.
I would say in a flywheel effect with the customer base that we have strong customer base, we have a strong.
Channel base and it gives us thats slightly look sector to leverage.
No that was great I just have one.
One follow up if I could and I apologize if <unk> already addressed but how is your federal business in the quarter.
I wouldn't say that it was and we didn't expect it to be an outstanding.
Our quarter I would say I would just say it wasn't outside but the but the global our government.
Continues to be about about 10%.
Of our business.
In general we.
We're seeing that the federal cycles can be a little slow.
Thank you very much guys.
Thank you.
Your next question comes from the line of <unk> <unk> from Citigroup. Your line is open.
<unk> Your line is open.
Okay.
And we'll move on to the next question from Ed Kaye Kid Ron from Oppenheimer. Your line is open.
Hey, guys. This is a personal Andre hi, Thanks for taking my question and congrats on the results.
Thank you.
I just wanted to ask about the cloud and timelines manager solution with the still relatively new how has early adoption third here and how large do you think this opportunity is relative to other solutions like APM and access.
But we as we presented at our at our impact events, we actually view that as a component in the larger pillar, what we call a cloud a cloud security, which we think we think it is big and that that includes our solution for secure cloud access everything that has to do with.
With managing.
Transparent and easy access.
Through the cloud environments, the cloud counsels with regards to <unk> component there, it's very much about about identifying over privilege.
In cloud and as a lead in to the rest of the solution in that.
And that pillar, so I would say wanted.
It's early and two it's going to be a component of a much larger.
Larger pillar was yes definitely could be as big as <unk>.
As the PM.
And as we as we continue to evolve there.
On that pillar.
Got it that's helpful. And then just on the product mix of net new <unk> for the quarter were there any products that had a significant change in contribution when you compare it to Q.
No I would say the the subscription are split as we discussed last time, they're all growing which is the good news.
Great.
<unk> is about 55%.
<unk> is probably about 20% identity is about 15% and secrets management is about 10% of that of that subscription.
A piece of the pie.
Got it thank you.
Okay.
Our next question comes from the line of Andrew Nowinski from Wells Fargo. Your line is open.
Hi, This is Justin Donati on for Andy Thanks for taking our questions.
You talked a lot about.
Your land and expand motion here on the call.
Just wondering if you could.
Provide any update on <unk>.
There you are closing rates in your pipeline.
Between new versus existing customers.
Yes, I don't know that I have kind of.
Ready.
Information information, there I would say that.
We're building a robust pipeline on both fronts and Thats kind of our go to market.
Our approach our reps have a portfolio of both of both existing customers and new customers to go after and of course leveraging.
The channel partnerships the <unk> that we have 444 landing new.
New logos I would just say with its continued to be robust.
Diversified.
Pipeline.
Great. Thanks for the color and then maybe just as a quick follow up.
Regarding your large customers over 100000.
Can you just update us on how many solutions on average than customers who are using thank you.
Again.
I probably don't have.
I would say that.
You can have.
We have a <unk> customer.
That exceeded that but we.
We value the most.
<unk> and the growth that also includes <unk>.
So the majority of it would have at least.
Two products in <unk>.
And of course this is like the the over 100 <unk>. We have we have some very significant ones in the large ones.
We over time see them.
Not just not just ourselves, but also get cross sell solutions.
Okay.
Alright, thank you.
And your next question comes from the line of Fatima <unk> from Citigroup. Your line is open.
And it appears to be a problem with the line will go on to our next question from Trevor Walsh from JMP Securities. Your line is open.
Great Hi team. Thanks for taking my questions. Good morning, Congrats on the quarter.
I had a brief mention of zero trust as being an Influencer and was wondering if you could maybe give a little color around how that influenced the strong performance if at all as far as new customer logos to $2 30, or so for the quarter, which was we thought was strong. So is there a dynamic there where that type of.
Architecture around zero Trust is actually driving that those engagements on the identity piece or is that more maybe current Pam.
Pam customers coming in and looking to support there are.
Zero Trust plans with what they have already got going with you guys. How does that I guess how are those engagements are happening that cheniere first Brian .
