Q3 2023 CyberArk Software Ltd Earnings Call

Hello, and welcome to the Cyberark earnings Conference call. All lines had been placed on me to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star one on your telephone keypad.

He would like to withdraw your question again press Star one I will now turn.

Conference over to Erika Smith S V P Investor Relations and E. S. G. Please go ahead.

Good morning, Thank you for joining us today to review cyber third quarter 2023 financial results.

With me on the call today, or <unk>, or Chief Executive officer, and job see about actually.

After prepared remarks will open the call ups for a question and answer session.

Before we begin let me remind you that certain statements made on the call today may be considered for redfin statements, which reflect management. That's judgment based on currently available information I refer specifically to the.

The discussion of our expectations and beliefs regarding our projected results of operations for the fourth quarter.

23.

And our actual results may 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 a farm 20th filed with the U S Securities and Exchange Commission and notice referenced in today's press release that are posted decided.

Website February expressly disclaims any application or undertaking or at least publicly any updates or revisions to any forward looking statements made today.

Additionally, non-GAAP financial measures will be discussed on this conference call reconciliation to the most directly comparable GAAP financial measures are also available in today's press release as well as in an updated investor presentation that outlines the financial discussion in today's call a webcast of today's call is available on our website.

And the Investor Relations section.

With that I'd like to turn the call over to our C E O Max Cohen Matt.

Thanks Erica.

And thanks to everyone for joining a call today.

I want to start off by saying our Hearts go out to Israel.

The global Israeli community.

They navigate through this incredibly difficult time.

The atrocities committed by Hamas and Israel are horrific and as an organization. We condemn these barbaric acts the.

The health and safety of our team continues to be our top priority.

We are providing all of our employees with the flexibility required to care for their wellbeing for their families and for their communities.

The resiliency and spirit of our team has been nothing short of remarkable.

The outreach and support from our customers our partners.

And the Wall Street community has helped US all through the last few weeks and we greatly appreciate it.

Moving into the quarter.

We had one of the best quarters in the company's history.

We saw a significant step up and demand for our platform.

Go to market teams continued to deliver.

January security remains a top priority for global Sea sauce.

And the third quarter, our bookings growth accelerated in total bookings significantly outpaced our guidance framework.

<unk> serves to cross our platform, resulting in stellar results the beater guidance across the board.

Subscription a are reached $504 million growing 68% year over year <unk>.

Total a are reached $705 million growing 38%.

We added a robust 52 million in net new a R. R and we exceeded our guidance range across revenue operating income and EPS with total revenue accelerating to 25% growth.

Reaching $191 million.

non-GAAP operating income came in at approximately $17 million and regenerated non-GAAP earnings per share a 42 cents.

Throughout the year is personified excellence and execution and we have navigated the macroeconomic landscape exceptionally well.

While uncertainty persisted in the third quarter, we experienced a firming of the macro environment compared to the last few quarters. Our execution was even stronger in Q3 I've seen in our meaningful top and bottom line outperformance and the significant step up and our our guidance for the full year 2023.

Our clothes rates improved and we had strong conversion of our record pipeline.

While we didn't see any outside deals in the third quarter. There was a healthy increase in seven figure ACB contracts as customers are more than willing to allocate significant portions of their cyber security budgets to our mission critical solutions.

In addition to strong execution across or go to market and product development teams. We continue to benefit from robust secular tailwinds that are becoming even stronger.

The exponential growth of Identity's cloud migration in the elevated threat landscape are all contributing to the momentum in our business.

One thing remains constant and cyber security incidents all roads in the attack chain lead to identity.

The MGM incident is one of the most recent examples of identity and privileged access being leveraged to move laterally regardless of environment and.

And how attackers can inflict devastating damage, including a complete shutdown of an organization.

As it Danny these across the enterprise become more powerful cyber security leaders recognize that to be secure all identity's need the right level of privilege controls organizations are also grappling with how to assign privileges and provision access to provide each entity with the right level of security.

<unk> at the right time.

We are the only company within a denny's security platform that can offer our customers the flexibility to provide standing access just in time access or zero standing privileges, depending on the type of identity and the nature of the targets they need to access.

What differentiates our platform. Even further is that we can do this across hybrid and cloud native environments.

Based on our truly differentiated capabilities are platform selling motion continues to gain traction and all our solutions are being adopted by customers at an accelerated pace driving strong growth. This.

This includes Pam, which despite having a much bigger base is still one of our fastest growing areas.

Really exciting customers today understand that E. D. R is not enough and they need and point privilege manager to Lockdown every and coin.

With the least privileged approach.

Access solutions remain both an expansion and landing opportunity conjure cloud and secrets up our leading SaaS first strategy for our secrets management business and equally exciting the early one minute and Tim we're seeing with secure cloud access remains very strong and opens up an entirely new group of Identity's prescriber.

Within the developer community.

We have an all star lineup, making up our portfolio, we are empowering our customers throughout the digital transformation journeys by securing access to their cloud environments and protecting the developer communities and the applications. They are building all without getting in the way of innovation.

Ensuring every identity across the workforce is truly secure sets us apart and is helping us achieve the strong results.

Digging into some of the key deals in the quarter. The threat landscape is driving customers to adopt a robust Denny security platform and his push cyberark into the top competitive position, we had a strong new business quarter and signed about 230, new logos with customers increasingly landing with two or more solution.

<unk>.

A few great went through in the quarter included protest and international Government agency recognizing the mission critical nature of identity security and went deep with Cyberark from the start landing with Pam E. P M access and secrets and a seven figure deal.

