Q4 2022 Cyberark Software Ltd Earnings Call
Thank you for standing by at this time I would like to welcome everyone to the Q4 2022 Cyber Ark software 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'd like to ask a question. During this time simply press star followed by.
The number one on your telephone keypad, if you'd like to withdraw your question. Please press star one again, thank you Eric.
Erica Smith S. P P Investor Relations and ESG you May begin your conference.
Alright. Thanks.
Thank you Sean.
Good morning, Thank you for joining us today to review <unk> fourth quarter and full year 2022 financial results with me on the call today are really Mecate, Chairman and Chief Executive Officer, Matt Cohen, Our Chief operating Officer, and Josh Siegel Chief Financial Officer. After prepared remarks, we will open the call up to a question and answer session.
Before we begin let me remind you that certain statements made on the call today may be considered forward looking statements, which reflect managements best judgment based on currently available information.
I refer specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the first quarter full year 2023, and beyond our actual results might differ materially from those projected in these forward looking statements I direct your attention to the risk factors contained in the company's annual report on form 20-F filed with.
The U S Securities and Exchange Commission and those referenced in todays press release that are posted to the website.
<unk> expressly disclaims disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements made today.
Digitally 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.
We also want to remind you that we provide the calculated revenue headwind for additional color on the impact of our subscription mix shift, but it should not be viewed as comparable to or a substitute for reported GAAP revenues our other guest 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 remote Cutty Judy.
Erica and thanks, everyone for joining the call we had another strong quarter to cap off an amazing year, where we outperformed executed and delivered against each of our key strategic initiatives in 2020, we optimized our go to market engine expand our channel partnerships and enhance our platform selling motion.
Breakaway innovation extended our solutions well beyond that and resulted in <unk> being recognized as the leader in identity security. We are in a great competitive position and we are taking market share not only invest but across our product portfolio. We enter 2023 with a more durable more resilient and highly visible.
Business model Cyborg is in a position of strength well on our way to our $1 billion, yeah, our target and we have already reset our sites well beyond that.
Because of this execution as we are gearing up for 'twenty two 'twenty three we recognize that <unk> within the best possible position to make the executive changes we announced this morning.
In early April I will move into the executive chair role and Matt Cohen, Our Chief operating officer will become our CEO , Matt is an incredible leader and I can't imagine a better person to be the next CEO cyber since joining the company. He added tremendous value has been instrumental to our success.
We rented the subscription transition transformed our go to market engine and as inspired people across the organization to deliver well ahead of expectations with his support and leadership, we have delivered tremendous results and the company is set up for long term success.
My role with sidewalk is changing and its executive chair I'll stay very active working with Matt and the management team I will focus on shaping our future by aligning our long term strategy to our mission preserving <unk> unique culture, and bread and fostering relationships with key customers and partners.
It is very important to me that we get this right and then we have a smooth transition continuity of leadership and that we don't skip a beat in our execution I believe that our plan accomplishes these objectives.
Personally, Matt and I have formed a strong partnership based on shared values and commitment to our mission and friendship. We will continue to work together closely to ensure cyber execute and that we deliver our vision.
Matt has joined us today, and I'm going to hand, it over to him for a few comments Matt.
Thank you Rudy it is the honor of a lifetime to be named the next CEO of Ciber.
<unk>, along with Josh the leadership team and every side, where our employees have worked hard to build an amazing company.
He has been a mentor and become a dear friend over the last three years.
He has a special leader with genuine empathy and measurable energy and deep passion for our mission, our culture and our people.
I am looking so forward to working with him to scale cyber or drive profitable growth and deliver shareholder value.
I will also focus on preserving the company's culture, which has been so critical to <unk> success. Our leadership team is completely aligned on our plan for 2023, our long term vision and our massive opportunity our future has never been brighter and I am humbled to lead cyber arcs next chapter.
I will now turn the call back to <unk> to talk about the quarter in more detail.
Thank you, Matt moving into the quarter, our performance demonstrates a few key points first the power of our business model second the durability of demand for identity security platform and lastly, the strength of our execution. The financial highlights include subscription are reached $364 million.
Growing 99% year over year, we also had a record $63 million and net new subscription there are from the end of Q3.
Totally are reached $570 million.
Growing 45% year over year, well ahead of our November guidance.
It's still the best metric to measure our success.
We ended the year with more than 1300 customers with over $100000 in annual recurring revenue growing more than 40% year over year.
Total revenue came in at $169 million for the fourth quarter with a subscription booking mix of 90% in Q4, well ahead of our guidance framework.
<unk> created a revenue headwind of about $24 million normalized.
Normalizing the mix for the fourth quarter of last year, our revenue would have grown by 27% this quarter.
The license portion of our business, our SaaS self hosted subscription and perpetual would have grown about 42%.
As we talk about the quarter I will frame today's discussion around growth innovation and profitability.
Persistent secular tailwind are contributing to our growth I've spoken to dozens of customers and partners over the last few months and they all face similar challenges digital transformation is leading to an explosion of identities, both human and machine implementing zero Trust strategy remains complex and time consuming and attacker innovation is only accelerate.
With the emergence of new technology, and new attack vectors taste.
