Erica Smith - Investor Relations Udi Mokady - Founder, President and CEO Josh Siegel - CFO.

Sterling Auty - JPMorgan Shaul Eyal - Oppenheimer & Co. Inc. Gabriela Borges - Goldman Sachs Saket Kalia - Barclays Capital Jonathan Ho - William Blair & Company Gray Powell - Wells Fargo Andrew Nowinski - Piper Jaffray John Lucia - JMP Securities Catharine Trebnick - Dougherty & Company Kenneth Talanian - Evercore ISI.

Good afternoon ladies and gentlemen, and welcome to the First Quarter 2016 CyberArk Software Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to your host, Erika Smith, Vice President of Investor Relations. Please go ahead..

Thank you, Sally. Good afternoon. Thank you for joining today to review CyberArk’s first quarter 2016 financial results. With me on the call today are Udi Mokady, Chief Executive Officer; and Josh Siegel, Chief Financial Officer. After preliminary remarks, we will open the call up for 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 management’s best judgment based on currently available information.

I refer specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the first quarter and full-year 2016. 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. SEC and those referenced in today’s press release. CyberArk expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our earnings press release, which can be found at www.cyberark.com in the Investor Relations section.

Also, please note that a webcast of today’s call will be available on our Web site in the Investor Relations section. With that, I’d like to turn the call over to our Chief Executive Officer, Udi Mokady.

Udi?.

Thanks, Erica, and good afternoon, everyone. Thank you for joining the call today. CyberArk again delivered strong results, exceeding our outlook across all metrics. We grew revenue 43% to $47 million, and we generated non-GAAP operating income of $11 million, which resulted in best-in-class operating margin of 23%.

Our strong performance demonstrates that. First, organizations of all sizes and verticals increasingly recognize the protecting privileged accounts is critical to securing their systems and data and mitigating the damage in the cyber attack.

Second, we continue to execute our land and expense strategy, do not only capture share in the Greenfield market for privileged account security, but also maintain our leadership position. Third, we’ve a powerful and attractive business model.

Josh will discuss our financial results in more detail shortly, but first; let me walk you through a few highlights and business trends. Demand for CyberArk’s market-leading privileged account security solution continue to be strong.

The diversification of business across verticals, customer size, and geography as and continues to demonstrate the breadth of our market. Sales to multiple verticals more than doubled in the first quarter including healthcare, government, retail, media and education.

Our momentum with hospitals continued into Q1, as two of our largest license deals were with major metropolitan hospitals that purchased multiple products.

Beyond our success in the enterprise, we also continue to see increased activity with midsized organizations, like universities, credit unions, and law firms, demonstrating that organizations of all sizes need this critical layer of security.

Our Q1 performance shows that our business is not dependent upon a continuous flow of news coverage of high-profile breaches. As I’ve said many times before, the vast majority of our business is the result of proactive cyber security and compliance programs and not in response to breaches.

CyberArk’s investments in sales and marketing delivered strong results in the first quarter. Our new business engine added more than 100 new logos, bringing our total count to over 2,600 customers.

As in prior quarters, the majority of these customer wins were Greenfield engagements, highlighting that the market for privileged account security is still in the early innings and is a significant opportunity. Our business continues to remain balanced between new and add-on sales. And five of our top 10 deals were new business.

New customers also continue to take a more strategic platform approach to protecting their privileged accounts. In the first quarter, nearly 30% of new business deals included three or more products.

Our strong performance with add-on and cross-sell demonstrates the value that we provide to our customers through our experience and for our CyberArk platform. One great example for Q1 was add-on business with a large national retailer who initially purchased from CyberArk in 2012.

Since the initial order, this customer has purchased well over $1 million in licenses for enterprise Password Vault and Privileged Session Manager. There are many more examples I could share, each demonstrating that the initial license is only the beginning of the opportunity.

In the first quarter, what we call the CyberArk network effect gain momentum. Multiple six figure new business deals benefited from accelerated sales cycles because key decision-makers had positive CyberArk experiences at previous company.

In one win the Chief Information Security Officer transition to a new position from a large retailer to a multinational conglomerate and selected CyberArk [indiscernible] credentials, monitor and secure sessions, as well as identify and analyze anomalous behavior.