A manufacturing company landed with Pam vendor, Pam and access our platform capabilities were a key differentiator over competing identity vendors influence from both an advisory firm and a channel partner demonstrates the powerful combination of our platform and partner network in this great new logo in.

Glasgow Caledonian University was looking for a modernization and upgrade of their identity stack.

Driven by need for stronger security controls recognizing the need to look at a denny's holistically. They brought Cyberark security first mindset onboard Bradley adopting privilege cloud identity workforce password manager and secure web sessions.

A velocity of our business picking up his customers achieve faster time to value with our staff solutions.

One thing I want to drive home is that our expansion business is coming both from our new solutions as well as expanding pan within our existing customers.

The landing span motion is built into our model and its success is represented by the 33 per cent increase in customers with more than 100000 and annual recurring revenue to 1585 customers at the end of two three.

We're seeing even faster growth and the larger cohort of customers with over 500000 a R.

A few examples of expansion deals include a longterm cyberark, Pam customer and financial services needed an additional layer of security for its broader force. This quarter. They added sidewalk identity secure web sessions and workforce password manager, taking the first step into our <unk> capabilities with discussions already under way.

Way to go deeper across the platform.

We had a great quarter for our secrets management business and seven and a seven figure a C V deal a fortune 500 financial services company, who added secrets management for the first time for a subsidiary the end of 2022 is now deploying cyberark as the <unk> do provider for all its data <unk>.

<unk> globally.

This is another example of Cyberark, serving as the secrets backbone for the enterprise.

With the recent uptick in high profile breach activity E. P. M remains a must have.

Adding to its existing cyberark portfolio and a seven figure ACB add on deal. This fortune 100 retailer was looking to deploy E. P M across all its workstations and servers, allowing consistent policy adoption.

Removing local admin rights and running and least privilege at the endpoint delivered measurable risk reduction across the enterprise.

We can send you see great alignment and momentum and other channel partners and partnerships, providing new valuable routes to market the allow us to extend our footprint, even more effectively and reached new customer segments.

The number of certifications and unique certified partners continue to show healthy growth across Pam access and secrets management. The partner community is a big part of our growth and we are thrilled with the depth of our relationships.

And while Msp's are still a small percentage of our business today momentum is continuing to pick up our msp's deals are on average about 50% larger in size than traditional channel deals with a faster sales cycle and.

In the third quarter of Nordic MSP double the number of Pam.

[noise] workforce password manager users. After initial purchase in March they're managed service operations have expanded significantly as they build out there a denny security offering results like this are becoming commonplace in our MSB pipeline continues to see strong growth.

Moving on to innovation.

In early September we launched our launched are artificial intelligence center of excellence.

The center builds on our long track record of using artificial intelligence and machine learning to fortify and expand generative AI and M L capabilities across our identity security platform.

We are harnessing these capabilities to drive brisk analysis and risk reduction threat detection to simplify the user experience through automation and optimize policy <unk> more effective and boost productivity.

I is also being <unk> AI is also being weaponized by attackers, which is increasing the severity of the threat landscape the.

The Cyberark labs team was founded on the principle of thinking like an attacker and is providing ongoing research and how generative AI is driving attacker innovation. The labs team is working closely with the center of excellence and together they are fighting a tech or innovation with innovation of our own.

To more effectively secure our global customers.

In early October we announced new risk based controls for it any of these in the cloud strengthening our secure cloud access solution decent.

These enhanced capabilities enabled just in time access with zero standing privilege to a diverse set of cloud services that sit behind the cloud management console for all cloud service providers.

These services run in Multicloud environments with no added friction to the user experience.

Well many other vendors focus on visibility in the cloud.

No other vendor can bring privilege controls the cloud like Cyberark Ken.

We were excited once again to be named a leader for Pam by two major industry analysts, including in the forest or wave <unk> entity management.

Dennis Security platform received a top score in the current offering category and the highest possible score and 16 criteria, including lease privilege access just in time access development and Devops support threat detection in response innovation and partner ecosystem.

As you have heard from us for Awhile now the investment in our Danny Security platform has dramatically increased our ability to innovate and bring new integrated services to market at an even faster rate, while driving down or overall cost of development.

The threat landscape is evolving quickly, but we are well positioned to live our mission of securing our customers around the world against cyber threats with constant innovation and security for solutions.

Switching gears to profitability.

The effects of our subscription transition are entering its final phase our top line growth is accelerating and our outperformance in Q3 shows the inherent operating leverage in our business.

We are marching towards our goal of returning to a rule of 40 company or even beyond.

We are striking the right balance between investing in growth and innovation and driving profitability. In addition, the final piece of the transition as cash flow, which we expect to expand in 2024.

With our stellar performance in the quarter I remain very confident in the long term targets, we outlined earlier in the year.

To sum up my discussion today, we posted a stellar quarter with our business accelerating our industry, leading platform drove strong new and add on business. We offer a must have layer of security that is truly differentiated in the market.

Our competitive position has never been stronger and you are seeing the momentum in our business. We are the only vendor in the market today, who has a full identity security platform. One that can apply the right level of controls over any identity regardless of environment.

I will now turn the call over to Josh who will discuss our outperformance in more detail and how the significant increase in our full year revenue operating income and a R. R guidance demonstrates the confidence in our execution and the durability of the demand environment, Josh Thanks, Matt we posted as <unk>.

Handing results in the third quarter and beat our guidance across all metrics bookings outperformance compared to our guard as a framework for the third quarter resulted in top line revenue growth accelerated to twenty-five percent coming in at a record $191.2 million, we're particularly pleased with our results.