Thanks, Jack GPT are less team published breakthrough research on chat GBT, which can dynamically mutate malware, making it incredibly hard to detect and stop with examples like this there is little debate that identity is the attack surface and taking an assumed breach mindset is the best way to protect the enterprise.
Yeah.
In the fourth quarter, we landed with more than 380, new customers and for the full year, we added more than 1100, new logos and all time record for Ciber.
We continued to see strong diversity in our business and are signing customers from health care and biotech hotel fashion brands hospitals manufacturing banking and insurance companies.
A few examples include.
A multinational health care companies couldn't scale with its existing pinpoint solution, particularly given the increasing number of machine identities within the organization in a seven figure rip and replace deal the customer will protect human and machine identities with our modern privilege cloud Suvs management solutions.
A large hotel chain is building its enterprise wide identity security program on our platform during the quarter. This cloud first organization landed was privileged cloud workforce password management and dynamic privilege access and its first steps with plans to expand to MSA and single sign on in 2023.
Cyber insurance was once again the driver in Q4 across many examples including a prominent clothing brand buying privilege cloud to meet the insurance requirements and lower premiums.
Our subscription transition is increasing the velocity of AD business, particularly with our SaaS solutions. A few examples a major hotel chain is accelerating its cloud first strategy with <unk> expanding coverage from Pam cyber, Okay, Danny and secrets management to endpoint privilege manager.
A global 2000 financial services company with our first concert cloud customer and also added secrets hub.
As customers implement zero trust strategy as they want the peace of mind with our single pane of glass into all privileged activity visibility that only <unk> can provide today.
The fortunate 500 healthcare company expanded its identity security program and decided cloud intelligent manager endpoint privilege manager and dynamic privilege access as game changers for securing its cloud first environment.
We are seeing returns from strengthening our partner program in 2022, the new routes to market enhance collaboration and improve efficiency across the ecosystem increased our momentum and significantly expanded our reach as an example, the number of the number of unique <unk> certified partners grew by over 90% and the certifications across our platform.
<unk> continued to grow a great indication for future growth in our access and secrets management solutions.
Before moving into innovation, we wanted to comment on the macro environment.
While identity security remains top priority more approvals continue to be required in deals consistent with what we saw in prior quarters, the demand trends deal progression when rates renewal rates as sales cycles remain healthy across the board, which we see in our strong <unk> growth.
On the innovation side, we were thrilled to be named a leader in the 2022 Gartner Magic quadrant for access management in early Q4, making us the only company to be named a leader by Gartner for both Pam and access management, we are already benefiting from the magic quadrant with the pipeline for our <unk> identity, reaching new record.
We believe this is another important validation of our strategy to deliver the most complete identity security platform in the market.
The enhancements to <unk> flows and our innovations and patent including broader threat detection and response on Vms as self hosted machines differentiate us in the field.
Innovation continues to be the cornerstone of our success. In addition, we won our first deals for AWS secrets hub and concert cloud during the fourth quarter.
Josh will cover profitability in more detail, but as we look into 2023, we will continue to invest with discipline and expect to leverage each of our operating expense lines. Most importantly, we plan to be agile in our investment plans and have the flexibility to make adjustments as we move through the year, we're looking through the transition dynamics we.
Our operating <unk> as a rule of 40 company today and remain committed to delivering profitable growth.
To ensure we capitalize on our growth opportunity, we expanded our management team, adding Chris Kelly at zero, Chris joined Us from Adobe, where he scaled global customer solutions business, Chris is already making an impact he hit the ground running and participated in our global kickoff last month, he fits seamlessly into the cyber culture and is fully supported by each.
Of our three theater heads.
As we look into the coming year, our top priorities for 2023 include accelerate.
To accelerate our identity security platform sales motion across Pan EPS access and secrets management.
Further leveraged the channel and marketing alignment to extend our reach.
And hence our customer success organization at scale to ensure we protect and expand our base of IRR.
And deliver cutting edge innovation and extend our leadership position in identity security.
With our execution over the years <unk> is in a position of strength, we have a strong experienced management team focused on executing our strategy, we have a massive market opportunity and are taking market share.
Our identity security platform is mission critical and our solutions are being prioritized even in today's challenging macro environment.
I've never been more energized or enthusiastic about cyber our leadership position our team our culture and our future. We have put in place a best in class transition that will help ensure that we deliver against this massive opportunity.
I am looking forward to working closely with Matt The board and the entire <unk> team as we build <unk> to a $1 billion, yeah, our company and beyond.
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 first quarter and full year 2023, Josh update.
Thanks, Judy as Judy mentioned, we were pleased with the durable demand for our solutions cut.
Customers are embracing our identity security platform and our subscription model is deliver resulting in annual recurring revenue growing 45% and reaching $570 million, that's well ahead of our guidance.
The subscription portion reached $364 million, increasing 99% and now represent 64% of our total we had another record quarter for net new subscriptions and total air are driven by the strong demand for our solutions, particularly for SaaS.
Our progress is clear when you compare today to a year ago. When the subscription portion was only $183 million that just 46% of total at half of our year end 2022 of maps.
Our guidance in February of last year estimated just 35% to 36% growth in total <unk>.
To outperform and grow nearly 10 percentage points faster showcases the strength of our execution throughout the year.