We also saw a major technology vendor, mandate that one their service providers secure their privileged accounts with CyberArk, which left to a six-figure deal for three of our products, including application identity manager. Our team works hard to deliver high levels of customer satisfaction, and it is very rewarding to see the work be recognized.

We are very pleased with the growth in the government sector, which was among our fastest-growing vertical this quarter. We close six-figure deals in the government vertical in each of our three major theaters Americas, EMEA and at APJ.

Our significant investment over the last 18 months also paid off with CyberArk being added to the U.S Department of Defense, unified capabilities, approved product list. And even higher bar than the common criteria certification we achieved last year.

After rigorous testing, CyberArk is now the only comprehensive privileged account security solution to be included on this elite list of approved vendors. This designation represents another important achievement in our long-term strategy and commitment to better serve the U.S federal market.

Regarding geographies, the Americas continue to be our strongest and most developed region, delivering our highest growth rate. In EMEA, we grew our revenue and continue to develop our pipeline. We are building awareness across EMEA and continue to educate prospects in our solution and the benefits of privileged account security.

The Asia Pacific region represents a significant untapped opportunity. Across all of our geographies, we’re making investments to increase market awareness, further develop our channels and grow our pipeline. RSA conference is one of our most visible sales and marketing events during the year and this year was most productive event yet.

We had a significant increase in C-suite interactions with Chief Security Officers and notably CIOs. The C-suite was focused not just on the importance of privileged account security, but also measuring and reporting on the positive impact a CyberArk investment can have on their organization security posture.

We also introduced Privileged Threat Analytics 3.0, which further differentiates us from the competition. We are now the only vendor that provides a comprehensive platform to proactively protect domain controllers, helping prevent attackers from taking over the network.

In Q1, we continue to make great progress with our acquisition of Viewfinity, which we completed in October. We like Viewfinity 5.5, the initial integration into the CyberArk Share technology platform. We signed Viewfinity deals for cloud and on-premise delivery and two of our top 10 deals included Viewfinity.

Among our Viewfinity wins was a Fortune 500 financial services company, that purchased licenses from four of our products. This organization so Viewfinity over a competitive offering, Because we provide a single privileged management solution that combines least privileged with application control, as well as vaulting and session management products.

I'm sure you've all read about the increased number of ransomware attacks over the past few months. These attacks clearly demonstrate the need for CyberArk Viewfinity. Our solution combines the protection and management of business user privileges with application control.

This approach can present unknown applications or software from running or can restrict and isolate the applications access, which is effective in mitigating the risk of ransomware attacks. Long-standing customers adopting cloud services are using CyberArk to protect cloud assets.

In recent months, one of our largest state utilities in the U.S has been leveraging privileged session manager and enterprise password vault to manages office 365 assets.

Leveraging CyberArk, administrators are performing their day-to-day operations including provision users, troubleshooting exchange issues, and securing remote access to active directory. I’d like to finish my remarks by sharing my excitement with last week's launch of the CyberArk C³ Alliance, our new Global Technology Partner program.

It is a testament to the importance of privileged account security and CyberArk’s leadership position in the market that our global partner program includes leading companies like FireEye, Splunk, RSA and ForeScout and more.

The C³ alliance is the first of its kind with a foundation in privileged accounts security and has been driven by the broad awareness among our joint customers that unsecured privileged accounts pose one of the most significant threat to enterprise -- to the enterprise.

Through CyberArk C³ Alliance, customers will benefit from greater protection of privileged credentials used across the organization, including those used by wide range of software solutions like compliance management, vulnerability management, and [indiscernible] tools.

We will also benefit from faster detection and targeted response capabilities enabled by the sharing of privileged activity data with analytic and forensics stores.

Together with our partners, we’re helping to build privileged account security best practices into an integrated security fabric, making CyberArk even more strategic and deeply entrenched in customer security programs. I’m pleased that 2016 is off to a strong start.

Our results give us confidence that we’re just scratching the surface of this tremendous opportunity. As we look at the remainder of the year, we plan to make disciplined investments to capture market share and extend our leadership around the globe. As a result, we believe these investments will drive our growth while delivering solid profitability.

With that, let me turn it over to Josh..