Because of our subscription bookings mix in the third quarter was 97% that's higher than our gardens framework of 95 per cent evidence that the bookings strike was even more impressive than the top line outperformance our.

Our business continues to be driven by upsell cross-sell add new logos landing with a bigger piece of our identity security platform.

A R. R demonstrates the momentum in our business and reached $705 billion is September 30th growing 38%.

The subscription portion increased 68% as reached $504 million the strong $53 million in net new subscription a R. R shows the step up and demand for identity security platform as customers increasingly move to protect all identities with intelligence.

Privilege controls.

The maintenance portion of a R. R was just over $200 million at September 30th Strawberry until rates persisted in the third quarter, and we were able to capture price increases, resulting in a relatively flat maintenance.

Compared to the second quarter like for like conversion activity still only represents a single digit percent of our year on year growth.

Moving into the details of the revenue lines for the third quarter subscription revenue reached $122.9 million with growth accelerated to 65% year on year, and representing 64% of total revenue in the third quarter.

Perpetual license revenue came in at $4.1 million or maintenance of professional services revenue was $64.3 million of that $51.5 million came from recurring maintenance.

The consistent maintenance revenue is because of our strong renewal rates and the uplifted prices, we are capturing for our mission Creek.

Critical software professional services and professional services revenue was 12 $48 billion in the third quarter.

Recurring revenue reached $174.4 million at is now 91% of total revenue compared to 84% in the third quarter last year, demonstrating the subscription engine, we have bill recurring revenue growth accelerated to 36% you're out here.

Geographically the business continues to be well diversified the America's revenue reached $112 $4 million 20 per cent year on year, a P. J grew by 21% to $18.7 million in EMEA grew by 38% year on year to $68.1 million in revenue.

One thing to note is that every one of our major territories had a subscription mix of over 94%.

All items at the piano will be discussed at a non-GAAP basis. Please see the full gap to nod gabbro conciliation the tables of our press release.

Third quarter gross profit was $158.2 million or 83% gross margin consistent with the third quarter last year.

Operating income of 16 $49 million far exceeded the top end of our guidance.

Please that our commitment to the profitability and leverage is now paying off sequentially. Our operating expenses declined for the second quarter of play twenty-three primarily because of our impact customer conference. As a reminder, 2022, we hosted our impact customer event in the third quarter and it fell in the second quarter of this year.

Affecting the year on your comparison in addition to the sequential.

Net income came in at $19.6 million or 42 cents per diluted share also significantly outperforming our guidance.

For the first nine months of 2023 free cash flow is $5.1 million or 1% free cash flow margin. We ended September with approximately 3000 employees worldwide, including 1320 in sales and marketing.

Turning to our guidance.

For the fourth quarter and the full year 2023, our guidance reflects our strong execution adorable demand, while still balance against the continued uncertainty and the broader environment.

For the fourth quarter of 2023, we expect total revenue of $206 $5 million to $211.5 million, which represents 24% year on year growth at the midpoint.

We expect the subscription myths to be about 95 per cent and we expect non-GAAP operating income in the range of $19 million to $23 million for the fourth quarter and we expect our non-GAAP EPS to range from 41 cents to 50 cents per diluted share.

Our guard is also assumes $47.1 million weighted average diluted shares at about $11.6 million in taxes.

For the full year of 2023, we are raising our guidance for total revenue to be in the range of $735 million to $740 million, that's representing 25%.

<unk> year on year at the midpoint of the ranch and an acceleration from the 18% in 2022.

We are significantly raising our profitability outlook and now expect a full year operating income to be in the range of $17.7 million to $21.7 million, we expect our EPS arrange to be 72 cents to 80 280 cents per diluted share and we expect about 46 and a half million weighted average.

Diluted shares in about $32 million in taxes for the full year of 2023.

Now that we are in the fourth quarter, we wanted to frame up the cash flow guardrails, which translated to arrange a 33 million to $38 billion for the full year 2023.

We are also significantly raising our guide is for the annual recurring revenue.

By about $15 million to now be between $758 million and $768 million at the December 31, 2023, or about 34% year on year growth at the mid point of the range.

Overall, we were thrilled with another quarter, Australia execution, and see a step up in momentum and demand for our solutions and platform recurring revenue is now the lion's share of our business and its acceleration this quarter demonstrates that demand for our platform is building at the same time, we are driving.

Leverage in our model, resulting in our significantly improve profitability a cash flow.

No I wanted to take a moment and echo Matt sentiment and that we are fully supporting everyone affected by the horrific attacks on Israel.

We are grateful for those bravely, serving Israel, and our thoughts and prayers are with them.

Before moving out to the <unk> way I also wanted to address some of the questions. We have been getting about our operations in Israel and the employees, who are being called to military duty.

Organizationally about a thousand employees or 30 per cent of our total team is based in Israel.

The biggest group being in R&D and product management, and then H finance I T. A legal teams at this time just under three per cent of our global employees had been called up into the reserves as a global company business continuity has always been foundational to our strategy and we are moving the business forward EBIT and.

These unprecedented times, we remain confident.

<unk> to hit a short and long term goals.

Our team has been incredible and I'm proud of what they are accomplished together as we navigate this challenging time, we all stand United in support of ours really employers around the world and we will emerge stronger as an organization and a community.

I will now turn the call over to the operator for Q&A operator.

Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from queue simply press Star One again, one moment for your first question.

Your first question comes from the line of <unk> of Barclays. Your line is open.