We have convincingly flipped our business to a fully recurring model a key multiyear goal. We set just under two years ago in our March 2021 Investor day.
The maintenance portion was $206 million at year end.
The year over year and sequential decline in maintenance.
<unk> was due to the decline in the perpetual license sales as expected and included in our guidance.
We continue to see very strong renewal rates of more than 90% for our perpetual maintenance business.
In addition, our visibility continues to increase with the remaining performance obligations now at $713 million at year end, that's increasing 38% from December 2021.
Total revenue of $169 million grew 12% year on year and was impacted by our subscription bookings mix, which hit a record 90% for the fourth quarter, that's well above the guidance framework we provided.
Economically the revenue headwind created by the mix and duration was approximately $24 million in the fourth quarter. That's why we compare like for like to the fourth quarter 2021, where the mix was just 71%.
Taking a calculated revenue headwind its consideration total revenue would have grown by 27% year on year and if you include the $1 5 billion dollar and currency impact as well, we would have grown by 28%.
If you isolate just the license portion of revenue adjusted for headwinds our license revenue grew by 42% in the fourth quarter.
On the macro environment during the quarter, we continued to experience more approval of deal cycles and in addition, some existing customers also wanted shorter commitments Albert update for one year versus three year deals related to self hosted subscription or term based license contracts, which impacted our duration.
Recognized revenue and long term deferred in the quarter.
Overall, we continue though to be very pleased with our bookings and to see identity security programs.
<unk> momentum in our business continued in the demand environment is resilient with budgets being allocated as evidenced by the significant.
Our outperformance and the strength of our new logos.
Moving into the details of the revenue lines for the fourth quarter subscription revenue reached $88 $5 million growing 86% year on year, representing 52% of total revenue in the fourth quarter.
With our move to a subscription business model perpetual license revenue came in at about $14 6 billion.
Our maintenance and professional services revenue was $66 $1 million, that's $54 1 million coming from recurring maintenance and the balance of $12 million and professional services revenue.
Recurring revenue reached $142 6 million or.
Or 84% of total revenue growing 39% year on year from $102 $9 million in the fourth quarter last year.
Geographically the business continues to be well diversified the Americas revenue reached $99 $5 million growing 15% year on year EMEA grew by 5% year on year to $51 $8 million at APG grew by 13% to $17 $8 million in revenue.
Normalizing for the Miss and the duration the Americas would have grown by 31% year over year and <unk> by 30% normalizing the.
These are the headwinds and FX EMEA would have grown by about 24% in the fourth quarter.
All line items of the P&L that I'll discuss now on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release.
Our fourth quarter gross profit was $142 million or 83% gross margin compared with 86% in the fourth quarter last year, the lower year on year gross margin is in large part due to the significantly increased portion of SaaS revenues and the result of the declining of the perpetual license sales in the fourth quarter of 2022.
While we continue to make disciplined investments to drive innovation and growth our results demonstrate our operational rigor as evidenced by our operating expenses, increasing 20% to $136 $1 million, resulting net income of $4 1 million and that compared to our headwinds adjusted revenue growth of <unk>.
27% in the fourth quarter.
We are still being impacted by the mixed shift towards ratable revenue, which lowered our operating results normalizing for the headwinds our operating margin would have been positive 14% in the fourth quarter.
As a reminder, this only level set to the mix to the prior year not all the way back to the beginning of the transition.
Net income was $7 2 million or 16 cents per diluted share, beating our guide for the fourth quarter.
For the full year revenue was $591 $7 million accelerated to.
To 18% year on year growth versus the 8% last year for the full year subscription bookings mix was 88%, which was higher than we were expecting and which resulted in approximately a $72 million headwind for the full year this compared to a 66% subscription bookings mix for the full year 2021.
Normalizing for the headwind the total revenue would have grown 32% year on year and for the full years for the full year Americas would've grown by 23% EMEA by 9% in APG by 12% normalizing for the headwind for Americas <unk>.
Realizing for that headwind, though the Americas grew by 38% EMEA by 23% and a P J by 28% year on year.
Moving down the P&L for the full year, our gross margin for the year was better than we expected at 82% as we closely manage the expenses related to SaaS operating loss was $22 4 million normalizing for the headwinds operating margin would have been a positive 7% for the full year.
Our net loss was <unk> 44 per basic and diluted share, which was also impacted by the same revenue headwind of $72 million for the full year.
We also absorbed an FX impact for the full year of approximately $6 million on revenue.
$7 million.
They are at $2 million on operating income.
We continue to attract and retain top talent ending December with over 2000, and 750 employees worldwide, including nearly 1160 in sales and marketing.
For the full year free cash flow was $37 $2 million or 6% free cash flow margin, which came in nicely ahead of the free cash flow guardrails, we set for the full year and demonstrates the strength of our subscription model.
Turning to our guidance our guidance for the first year for the first quarter and the full year 2023 balances.
The strong competitive position and the durable demand for our platform against the uncertainty in the macro environment.
For the first quarter of 2023, we expect total revenue of $160 million to $164 million, which represents 27% year on year growth at the midpoint, we expect non-GAAP operating loss of about $15 5 million to $12 5 million for the first quarter and we expect our non-GAAP EPS to range from net loss of 32.
<unk> 23 per basic and diluted share.