Thanks, Udi. We are very pleased to exceed our outlook for the first quarter across all the guided metrics, revenue, operating income and EPS. We grew our total revenue by 43% year-over-year to $46.9 million. License revenue reached $27.5 million increasing 38% over the prior year period and representing 59% of total revenue.

Our strong license growth was evenly split between the new and existing customers. We're also very pleased to have our first meaningful revenue contribution from our acquisition of the Viewfinity. Maintenance and professional services revenue was $19.4 million, increasing 50% over the prior year, and representing 41% of revenue.

This growth reflects the pro rata impact from a record license revenue growth last year and are consistent greater than 90% renewal rates we continue to achieve.

Our strong renewals are the result of the high levels of customer satisfaction from both our support as well as the tremendous value that the customers are seeing with our updates and upgrades. Geographically our business in the Americas was strong in the first quarter increasing 69% year-over-year to $29.3 million, or 62% of total revenue.

EMEA grew 23% to $15.2 million, or 33% of total revenue. APJ region was down a bit to $2.4 million, or 5% of total revenue in the first quarter, which was primarily related to the timing of revenue recognition.

As I move through the P&L, all financials except revenues will be discussed on a non-GAAP basis, which excludes share-based compensation, public operating expenses, amortization of intangibles related to acquisitions and the tax effects related to those non-GAAP adjustments.

Please note that a full GAAP to non-GAAP reconciliation can be found in the tables of our press release. Our first quarter non-GAAP gross profit was $41.1 million, or 87.6% gross margin that’s slightly above the 87.3%, non-GAAP gross margin in the same period last year.

Consistent with our strategy to stay focused on our opportunity and grow CyberArk, during the first quarter we continued to make investments across all levels of the organization. For the first quarter, research and development grew by 61% year-over-year to $6.5 million.

The year-over-year increase is due to the addition of engineers related to our two acquisitions in late last year, as well as our ongoing organic investment and innovation to maintain our leadership position in the market. Sales and marketing expenses for the first quarter increased 51% year-over-year to $20.1 million.

We continue to expand our marketing initiatives and personnel to enhance brand awareness and contribute to pipeline growth, Also during the quarter; we had a great presence at the RSA conference, which Udi talked about earlier.

To capitalize on our market opportunity, we added sales and marketing related headcount across all geographies and departments, including direct sales, channel support, and customer success. G&A increased by 60% to $3.7 million as we continue to invest in scaling the business and see increased operating expenses related to being a public company.

In total, non-GAAP operating expenses for the first quarter of 2016 increased 54% to $30.4 million compared with $19.7 million for the first quarter last year. Overall, expense growth is primarily related to head count.

As we ended the first quarter with 692 employees, up from 644 at year-end and compared with 487 at the end of the first quarter of 2015.

Again, this quarter we demonstrated the power of our business model with our revenue outperformance generating non-GAAP operating income of $10.7 million, or 23% operating margin, which was again ahead of our guidance. This compared to non-GAAP Operating income of $9 million or 27% operating margin in the year-ago period.

Non-GAAP net income was $8.3 million, or $0.23 per diluted share for the first quarter, up from $5.7 million, or $0.16 per diluted share for the first quarter last year. Turning to our balance sheet.

We ended the quarter with $254 million in cash, cash equivalents, short-term deposits and marketable securities, that’s increasing from $238 million at year-end. That's coming from the generation of $16.5 million in cash flow from operations during the quarter.

Before I share guidance for the second quarter and full-year, as a reminder, our guidance does not consider any potential impact to financial and other income and expense associated with foreign exchange gains or losses, as we do not try to estimate the future movements in foreign currency rates.

So for the second quarter of 2016, we expect total revenue of $47.5 million to $48.5 million, or 32% growth year-over-year at the midpoint. We expect non-GAAP operating income to range between $8.6 million to $9.5 million and non-GAAP net income per diluted share of $0.18 to $0.20. This assumes $35.9 million weighted average diluted shares.

Our second quarter non-GAAP operating margin guidance reflects the full run rate of the headcount increases we made in the first quarter, as well additional hires we plan to make to help drive our revenue growth. We are raising our full-year 2016 revenue to a range of $209 million to $211 million, or growth of approximately 31% at the midpoint.