Okay, Great, Hey, Matt Hey, Josh Thanks for taking my questions here, great great to see the momentum and also wanted to echo those thoughts their job Sir all your all your employees and that's in in Israel as well.

Thank you <unk>. Thank you. Thank you for.

Sure Matt.

<unk>, maybe just to start with you a lot of a lot of great great stuff to talk about but maybe we can maybe we can touch on maybe some of the recent events in in the identity space broadly specifically I'd love to touch on whether you think.

The M. G M seizures breach is driving maybe additional interest in Pam broadly.

And what do you think some of the vulnerabilities for other identity players are are maybe driving interest in cybersex broader identity platform does it.

It makes sense.

It does and and and I think it's a key element actually of you know our continued performance and our continued results like when we think about kind of the the the the the threat landscape today and we'll talk generally to begin with you know reset it and the prepared remarks, all roads lead towards identity, when you start to digest or.

Dissect some of these breaches themselves you start to see that they all start kind of with a a profiling and understanding of phishing attack that goes at after weakness in an employee maybe it's MFA fatigue, maybe it's tricking a help desk and and ultimately organization see quite.

Akeley that MFA multifactor authentication is not enough when you track. The pathways that then are occurring in these breaches ultimately you see the lateral movement to a privileged account and then the privilege account being exploited which allows the data infiltration and the ability to be able to recap it with within an organization.

It's actually not new news when you when you track any major breach of the of the last decade. It comes back to the need to be able to protect every identity within an organization human or nonhuman and apply the right level of privilege controls and organizations that just stop it basic security controls are not real.

Secure in this day and age and so I think when you look at our results you see see shows you have understood. This not because of a recent breach but understood. It for years getting more support from their C suite from their boards as they understand the dire consequences of not implementing abroad or a danny secure.

Any strategy now we see it obviously in customer breaches, we see it and breaches that have occurred throughout the industry the identity industry. They they all actually have at the similar foundation, which is we need to make sure that the privilege controls are placed against all identity.

And I think our customers understand that we're the only company out there that's able to bring a security first identity security story that they can trust and trust to be able to consolidate their offers offerings onto the cyber our platform.

Got it got it that makes a lotta sense, Josh maybe if I follow up for Ya.

It's great to see the maintenance are our hold in with whatever you call that strong retention and and and and price increases as well. The question is how do you think about maintenance are are going forward just technically but also strategically when do you think these customers who made me start to convert a subscription or staff in a bigger way.

Yeah. Thanks, <unk>. So you know we think about two four I mean, we think about a decline in demand. It's a R. R.

Probably in the mid in the mid single digits going that would kind of give us about you know just over a 10 million dollar type of a decline in the last for the for the 12 month period, and you know I think as we see it kind of playing out into 2024, you know I think that will probably see as.

You know right now we're we're above the Arctic 231, 98% were looking at kind of just in the 95 plus red for the for the for the full year. This year in terms of stash. The subscription so already next year it'll be above that so really needed. The perpetual business is is it just really evaporating for next year. So we should.

Would expect to see I would call a larger de-clawed compared to the you know compared to the low six double digits. This year, but not a not a follow up just kind of a continuing to to increase the number and I think the strategy is.

Really focused on doing what's right for the customer and what's right and best with the customer and so clearly as customers R. R. R. R.

Are part of the cloud journey for for moving their Pan and their identity security to the cloud. We are absolutely part of that program and and then we also are you know as the customer wants to upgrade and or update their their current you know a hosted environment, where there but.

We're not necessarily forcing a change to move it but we do anticipate it really because of perpetual business is evaporating and over time more and more customers will be moving to that to assess environment and it will be there for that.

Thank you. Your next question comes from the line of Rob Owens Piper Sandler Your line is open.

Thank you guys and we'd like to echo or thoughts relative to your employees and the people of Israel tough situation.

Wanted to drill down Josh a little bit and just one question.

And to the free cash flow guys realize that there was puts and takes with previous guide around duration of maintenance contracts, but it looks like some of that previous guidance of that that income margin spread relative to free cash flow aren't necessarily gonna hold so can you unpack that for us and help us get to in under.

You're standing of a free cash flow for this year and where it's coming in and then any thoughts relative to how that might accelerate next year in terms of that spread.

Yeah. Thanks, Rob So actually I think you know when we looked at the <unk> at the third quarter free cash flow was in line with our expectations and you know, we basically and Matt alluded to it in his prepared remarks, when we think about cash flow, it's kind of the last piece of the transition coming out.

Of going from from perpetual assess as subscription we really hit first on the revenue acceleration in the transition and then it moved as you start to see during this year to the operating income it we'll see more of that expansion going into next year and what we think about cash flow is the third piece of the therapy.

He said of the puzzle and it's really because you know when we're thinking about that transition we're dropping down from from a from a perpetual cell, which also comes with a maintenance one or multiple year contract. That's all paid upfront now going to either of <unk>.

Or a subscription contract, which is being typically paid in a one year contract upfront. So we are starting to restart to see the the beginning pieces of it this year, but we see the real inflection as we go through as a full renewals and and we and we.

Are able to enjoy the status of subscription play instead of without the perpetual we'll start to see the compare really goes strong and next year, and 24, and 25 and and confident about the the numbers that we've set out in our long term targets and then just just to add you know just to emphasize you know I think we said.

Oh guard rails that that that came in and basically our guidance, which is you know cash flow in line with our our neck at net income margin is where we see it kind of playing out so on the lower end of the guardrails, but within those guard rails for the rest of this year and and then I just I just want to reiterate we.