Our guidance also assumes $41 3 million weighted average basic and diluted shares and about $4 million in taxes.
For the full year 2023, we expect total revenue in the range of 724% to $736 million, that's representing growth of between 22% and 24% an acceleration from our 18% growth rate in 2022 and consistent with the playbook, we outlined when we kicked off our subscription transition.
For the full year, we expect our operating results to range between an operating loss of $5 million and an operating income of $5 million.
We expect a range of net income per share of seven to 28.
And for the full year, we expect about $46 1 million weighted average diluted shares. We also expect about $20 million in taxes.
For the full year, we expect annual recurring revenue to be between $730 million at $740 million at December 31, 2023, or between 28 and 30% year over year growth.
To help model the expenses for the year, we expect to see an increase in marketing expenses in the second quarter related to our global impact customer event and its world tour, leading to a seasonally lower operating income in the second quarter.
For the full year, we plan to leverage our P&L with each operating expense line growing at a slower rate in 2023 compared to 2022, the increase in our expenses fall into three main categories.
Increasing investments in our cloud infrastructure to support our record SaaS bookings in 2022, which we expect to look which we expect will lower our gross margin for the full year to between 80, and 81% second making critical investments in R&D, including our SaaS and self hosted solutions and lastly, the investments and sales.
In marketing, we have deep conviction in the opportunity and our incredibly strong competitive position.
As we think about our guidance for the year, we plan to be agile in our investments if we see the demand environment change, we will adjust our hiring and investment plans for 2023.
Moving to free cash flow margin, we anticipate that it'll be approximately equal to our non-GAAP net income margin over 12 month period, 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 shareholders.
If we sum up 2022.
We were pleased to complete our subscription transition ahead of schedule already in the first quarter. The benefits of our subscription engine are already starting to kick in revenue growth accelerated to 18% in 2022 and there is further acceleration expected in 2023 as you saw from the guidance I just provided we expect operating margins to.
Bottomed out in 2022 and to modestly improve in 2023, and what's even more exciting is that we expect even more meaningful improvement once we get beyond 2023, and the flywheel effect fully kicks in.
Before I turn the call over for Q&A I'd also like to congratulate Matt we are aligned on our vision for execution and strategy and very much look forward to continue working closely with him in his new role.
I will 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. Our first question comes from.
Scott <unk> with Barclays Capital Your line is open.
Okay, Great Hey, good morning, guys. Thanks for taking my questions here, Let me, let me just start by saying it's been a pleasure working with you wish you best of luck as executive chair of re happy Youre still staying with the company and Matt very much look forward to working with you as well after all the work that you've done through this transition.
Thank you so much thank you socket.
Well, thanks a lot.
Maybe yes, absolutely.
Maybe shifting to the business <unk>, maybe starting with you I was wondering if you could just zoom out and talk about why you think privileged account management seems to be bucking the trend in this macro.
There are more head count reductions happening in certain areas of the economy not all security companies are seeing this type of IRR I am curious.
While you think Pam or just maybe even just the broader identity as a category seems to be doing better.
Right. Obviously, we're very excited that we continue to outperform in the 45% growth in privilege access management is one of the few critical security layers that really make a difference in enterprise security I would categorize it in one of the few that are on the must have a side of it.
Enterprises are buying buying decisions and no matter how you dissect every attack that's in the news there is that point of no return is when they elevated privileges moves laterally captured identities and cyber captures both the human and machine identities in our Pam platform and in our identity security platform and.
And today, it's become clear that <unk> is not just the new perimeter identity is the attack surface and so it's one of the few things that enterprises do today and of course, we pioneered this space. We're a market leader in this space and the flipside of it is also executing on that opportunity that we created through through our best in class.
Go to market team, our channels and of course, delivering great solutions. All of these these years and I would say that the team is executing and firing all cylinders against a growing opportunity.
That makes a lot of sense, Josh maybe for my follow up for you and great to see the <unk> Guide for next year I was wondering if you could just go one level deeper into some of your assumptions in terms of macro in terms of close rates in terms of maintenance AOR Theres, obviously, a lot that goes into that forecast.
There anything you just want us to know given the.
What is still arguably an uncertain macro.
Yeah. Thanks.
And you're right. There are a couple of dynamics at play for a first of all as we've been kind of talking about over the last year, we do expect.
<unk> <unk>.
To to decrease it started to last year in 2022, and we can see it decreasing.
A couple of million dollars a quarter.
Into 2023, and so effectively youre seeing that were guiding.
Generally two to a flat net new subscription for.
For 2023.
The other the other dynamics, if all things held equal or if we look at our win rates are.
Pipeline and in the macro we actually believe we can grow faster than that but given the current macro and where we are in the year. I think we believe this is really the right starting point as we guide for 2023, but.
If I were to add I'd say, we're actually really confident in the underlying demand environment and we have the pipeline actually support a faster growth.
And the other side.
Very helpful. Thanks, guys Congrats again.
Your next question is from the line of Hamzah Ottawa with Morgan Stanley . Please go ahead.
Hey, good morning, and congratulations Judy and look forward to working with you Matt.
Just.
Woody.
It seems like <unk> is really separating itself from the pack from a lot of your competitors.
Which had been acquired.
And others that may be facing their own execution challenges.
<unk> has been a profitable.