That's a great question that I would say that it's happening at both I see it in both.
Existing customers when we when we do our executive briefing center with the customer base. They are replaying back to US that this is how they presented to us. So therefore under management that patent identity security as part of their zero Trust. How can you I can go to zero trust with excess privileges so everything the least privilege motion.
It is really critical to that and so.
We hear that from our customer base and yes our.
Our field and channel are definitely seeing that it's part of the decision making.
And the landlord and the pickup of the of the new of the new logos that it's.
They are looking for impactful solutions to prevent prevent breaches preferred.
In an assumed lease prevent.
Any any lateral movement and massive impact of the breach.
And as a way for them to show that they really reduced.
Massive amount of risk and executing on zero Trust strategy. So so yes, it's definitely in both.
Yes.
Great. Thanks, a lot.
And your next question comes from the line of Brian Cooley from Stephens. Your line is open.
Hey, guys. Thanks for taking my question here.
So so clearly you all have a lot of strong tailwind is driving momentum in the business right now.
Kind of wanted to hone in on some and see if you could maybe just rank order what you see as kind of the three biggest growth drivers are a tailwind for the business right now and then kind of looking forward.
Maybe rank order kind of what you see as the biggest growth drivers moving into 2023, if it's changed at all.
Between whether it's multi product adoption new logos.
Or greenfield.
<unk> with new customers.
So in terms of business drivers.
I would really put up that is considered.
Considered a must have.
For for achieving a zero trust in preventing breaches. So you kind of lump that zero trust and the innovation and really having a meaningful impact there.
In terms of AV business, our business drivers and then separately.
Underneath that various areas, where theres, a compliance needs insider threat prevention, but attacker innovation.
And I would say followed by digital transformation.
Tax surfaces growing so so so much.
And then and then how do we how do we prevent breaches on that growing attack surface that is.
Our business driver I would say.
The result, its go to market execution against this.
Ever growing demand. So we are a high priority and we're we're executing like I mentioned, both on the channel front.
Our sales team in both new logos and.
And add on business leveraging the speedboats that we've put in place.
<unk>.
To upsell or cross sell our speedboat solutions in.
And secrets management and.
In identity, and and we are continuously taking market share.
As we do this.
Got it thank you for that its helpful.
And then.
Just thinking about your efforts with the channel expansion can you just.
Help us frame up kind of what innings. You think you are in on that front I mean, it seems like it's clearly already driving.
An increase in new logo wins.
And incremental business I'm curious if you think we're kind of still in the early innings of that.
And whether it could potentially drive.
Further acceleration from here.
Kind of.
What percentage of.
New deals or the channel contributing to today.
Yes, I would say that in the past I've talked about that where we were at <unk> one.
<unk>.
Kicking off the channel opportunity the team has really been executing well I'm hearing from from the CEO of our channel partners.
And I would love love hearing that.
In there and there are top top 10 telcos.
This is a top five of all producers and we want to continuously move up their sovereign wants to be.
The top winner for.
At the top the top provider.
In terms of our business for our channel partners and I think we continue to see that.
Probably more than 70% of the business is with us with our.
With our channel partners.
Moshe.
Like I said earlier, it's kind of as a flywheel effect you see you see that.
As they succeed the invest more invest more in training, we talked about the growth in the on the.
The amount of cyber Arca.
Certified personnel and and so I wouldn't give it.
Something in the middle of the evening.
Because we moved it along from our execution and really working with the best of the best across the world, but theres so much opportunity as we as we lever this flywheel and on top of everything I mentioned, where we're in the early innings with the MSP and Thats a big opportunity.
Great. Thank you for the time.
Absolutely.
And this concludes our question and answer session. Mr. <unk> I'll turn the call back over to you for some final closing remarks.
Great. Thank you very much we had another strong quarter, demonstrating durable demand for our solutions and momentum in our business and as always I want to thank our customers and partners.
And our Dear global employees for being the cornerstone of our success. Thank you very much and again I want to thank the team for the hard work and strong execution. This quarter talk soon thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.