Josh said, which is we see an inflection point going into next year and we're extremely confident in the cash flow targets that we put out there for the long range model for 2025, and 2027 nothing's changed there.

Alright, thank you.

Your next question comes from the line of Roger Boy W. B S. Your line is open.

Great Congrats on the corner and again Echo thoughts on your employees and everybody in Israel.

I Wonder if you could talk about new logos I think I apologize I Miss I don't think I've heard of the new look of disclosure, but I think for the past few quarters, you've talked about the fact that it's a tougher environment for that but that that because you are landing are lending bigger with the platform at it clearly sounds like that was the case in three Q, but love any thoughts on how you're thinking about new <unk>.

Contribution is maybe around the corner to the next year.

Yeah sure. So I I think I think we did mentioned it but I'll mentioned again, which we did about 230, new logos in the quarter that is basically flat year over year and and as we've talked about I think we're pretty actually excited by that by that number. We're we're continuing to be able to to land new.

Customers. It's it's it's remember where we're primarily serving either the enterprise or the upper end of the mid market and we've been able to successfully continue to to land customers with Pam increasingly with with with more than one product two or more we landed customers this quarter with.

<unk> E P M and with access and we and we see that business for US is is really a great theatre system for our for our future growth, giving our land and expand motion I will also emphasize and I think you you hinted at it and the and the call. We continue to see that the deal size of our new logos is increasing dramatically and and we actually are.

<unk> up up well well above our growth rate in terms of the overall size of the contribution of those new logos from from a booking perspective. So we think this is a healthy new logo quarter in this environment Uhm certainly it does have a little bit of a slower close right because of the macro.

But but we're excited by the performance in the in the queue.

Your next question comes from the line of homes off Auto Walla of Morgan Stanley. Your line is open.

Everyone. Good morning, and I also want to extend my support all your family friends in Israel, Joshua I Hope to see you there next year.

Look forward to.

Yeah.

Uhm Mat leave your question for you [noise] on a more high level thief those are dealing.

With a lot you know going into next year you got.

Rising threat environment.

These new F. C. C rules now that can be held personally liable for breaches I'm curious as customers think about their budgets for next year.

What are you hearing for them what are the priority level and you know what are the main concerns from from Tucows right now whether it be related tied to any security or just you know more broadly.

Yeah, <unk> I think you capture it well the job of a C. So is not an easy job, but you know I spent a lot of my time with them and you know, they're they're stressed impressed beyond belief as they try to figure out how to how to counter all of the factors that you described.

Both are both from the threat environment and from the from the regulations I I think when we when we talk and <unk> and we're having you know again really genuine transparent conversations they're they're trying to understand as always <unk>.

What are the priorities that are going to have the most amount of impact on risk and you know they could do 800 thing they could do everything that you could imagine, but they have to boil it down to the programs and projects that are going to make sure that they can answer to their board why they're more <unk>.

[noise] reduced this year than last neck, then the year before and so on and when they when they look at that they they really do inherently understand this concept that all roads lead to identity and so everything they're thinking about is about locking down their overall posture around identity identity security now.

You can do ETR on the end point to make sure that you're able to detect and respond to things that are coming in from the outside and that's still a priority for for our C shows and for our customers, but when they're thinking about what can have the biggest impact what can reduce risk. The most it's really their identity projects, which is.

Why we see ourselves be prioritized and and Y as as cecil's look towards their next year's budget and we had those budget conversations obviously already started their prioritizing or spend into their overall budget plan and we're talking with them about their roadmap not just for the quarter were in but for the for the year or two years ahead.

And it is a journey to lock down Identity's and cover all identity's human and nonhuman to cover both on premise in the cloud and so we see a roadmap that materializes over an 18 24 month period that allows us to continually work with these customers to help protect them and take care of them and so it it is actually a great.

<unk> by directional conversation that we're having and and we feel like we're at the top of the list.

Your next question comes from the line of V tie Kidron of up in Heimer. Your line is open.

Thanks, and I hope everyone's comments or thoughts are with you.

Nah, Josh had a couple of questions back to you go to market side.

Whereas your priority right now expansion with existing customers given Deborah <unk> massive Griffin the portfolio and what you have to offer.

Are going after new customers you know clearly <unk>, everyone would've had would want to have another Harvard tells people running around but given what you have.

How are you a reorienting yourself Forrest right now what is the priority and for you Josh on the financial side.

I want to go back to sockets comments, you know clearly you've done a very good job in keeping up my maintenance and the price increases are clearly helping.

But we're now getting to write the the three year Mark of the real big shifting subscription and so I'm kind of wondering if you've there. There's there's a cohort of large customers that were on free perhaps it been five year contract with you with that are now coming for renewal.

Is there a risk that day, you know not a risk but is there a possibility that they shifted the cloudy in a way that creates significant step down for maintenance as as they ship from one too.

Can we not our helped me understand that transition why should we keep thinking that maintenance will just keep on slowly gliding down rather than have big step down sorry for the one question.

No no. It's good good questions and again, thanks for the support on the go to market side.

I think the answer is both and and let me know dig into that a little bit. So we believe that the sales team is incredibly well equipped to do the up selling cross-sell motion, we have deep relationships with our customers. We have the conversations that I was describing in the prior answer and so our sales team is really empowered to focus most of their.

There there you know feed on the street motion to the cross selling upsell motion at the same time, we've invested heavily in our marketing organization and in both demand Jen programs. The brand campaigns, the ability to be able to ramp up more S. T. R. A sales development reps, who are doing some of the cold calling an outbound calling.