Company in the past, but just given that the opportunity that youre seeing and the success that you're seeing in multiple identity category.
How do you think about just doubling down on investment in.
Continuing to just accelerate your share gain versus getting back to those very high margins that you saw prior to the transition.
Yes.
Thanks, Thanks, Hamzah I think we've been very prudent and leveraging our market leadership in the space and.
In pioneering and pioneering and I think it's both Josh and I said, we're we're creating a plan that's very agile we're going after this opportunity we do want to return back to the.
The beautiful profitability, we had before the transition and then and of course coming into it with that position of strength.
Fully fully ratable.
Revenue, but we are we are investing where we see the strong ROI coming in we have a plan that's going to keep us agile all of this drug and that includes Pam that includes going after the access opportunity now that we're a leader in the magic quadrant and includes going after is the secrets management.
Angle as well as of course EPS. So we do have those great growth engines, SaaS delivered and we'll invest we'll do it like that.
Cyber style agile, but prudent.
Got it Josh.
That front can.
Can you give any color around the percentage of <unk>.
That's coming from some of the different categories like access management, Pam et cetera, I think you've done that in the past as well.
Yes, if we kind of look at the pie, it's been pretty consistent Pam, it's still around 55% of that debt.
That subscription with EPS coming in at second at 20% exit at 15% and secrets around 10%.
Great. Thank you so much.
Thanks, Kevin.
Your next question is from the line of Rob Owens from Piper Sandler. Please go ahead.
Yes, good morning, everyone.
In the prepared remarks, you did talk about <unk>.
Record new logo additions that you had during the year.
Talked about optimized go to market extended channel partnerships, maybe focus a little bit on the channel front with two new partners.
What is their contribution to net new <unk> at this point and how do you expect that to ramp throughout 'twenty three and into the future.
Yes, I would say I would say definitely are strong contributors to that.
The growth in capturing the.
The new logos, and especially as we expand it and have more and more channels trained on the new solution is also helping us land with.
With access and other fronts I don't have the metrics handy of how much do we attribute but they've got the majority of our sales involve involve channels and and.
<unk>.
Probably 70% to 80% of our business, we attribute through direct work with gel. So theyre definitely strong contributors to this too.
This net IRR and I think like I mentioned in the remarks, it's strategic for us to have them embracing our broad portfolio and we see that through their certifications and training and towards sales that they're continuously expanding beyond Pam with US also to access and secrets management.
And quickly for Josh as you contemplate the profitable growth and the return of <unk>.
Margin moving forward as having gone through the transition.
How should we think about free cash flow or any sense there in terms of modeling. Thanks.
Yeah, Thanks, Robin as I talked about it in earlier in the remarks.
I would look at over a 12 month period, because we get a lot of.
Seasonality and fluctuate and fluctuations from quarter to quarter, but on a 12 month period for 2023, we're looking at free cash flow at your non-GAAP net income margin level.
And then I think if I would if I would add to that because you also talked about kind of post transition as we kind of continue on through the transition. We certainly would expect to see that expansion of free cash flow in the out years as.
As we as we get to.
Already back into 'twenty, four 'twenty five and we're post now round tripping, our our full <unk> base.
Okay.
Okay.
Your next question is from the line of Fatima <unk> with Citi. Please go ahead.
Good morning, and thank you for taking my questions annuity sad to see you go but I'm looking forward to getting matter heart timeframe here.
So maybe I'll start with you.
With respect to the model transition is essentially move it in Q2.
The transition which with.
Continued <unk> growth.
Im curious what sort of changes.
If at all that Youre thinking about making by way of go to Mark bundling pricing strategy.
Yes.
Potentially changing the way.
<unk> base from here and we'd like to hear Matt chime into its relevant as a follow up for Josh. Please.
So what are your first of all thanks for FEMA.
<unk>, but im looking forward to you're giving me a hard time and let's start with that maybe Matthew take this sure sure Rudy. Thanks, I think as we look at 2023, we kind of just see.
Continued.
Momentum in the go to market channels that we've already put into place.
<unk> to rely and kind of build it much.
Much stronger engine in the marketing organization to help us with the with the kind of demand generation and we continue to put more focus and frankly more resources.
On that ability to be able to drive pipe that way.
Our bundles have been a piece of the success over the last couple of years, where we have.
Our core PMC come with a little bit of identity and a little bit of other areas that helped to drive an seed those products and we're certainly instituting a price increase in 2023 here.
Matched to the inflationary environment that we've seen and that will help us kind of get a little bit of uptick and then as we were just talking about we push on the channel partner program and making sure that these what we keep referring to as new routes to market.
Focus with.
The MSP program the distributors, even the marketplaces that are out there and leveraging them to help help us drive demand, but I look at 2023 kind of as a continuation of what we've been doing.
Because we've been seeing such success with that.
Okay.
Your next question is from the line of Eric Heath with Keybanc capital markets. Please go ahead.
Great. Thanks for taking my question and Matt Congratulations on that on the new appointment there.
Yes.
But the question for you for you and Matt looking forward I mean, I guess, how do you think of <unk> success, how much is predicated on success in moving into access management.
One called broader privilege access and how meaningful do you push into that market over the next years given it is a more competitive market and there's really a couple of large vendors that kind of already a large incumbents in the space. So how do you think about that initiative over the next couple of years.