We are raising non-GAAP operating income to be in the range of $41.7to $43.3 million and our non-GAAP net income per diluted share of $0.87 to $0.91. This assumes $36.3 million weighted average diluted shares.

Our results in the first quarter demonstrate our commitment to making responsible investment that continues to deliver strong operating results. We believe that our investments will enable us to capitalize on the significant Greenfield opportunity in front of us, which will position CyberArk to deliver profitable growth over the long-term.

I’ll now turn the call over to the operator for QA.

Operator?.

Thank you. [Operator Instructions] Your first question comes from the line of Sterling Auty with JPMorgan. Your line is open..

Yes, thanks. Hi, guys. I wonder if you could ….

Hi, Sterling..

Wonder if you could elaborate a little bit on your existing customers and where we’re in terms of the uptick. In other words, the follow on orders as they rollout to broader production.

In another words, where is our [indiscernible] so early in the funnel that you expect to come on and do their bigger purchases here over the next couple quarters or we've seen the bulk of the customers move into full production already?.

Hi, Sterling. I’d say that the majority of our customer base is also early innings and really taking the -- into the full opportunity with the products that we’re seeing much more strategic approach with new customers and with existing customers to turn what we call CyberArk project into CyberArk programs. But again most of them are still early on.

The pace of awareness is accelerating definitely in the U.S..

And then a follow-up question. Can you update us in terms of -- you are still kind of early, I believe in your expansion of the channel overall in terms of the toll number resellers that you're working with.

Any updates in terms of where that -- where we’re in terms of sheer number of resellers and what you're thinking in terms of the expansion through the year?.

Yes, we talked about having 250 global channel partners at the end of the year and choosing, I’d say, quality over quantity. The major investments are actually making more and more of them enabled and trained, and they’re really jumping aboard.

This quarter, within Q1, it’s the first time we launched a partner advisory firm that we did both in U.S and EMEA with top channel. And you can really see that there -- this is one of the top-performing products. And for that are focused on delivering services, they also see a tremendous opportunity in working with us.

I’d say that the go-to-market here is really get them enabled and get representations in many countries, but again quality over quantity..

Got it. Thank you..

Thanks, Sterling..

Your next question comes from the line of Shaul Eyal with Oppenheimer. Your line is open..

Thank you. Hi, guys. Good afternoon. Congrats on ongoing strong execution. Udi, maybe more of the birds eye view type of question, a bit of the mess after hours some additional security-related companies have reported more of a mixed result. You guys had a very, very strong quarter upping guidance.

Investors seem to be a little confused about the demand environment. Can you assist us a little bit with what you’re seeing out there? Then I’ve a follow-up..

Sure. So, again, in our world we exceeded outlook across all metrics and we’re very, very happy and very excited about the Q1 results. From a demand perspective, we’re seeing a strong demand environment, continued pipeline growth across all regions.

We do differentiate a lot, because we’re proactive security measure and we are not dependent on specific breach headlines and on the fact that it’s measurable layer. And so when customers deploy CyberArk, they can actually report up on the results and why they made their organization safer.

So, demand is healthy and I could say that it’s across the board..

Fair enough.

Udi, last quarter, this quarter again I think in your prepared remarks, you’re highlighting the legal vertical part of some additional vertical, specifically on law firms and maybe on the heels of the Panama papers, do you see this vertical accelerating faster than others? It appears that law firms are in a way late adapters of compliance solutions when considering that will present sensitive information there keeping on file.

So how do you think about that?.

Yes. So, Shaul, I would say that the top accelerating verticals are the ones I mentioned like healthcare and government, and really those would be enterprise acceleration and law firms are for us a great example of seeing the [indiscernible] into smaller type organizations and also to see the supply chain effect.

One of the example I mentioned was with a -- was the large enterprise demanding one of its service providers to deploy CyberArk and we’ve had cases where that’s foreseeing law firms, where the enterprises wants the supplier as a law firm to comply. They’re also saying that they’re a major attack vector.

Of course the Panama breach is -- or the Panama Papers affair, but that’s clearly some kind of a breach is an example of the wealth of information that the law firms are sitting on. So its -- I would say it’s another type of vertical. There are even more exciting things on the enterprise front..