All of that allows us to use the marketing engine to actually go generate the new logos and actually set up the meetings get them qualified before we hand them over to the sales Force then we get a sales team involved and obviously they can help participate in and moving it through the pipe. So we've kind of set up this really strong engine, where everybody knows their role <unk>.

Marketing is primarily focused on making sure we drive new logos building the pipeline for the future, making sure of 2024 2025 are going to be incredibly successful and the sales team is out there leveraging their relationships to drive up selling cross-sell and then there's a third dynamic here on the go to market perspective, which is our partner organization, which <unk>.

Mirrors us in that respect until by driving up our relationships with the advisory firms with the M. S. P providers with our traditional reselling partners they're out there in the in the market, helping to push not only pay them, which is what we would've said two years ago, but the entire identity security story and by that we get expert.

Then she'll feed on the street, who can drive or go to market motion and so all of that together is is really how we're focus we continue to laren capacity to make sure. We have enough direct sales capacity, we continue to Larry and investment and certification and ramping of partners and we spend money in marketing and together that switch driving our our our go to market engine itself.

<unk>.

And <unk> as it relates again to the to the maintenance. So absolutely you know, we believe 2024 will be a larger number than than what we've seen and a reduction of 2023, but you know we we think it's it's not going to be like like a huge step down and we're seeing that.

Because you know convergence still today are only as we talked about earlier in the prepared remarks are still only a single digit percentage of of our our our growth. We also have obviously good view in our pipeline for where for where conversions are going and certainly in the next for the next.

Two to three quarters, and we we feel that yes, we are going to have more conversions and we have less perpetual. So that's why it's it's going to increase over 2023, but the good news about cyberark and you've been following us for a long time is that we actually are not a large deal dependent types company, we do a.

A lot of we have a lot of large transactions, but we're very diversified across the world across verticals cross deal sizes and and so we.

We don't see necessarily floor to floor dropping off on maintenance and by the way you have to the extent that the that it. It's as a result of of moving to assess that's actually still good for the business. So SaaS dollars assassin disaster appointments.

Would be excellent for the business, even as it moves more and more in that direction. So I think overall.

We'll come back in February with a maybe a tighter view on where we see 2024, but at this point you know what kind of seeing it along the lines of what we've seen in 2023 with a with a with a site with a continued increase.

On an annual basis for 2024, and just one AD from me on top of what Josh said, which was which was strong and accurate was is this idea of what what are we actually gonna do with this basic maintenance paying customers.

And Josh mentioned, it which is you know when we convert great. We get this really nice uplift three X uplift and they're expanding their footprint and they're buying more stuff. So I don't really want to force them through a forced migration if they're not ready because I don't Wanna really miss out on that uplift, but a second really important point is.

That those customers, who are still sitting on you know perpetuals assets for their Pam solution or buying our newer solutions and assess motion. So it's not stopping those customers from expanding their footprint with cyberark with <unk> solutions.

It probably if that wasn't the case, we push them a little bit harder, but since the cross selling upsell can still happen into that base with our our our greatest SaaS products I'm happy to leave them there until they're ready to move.

Your next question comes from the line of Brian Ethics of Morgan J P. Morgan Your line is open.

Hi, Good morning. Thank you for taking the question and I'd also like to Echo My support for your friends and colleagues in Israel.

You know it's.

It's it's great to see the strong net newly our growth as well as a large deal momentum, but maybe to follow up on the question that was just asked could you touch a bit on the Knicks, a term and sauce and subscription era and then strategically is weak track your progress towards your calendar 27 goals are.

Are you seeing traction opportunity Downmarket SaaS continues to gain traction on your platform or SaaS gonna be <unk>.

Continue to be more of a I guess larger enterprise opportunity with the ability to drive easier and more cost effective that option.

Yeah, Thanks, Bryan and thanks for the support I think when we when we think about the <unk> turn base license or our subscription mixes continues to be about two thirds, one third and that's kind of held up throughout the transition. So you know I I don't think we see a major shift in that at the moment, obviously as more and more of the of the.

The pure new products out you know the SAS number will pick up but it's two thirds one third as it is good for for free modeling purposes in terms of our ability to go down market.

It's it's very clear when we go down market that is a <unk> in fact SaaS mix there would be you know well over 80% on SaaS offering actually probably lead them a little higher than that when we're selling down market. So we lead with <unk> you know customers only once asked when we're going down into into what we call our core.

But market, which is customers that are about 500 million to 1.5 billion in annual revenue that that's our down market and and for that market there, they're adopting south solutions and we we love it because it's a it's a quick adoption and then a quick ability to be able to expand them over time.

Your next question comes from the line of John Fucci of Guggenheim. Your line is open.

I'm sorry. Thank you this is John to Fuji for Ray Mcdonough.

<unk> I'd, Matt and Josh I don't normally.

Repeat with everyone off the same but it's important to just express Arthur to press with your employees and the people who visit.

Cause if you continue to put up impressive top line momentum and then environment when frankly, most aren't even in the security segment.

We really appreciate the bottom line discipline, but I have a question sort of fouling up he ties question on go to market and it's something you might not have much control over.

Are there any general trends worth noting for the second half of this year for instance, we're generally hearing about exhausted security budgets coming in to the end of twenty-three it's sort of a good reason because people have spent a lot of security throughout twenty-three I guess are you hearing this at all and if so are you seeing any deals that might be getting.

Pushed out into 24 at the end of the year or his budget getting pulled into twenty-three from 24 to satisfy current security needs.

Thanks.

Thanks, and again, thanks for the support we we really do appreciate it so listen I think when we look at our go to market environment, We continue to see actually strengthening and and we've <unk>, we've talked about a strong environment for us to be able to execute our our ability to execute throughout the whole year.