Yes, absolutely I think I think the beauty of the Sidewalk chart right now is that we have such a great opportunity in Pam and patent itself is at such a critical layer of security and then this growth engine and access and access our business almost doubled and they are we're seeing a record pipeline or <unk>.
Proving win rates.
Mentioned that now with the Magic waters were also invited to more and more rfps. So the way we look at it it's great upside for us in expanding into access we are and we will and we're doing it differentiated you mentioned competition, we're coming to it as from the makers of pound those who really pioneered the hardest layer of security in.
In identity, the hardest part of identity coming into securing all types of.
<unk> is the human workforce users the third party supplier the machine identities and coming to us from that position of strength and trust as the security vendor. So we are going after it and but we're going after it in a differentiated way we have a great customer base to leverage we have new lending.
New ways, new ways to land and so it is it is upside along with of course, the other growth engines like secrets management.
I would just add here that I think increasingly it's an identity security story with our customers and we're able to talk to them about our platform, we're able to talk to them about all the solutions working together.
To drive value and to protect our environment and so even when we think about our recent global kickoff that we just had where we had all our sellers together that the main story that we were training on is how to position the full identity security storage and that brings US then obviously with the foundation and Pam but outside into these other <unk>.
Areas and our conversations with our customers.
Your next question is from the line of a shallow E L with Cowen and company. Please go ahead.
Thank you hi, good afternoon, congrats on <unk> com.
Congrats Matt.
Best wishes to all of you are looking for it looking forward to.
Working with Matt.
Alright.
I actually had a question about.
About machine identity, I think you've just mentioned that.
Matt.
Okay.
Some conference you made some I would even say bold statement about machine identity.
Attunity and cyber are taking.
They can bring you back to the nice share longer term within this market.
Can you talk to us about what you see within the machine identity now.
Absolutely great on the human side.
But what should we be expecting out of cyber going forward within the machine identity Arena.
Yes, absolutely so again, thanks for the World work.
I think what we discovered in our in our survey is that also in the field is that with digital transformation and with cloud adoption organizations are creating multitude more machine identities and then they have human identities, even to the fact of our 45 times more machines than human that's what I mentioned in the conference and as Matt mentioned earlier.
We're going after this with a platform sale that covers both the human.
And machine under underwrite day security and it's becoming this gave me call by the way some of the recent breaches. The point of no return is when the when the attacker achieve privilege access through credentials.
Our machine identities, and we're able to get into systems that way and so our strategy is to do that.
With our platform to make it easier and easier for the developers to adopt our solutions as we announced that at our last big impact event and as we mentioned we are seeing our first customers adopted we announced secrets hub, which make it very transparent completely transparent to the developer to work natively in the cloud.
The first the first announcement was with AWS superstore, where <unk> is the backbone security secrets for all types of applications, both on premise cloud environments and its transparent to.
The developer so that's going to be our strategy going forward.
It is easy for the developer, but provide the security professionals.
The single pane of glass.
The backbones of securing all types of credentials and identities.
Your next question is from the line of Brian Essex with J P. Morgan. Please go ahead.
Hi, Good morning, and thank you for taking the question and Matt Congratulations from me as well hopefully we still get to engage with you regularly frequent basis, so nice to see that youre sticking with the company.
We will remain engaged.
I guess for me.
I'd like to maybe see if we could dig into a little bit it looks like you had some nice new logo adds it's almost like the new customer cadence <unk>.
Lincoln is macro and then net new IRR or the IRR contribution from those new adds it seems like Youre landing.
At a greater pace alright.
Greater amount for new logos, but I know you also mentioned some some I think <unk> you mentioned some shorter duration.
Incidents in.
With revenue maybe could you dig in there a little bit and offset where are you seeing the headwinds outside of shorter duration and what do you attribute the larger I guess land.
Land rates.
With new logos to.
So I'll start Josh maybe you went out.
Thank you and thank you Ryan I would say from the from the new logos, we see that.
Half of them.
Land with Pam and additional solutions. So the platform sale is.
Is working so we see that contribution of the wider portfolio.
A growing deal size in and our landing spot and of course, it's a great feat for us.
As we as we work on the renewals and expansion in our in our <unk>.
And again that was something we have been proving throughout the years, Matt Matt mentioned some of the bundling that.
What we've done.
That's all contributing to a better a better lesson and I think like I've mentioned in other calls we have more landing points.
And of course, <unk> is still the majority and back to the first question for the day patent being being so critical but were able to land with Pam plus plus additional solutions.
You asked about the duration, so Josh yes, so Brian when we when we think about the duration and actually doesn't impact at all the <unk> the duration is.
Great.
We referred to as part of the headwind because.
It's part of our self hosted a term based license contracts and as you know.
As duration goes down you would recognize less in the in the in period. So.
We saw duration come in during the fourth quarter on those term based license contracts, which had some.
Some headwind on our recognized revenue for the fourth quarter, but it's just a matter of when we'll recognize it and we'll just recognize more of it down the road upon renewals. So we think that.
Certainly.
The shorter duration was was kind of attributed to customers looking at they're looking at their budgets and their and their intent for buying at deciding that they were going for one year instead of longer term, but from my perspective, given our very high renewal rates.
Particularly on.
On all of our products that though.
We're good with that because it's not an impact on the business. It's just purely.
Creating more rate ability.
Your next question is from the line of Adam Borg with Stifel. Please go ahead.
Awesome. Thanks, so much for taking the question and congrats to both Lee and that maybe for Josh you've talked in the past about a single digit growth rate.
<unk> coming from converting existing maintenance base to subscription and SaaS.
I'm, just curious kind of what was that.
Is that true for all of fiscal 'twenty, two and how should we think about the conversion mix.
In the context of fiscal tightened guidance. Thanks, so much.
Yes.
Actually it was pretty consistent all through through 2022, and if we look at it from an annual basis. It was exactly the kind of a single digit percentage of the growth rate coming coming from conversions.
We're really happy with that because it really shows first of all that.
We're getting a lot of new customers.
And we're also getting a lot of add ons coming in.
Off of.
Top of their existing existing installed base and it continues to provide a lot of.
A lot of engagement with our existing customers going forward. So yes. It remains around just single digits.
Great any expectation for that to change in fiscal 'twenty three.
No at this point, we don't see signals for that but clearly were monitoring it.
And I think.
And our guide obviously contemplates our.
Our estimates for them.
Great. Thanks, so much.
Your next question is from the line of Roger Boyd with UBS Securities. Please go ahead.
Great. Thank you for taking my questions and Odeon, Matt I want to Echo my congrats on your respective moves and congrats on what overall looks like a very smooth transition.
Maybe for you or.
Matt you've consistently talked about SaaS heavy transition and it looks like that was even more so the case in <unk> with SaaS growing.
Nicely above 100% any high level thoughts on the expectations of cloud versus term based license in calendar 'twenty three and specifically what are you hearing from customers around demand for self hosted versus SaaS and the feature parity there.
Yes sure. This is Matt here, so I think that we continue to be really enthused by the momentum improved cloud.
We see.
Obviously, most of our new logos that are choosing to land with Pam They land with privilege cloud, it's definitely the default option.
The customers get to value significantly quicker, they're able to get to and expand motion for us and a faster rate, which is which is good for the lifetime value coming out of the customers. So we continue to see that kind of happen, there's pockets, where there's holdouts certain certain geographies or regions around the world.
Maybe the access to the data center isn't isn't as as normalized or some government accounts, but we definitely see privilege cloud as kind of the leading entity for us.
Moving forward in mainly the self base.
Subscription or sorry on Prem subscription as generally to existing customers, who are buying more seats, who arent quite ready yet to lift and shift over to the SaaS environment.
I think that trend will continue to play out and accelerate over the next couple of years at this point to your last point your last kind of point of your question we are seeing.
Not only full parity with our with our privileged cloud offering, but we're actually seeing differentiation and our privileged cloud offering where.
Integration of our dynamic privilege access into the privilege cloud offering.
The ability to be able to actually offer even even better threat analytics that really starts to set the stage for I think that being the premium offering that we have out in the market.
Your next question is from the line of Tao Liana <unk> with Bank of America. Please go ahead.
Hey.
If you need a partner for your next fishing trip, you know who to call.
To learn how to.
Thank you.
I have two questions. The first one is.
Pricing you mentioned that there is a pricing increase.
In 2023, what's the impact on your revenues on the IRR, how long does it take to translate the pricing increase to revenue growth.
Sure.
Yes.
Alright.
One by one that's fine.
Okay, So Tom on that.
B.
Really a small amount during 2023 any price increase impacting.
<unk> and revenue, especially because we have more and more.
Ratable so.
It's.
It's not a significant piece of the.
The raise in the guide.
Got it.
The second question is to Matt and Matt.
Every CEO brings a new spirit and new.
You kind of changes what is what is your agenda, what do you see.
As your main focus areas for 2023 and beyond.
Yes.
The question I think that when you look at what's worked so well for <unk>.
Is that we do share a similar view on the market.
On the importance of culture and the importance of of of the teams that we've built here.
And we've been so kind of intricately linked from from a standpoint of coming up with the strategy that we that we have today. So I think what I have.
I promise to the team and Davoudi really is a continuation of the great momentum that we have we feel like we've never been in a better position in a better place and we have a special opportunity here in the market and a group of special people here at the company and so I'm kind of excited to continue the the.
The spirit as you said.
Of where we've been and to bring it forward for that for the years ahead.
And are there any <unk>.
Areas, where youre going to focus on more to try and even accelerate the growth.
Or any things that youre going to focus in I'll focus on especially to kind of.
Try and bring.
Either new revenues, new areas or is it going to be more of the same basically.
Yes, I mean, we believe that this kind of shift up into the.
The identity security vision, the identity security platform and our ability to be able to go out there and help our customers across the entire identity landscape human and nonhuman a machine into into access into the all the new areas, we've been that the market opportunity for us remains huge and weak.
Go and tap into that over the next couple of years, we don't need to pivot to a new strategy, we need to go and execute or continue to execute against the current strategy to go to go get that opportunity.
Your next question is from the line of Jonathan Ho with William Blair. Please go ahead.
Hey, Judy let me Echo my congratulations as well it's been a pleasure for all these years and Matt Congrats on the new opportunity.