And you heard me mention that in Q3, we saw it become even even better for us and I think we we talk about in two lives. One is better for us in terms of the customers are more willing to spend their budgets and better for us in terms of the team is executing even even more efficiently more effectively within with our customers I would actually say.

We see a little bit of the opposite of what you're describing we see you know budgets kind of farming up we have good line of sight to those budgets, which which goes into how we look at the year and and and frankly, how we think about next year. We also see deal sizes, increasing not going down we saw.

Close rates going up not even staying flat, but <unk>, but going up so overall productivity goes up we saw again another quarter of amazing pipeline built you know a lot of that pipeline will come to realisation in 2024 might not be in queue for here, but but so I I think when we look at the environment.

We talk too stressed out see so-so stressed is the right word, but we see the fact that what we're working with them around is not budget optional decision. It's it's where you want to spend money. If you have any money at all and I I think that is what's driving our success and it drives are <unk>.

Look going forward and it drives our our confidence in the overall market that we're playing an innocent any security market itself.

Your next question comes from the line of <unk> <unk> of City. Your line is open.

Good morning, Thank you for taking my questions and they're sending my well, let's just to you in the entire sniper accidentally.

Whether or not our Josh feel free to jump on this one I wanted to put a fence us sales cycles <unk> the uhm.

Mmm.

No no <unk> activity that you're very strongly executing on and stared.

Third of the question is you've got it much more expanded portfolio. So how are you.

Managing the essentials <unk> typically come with the film I thought of that product portfolio.

Yeah. Thank you and thanks for the support I I think we always have had enterprise grade is how I describe it sales cycles.

We've always had to had to sell over multiple quarters, even when we were just selling Pam because it was a a big program and it was a significant sale and so no I I think we're pretty used to longer sales cycles. As we moved to a platform selling motion broader portfolio, we haven't seen any real <unk>.

Our overall sales cycle on the flipside, we haven't seen it kind of really dramatically come down in in and it's and it's timelines either even though we've moved to you know assess sale, which which traditionally might bring some of those sales cycles. In so I think we're operating consistently with what we've always done which is expansion sales cycles are shorter.

New logo sales cycles take a little bit more time in the early part of the year, especially in in the queue. One as we talked about you know sales cycles for new logos. We're we're a little bit longer we've continued to see our ability to form that up over time here and so I think when we look at the Q3 performance as a whole it's consistent.

<unk> with a firming up environment and you know again I I know I say this a lot, but they're they're Derek near and Dear to my heart or go to market team continues to execute at just phenomenal rates to be able to make sure that they bring the deals in when they say, they're gonna bring the deals and.

Your next question comes from the line of Junaid Siddiqi of Trust <unk> Securities. Your line is open.

Oh, great. Thank you for taking my question.

Highlighted secure cloud access that you're just launched recently was just curious about some of the other new products that you launch the impact like secure browser and what's been a positive surprise too in terms of how quickly they're being adopted by customers and contributing to growth.

Sure. So I'm I'm secure browser you know we have not released that for general availability, yet that will that will come out towards the end of this year here. We continue to have really really strong conversations with customers about it both has a more secure way of browsing and also as a front end user interface for the Danny security platform that we offer out into the market.

And and by the way, we see and you see it in some of the recent breaches that the notion of session hijacking is one of the most risky new attack methods. That's accelerating in the market and are secure browser, which which allows for cookie less browsing really protects against the assertion hijacking, but.

But I I would say you know on the browser front.

Way too early to comment in terms of it it's not even out in the main market yet as we talked about secure cloud access you know I I I I get kind of unbridled enthusiasm here and and why is that because it's bringing the best of Pan the best of the idea of pooch controls et cetera managed.

<unk> that's in isolation recording, it's bringing that to a brand new population.

And what we need to understand about the cloud security market over all that everybody's talking about is most of what's being done in the cloud security market is around posture management, it's around discovery, it's around visibility. It's it's because over time as these developers have gotten so many extra privileges people want to understand what's going on.

It's the wild West and that's a good first step in and there's a lot of really really strong companies that are focusing in that area.

We're unique in the cloud space and that we're not all that concerned about visibility and about discovery. Other people can do that what we want to be able to do is lockdown controlling the cloud we Wanna take all of these thousands of developers who have unfettered access to the AWS or Microsoft.

Cloud cloud services the platform itself and we want to make sure that those users can still innovate they can still build they can still troubleshoot, but they have privilege controls applied when they're doing it and we do it uniquely with this idea of zero standing privilege. So that the actual account of the developer their account of February.

<unk> account has no privileges for example in the AWS console. So when it's sitting there on the side, it's secure when they go to log into the console that's when the privileges or applied just in time, they're able to execute their work and then it's removed immediately as soon as they log out and it's it's <unk>.

<unk> with workflows with time bound access now I went a little deeper there on that because I I love to question, but I also went a little deeper there for people to understand the opportunity that arises for us as everybody thinks about cloud security for us to bring what we do best which is privileged controls locking down access.

To this entire population that needs to be.

Secured and so that's really an exciting motion for us we had some great wins actually in the quarter.

Still very tiny business, it's only you know one or two quarters in but you can hear the optimism for me around this piece of our business as I'm describing are unique approach.

Your next question comes from the line of Adam Borgess Stifel. Your line is open.

Awesome. Thanks for taking the question and then I get off of my my thoughts of that the entire valley team and then I'm going to get his remote broadly uhm.