Just wanted to maybe dig a little bit more into sort of the new secrets management products that you guys referenced just what's been the initial reception from customers. There. How do you think about sort of the total market opportunity and how does this maybe augment your existing secrets management strategy. Thank you.
Absolutely Jonathan and thank you for the warm words and thank you for getting to know me. When we were an unknown category as we were pioneering time as a private company.
I still remember the days of $20 million in the IRR. So.
I will get to see the growth.
Great.
To your question I think the two that I would highlight is that we released concert cloud so the ability to consume secrets management as a service where our customer can hit the ground running and they don't have to.
Set up infrastructure, we have our first us customers on that and the reception of that Optionality is really well received by customers. They can still.
Decided to have an on premise or they can now have contour as as a service which is really breakthrough.
Innovation in.
The market and the second one that I mentioned earlier and is very strategic for US is to his secrets secret top.
We're on top of our solution for.
I would say native applications.
For dynamic.
Applications, we allow the organization to decide to use the native cloud secret store.
And <unk> as the backbone that was announced that it in fact is very well received at first.
Cloud supported this AWS and we will follow with Azure and <unk> and again customers are eager and again have started with the AWS.
Aspect and it also further strengthens our partnership with <unk>.
With AWS and so those are being well accepted and in terms of the opportunity. It's really we've highlighted the multibillion dollar opportunity and as a security and the machine identity is a big part of that and and we have a unique angle to take after it because we are coming as the trusted security provider.
Understanding the unique needs of the.
The developer so bridge bridging between security and developers is a very large opportunity.
Your next question is from the line of Joshua Tilton with Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking my question and <unk>, it's been an absolute privilege no pun intended and Matt Congrats on the appointment.
Just a quick one for me I think in the prepared remarks, you guys touched on this.
This tailwind from cyber insurance.
Is there any way you can dive one level deeper on that and just maybe how long do you think that tailwind could last.
I think it's going to so thanks for the question and onwards.
I think it's going to last because we're seeing just the early parts of it it's mostly in North America. We believe similar drivers will show up.
In Europe , and the rest of the world. The insurers are they found themselves like every company in the World every organization is being attacked it's a given and we've recently shown in a conference that the companies are being attacked multiple times, even if even after they they recover so the insurance providers had to step up and taken approach of work.
Going to enforce.
An important layers that make a difference before we ensure you are to lower the premiums. So I think it's going to be another one of those drivers that will last.
As long as that.
Cyber insurance will exist and it's going to exist is becoming.
Kind of kind of table Stakes it.
As companies and it gives an opportunity for <unk> and companies like us to also further partner with insurance companies to educate there.
There are customers and make it very seamless for them to get onboard and the fact that we now have the SaaS optionality really serves that well.
When they need to meet the requirement they can they.
<unk> joined <unk> can be up and running fast and get that insurance setup.
Your next question is from the line of Gregg Moskowitz with Mizuho. Please go ahead.
Okay. Thank you and congratulation duty on everything you've achieved thus far in building such a terrific company congrats to Matt as well in an extremely well deserved promotion.
As you know cyber Ark is one of a select few software vendors that was able to execute at a very high level throughout all of 2022.
Many investors Wonder if you can continue to defy gravity in this environment. So it might be helpful. Just to hear a bit more from you on your confidence level and repeating this in 2023, even if we were to assume that the macro gets a little tougher from here.
Yes, I would say that we're extremely confident I think we build a plan and like we mentioned, Matt and Josh and I and the executive team, we built a plan that.
Factored the macro macro was in the room as we as we work on the plant and.
And really also very data driven.
Analyzing our pipeline analyzing our our continued contribution from from channels and so we're very confident in the opportunity we have.
<unk>.
This year end and for our ability to.
The first of those levers that we put in place I mean, a lot of the components inside of our actually behaving like growth engines.
Looks like startups within the company like the way the access businesses is growing so we have the growth engines, we have the Pam.
Market become it's a no brainer security layer and we're taking it all over the world and so yes.
I would answer that Josh.
Do you have a numerical answer.
That.
Yes, I think I think you said it well in terms of how we how we built our expectations for the year I would also add that.
Our 2023 guys.
Even includes a $20 million headwind when we think about kind.
The last bit of the transition as we go from kind of the high 80% mix in 2022 to two <unk> well over 90% mix into 2023, and so I think when you combine all of that.
I think that we're confident about.
Where we're headed.
And if.
And if our business trends remain as they are we will we have the durability of demand and pipeline to support possibly even faster growth.
This concludes the Q&A session I will now turn the call over to <unk> for closing remarks.
Alright, we wouldn't look at it for the record, but it is all it is.
All good so I really want to thank everyone for the warm congrats that we saw throughout the call. We all really appreciate and the support of.
As you saw the start of our journey. We're just getting started we're very excited.
About the year ahead, and again, we had another strong quarter demonstrating that durable demanded that we talked about.
Our platform selling momentum in the in the markets positioning us very well for 2023. So thank you to our customers first and foremost and partners that are the cornerstone of our success and I want to spend special appreciation to the entire Ciber crew around the world for the hard work and strong execution very mission driven team.
So thank you very much.
Thank you for joining today's call you may now disconnect.
Please wait the conference will begin shortly.
Sure.
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