Real quickly on the government opportunity saw it was eight per cent of our our in the quarter, maybe just talk a little bit more about how federal pay it out in the <unk> in the corner and how you think about government more broadly over the next 12 months.

<unk>, Thanks, Adam and thanks for the support them.

Listen I think when we when we've been talking about this for a little while here right. We're very happy with our position within the within federal government here in the U S. The global government, where we see a lot of momentum even in the state and local government that.

Falls up into our sled business, what we see across the board is whereas in the past.

A lot of the budget purchases, we're at the point of kind of ear and budget flush.

<unk> because of the criticality of a dead any security that the actual purchases are much more spread out throughout the year and they're coming in conjunction with need an actual deployment plans to get them into place that actually is a much more exciting place for us to be and it allows us to be able to have a thriving and healthy.

Global government business, all year round and it allows us to be able to invest in the ability to bring new solutions to that customer population, including our investment and getting R. E. P M and identity and improve cloud into the into the February and process over time here, it's our ability to be able to.

To actually expand beyond our strong Pam footprint in a lot of these agencies and accounts and so when we look at at a government. In fact, we highlighted a government account in the script that actually is outside of the of the U S. But when we look at government, we see the threat landscape actually expanding on them exponentially.

<unk>, even more than some of the some of the private sector and their recognition of the need for a proper had any security solutions continues on so we think there's a long runway of growth within the within the government sector and we're we're we're really happy with our results from that perspective.

Your next question comes from the line of Brian Callie of Stevens. Your line is open.

Hey, guys. Thanks for taking my question here and.

Certainly like to Echo my support as well for the team and Israel is.

Is there a more probably.

I'm curious if you saw any divergence and demand trends this corner between the enterprise in mid market segments of your business you know we've heard some other <unk>.

<unk> security companies, saying they started seeing some softness in the third quarter and the mid market. So I'm wondering if that's something you saw materialized in any way.

So so we didn't see any any change in that environment I think we've talked about the idea that the the mid market is more affected by macros in the enterprise space, but but we haven't seen any real change or <unk> diversion to any change in that from that perspective.

I I think one of the things that we have to keep reminding everybody around and it's different than some of our other cyber security peers is that we're really not playing in the low end of the mid market and I know I said, a couple of minutes ago, but I'll say it again, you know our mid market, which we call corporate customers are 500 million to 1.5 billion you know sucked cyberark would be.

A a quote unquote midmarket account for Cyberark and so yeah, I think those organizations, especially the ones on the upper and they're kind of mirror in their behaviors, what we're seeing in the enterprise space and and and that continues on in the in the <unk> in the third quarter.

Your next question comes from the line of Alex Henderson of need him. Your line is open.

Alright uhm.

Here's somebody talk about a quote and amazing pipeline build and I was hoping you could talk a little bit about the composite of that how much of that is driven off just simply the broader adoption of the platform uhm existing customers and like and how much would that is driven off.

Off of the the recent new product and technologies that were announced and the reaction from your trade show mid summer.

And the reason I ask the question is obviously it with a six months plus.

Plus cell cycle I assume that the Midsummer.

Spelled might be helping visibility.

Thanks.

Sure sure so what listen I think when we think about our pipeline, it's a little bit of check check check all of the above you know, we we we see our pipeline being affected by the ability to be able to sell a much broader portfolio and in fact, the <unk>, while the Pam pipeline continues to grow in a in a in a really nice way and you saw that in in our in our.

Results this quarter, we <unk>, we see the the solutions outside of Pam you're growing at a faster rate, we see our access business continues to grow our secrets business continue to grow as I mentioned, we see some some nice pipeline build around our secure cloud access E. P. M continues to be Ah Ah Ah.

Right spot for us so we definitely see the kind of mix of the portfolio coming to play to help build the year over year growth rate in pipeline and whenever I'm talking about pipeline I'm always talking about year over year growth not not just an absolute number now in addition to all of that we also see the way the pipeline getting bill.

<unk> to be in a much more healthy manner, meaning if you <unk>. If you rewind rewound, a coupla years ago. All pipeline came from sales and now we start to see actually that are are are routes a pipeline build what's marketing generated pipe, which channel generated pipe, we see those starting to kick into high gear and that.

Broadens our ability to have a better go to market engine and so when you combine a broader portfolio that seems to resonate with customers with broader routes to market that actually can build pipeline. That's how you end up in the situation that we've been in for several quarters, where we've talked about our pipeline kind of building at a at a at a at a really strong right.

The the events that we put on our wonderful and we didn't just do that by the way the event in in last spring we've been doing a world tour at you know 15 17, whatever it is countries around while I can't even keep track because we've been travelling so much and each one helps us to tell the story and health.

Customers understand why identity security is so important and why Cyberark is who they should choose and that all goes together to put us in a healthy position as a as a company where we had a a really great quarter that we could talk to we were able to guide forward with the guidance, we put out there and we look towards next year with with optimism.

And for sure we look towards our 2025 and 2027 targets with with a good with a <unk> with a strong degree of confidence in our ability to be able to go ahead.

We've run out of time for questions. So now turn the call over to shield <unk>, calling for closing remarks.

Thanks, everybody and thanks again for for everybody support to US personally if it if it means the world I Wanna I Wanna finish by where I started by saying our our number one priority is our our employees their health their wellbeing.

They've done such a tremendous job of working under these challenging conditions and I'm really proud proud to be part of this company and work with such Amazing people. We continued together to make sure we focus all together on our customers and securing them against the cyber threats that are out there thanks and talk soon.

This concludes today's conference call you may now disconnect.

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