Thank you very much. Good luck..

Thank you..

Thanks, Shaul..

Your next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open..

Great, good afternoon. Thank you for taking the question. Udi, just one for you on the pace of how quickly you think the Greenfield opportunity could evolve in the [indiscernible].

I’m just curious to get your thoughts on what you think the limiting factor on adoption is right now? Is it [indiscernible] company available on the customer side such as maybe with the federal bunch of mix here or is it more on the awareness side and having more channel partnerships [indiscernible]? I would be curious to get your thoughts like how we should be looking forward for the rest of the year?.

Okay, right. So first of all, Gabriela we’re glad to have you on the call. I would say that in our world, and it’s executing on a Greenfield opportunity. And so the pace of adoption is the combination of blocking and tackling execution which we’re doing great with our hybrid approach, direct sales and combined with stronger channels.

But we always have to combine it with education, and we’re seeing various levels of that. As I mentioned before the North American market is the most educated on the criticality of this layer and we’re expanding that and continue that into EMEA and APJ.

It’s a long-term opportunity and in almost every geography we see that education follows with sales and new verticals are waking up.

Specifically at the government we are very excited, because it is a vertical that was lagging just like healthcare was in the past and we’re just seeing consistent understanding that they have to do it, sometimes they mandated to do it, and they’ll follow our government pace which will serve us for the long-term..

That’s very helpful color. Thanks so much. And then a follow-up if I could. Just let me think about some of the alliances that you’ve announced like the C³ Alliance that you mentioned earlier.

Maybe just an offset on how you’re thinking about partnering with larger companies [indiscernible] like that or even if something like M&A might make [indiscernible] longer term? Thank you..

So this is a very unique one, it’s our global technology partnership. So it was a culmination of a variety of ecosystem partnerships that we were working on for quite a while. Some of them are very large companies, and including publicly traded companies, not all.

We mentioned some of the security companies, but also systems management companies and others where there is an integration to ensure the security of the customer that anything that has to do with the stronghold of privileged access is under control or that we feed them with the critical information that has to do with privileged access to their -- through those systems.

And of course within this ecosystem there will be companies where we will do more go to market and find bigger tributes to go together, and the M&A dimension is a whole separate discipline that we have..

I appreciate the color. Thanks very much..

Thank you..

Your next question comes from the line of Saket Kalia with Barclays. Your line is open..

Hi, guys. Thanks for taking my questions here and fitting me in and very nice quarter..

Thank you, Saket..

Hi, Udi. Just a quick kind of housekeeping question.

Can you just remind us roughly what Viewfinity contributed this quarter or maybe where that revenue growth the 43% was organically roughly?.

Yes. Hi, Saket, this is, Josh. We’re not going to necessarily be breaking out products on a regular basis because as we have not done in the past.

But it definitely was the first time that we had a meaningful contribution and very much it puts us on track to the types of numbers that we talked about last year of the type of license contribution that it would give to us this year. And as you recall, we actually resold a product in this space in the past.

So that contract went away and the contribution that we got from Viewfinity in the first quarter well exceeded the contribution that we were getting from the Avecto resell in the first quarter of last year..

I see. Got it. And then just a follow-up also for you, Josh. Just on the EPS guidance, very nice EPS beat this quarter. Not all of it flowing through to the full year.

So was there any timing around expenses that maybe getting pushed into later parts of ’16, or any thoughts on just the EPS guide versus this quarters beat?.

Yes, we very much -- we flowed through in the first quarter. As you saw we flowed, basically we’re able to flow through the entire $3 million beat into the bottom line. And as we look at the next nine months, we still are preserving our plan to invest this year. And while I believe about half of it is going into the guidance.

We have an aggressive plan this year, and while we did raise a bit compared to our guidance in February, we didn’t feel comfortable at this point and want to leave the option open for us to continue to invest at levels that might take some of that leverage out in the back half of the year with regard to hiring of accounts executives and mostly people on the sales and marketing organization.

Again we believe that we are still in early innings of the Greenfield opportunity. It’s a message we’ve sent many times before. And we want to be in a position where in the second half of the year we set ourselves up to remain being a high grower for 2017..

Make sense. That’s it for me. Thanks guys..

Thank you..

Your next question comes from the line of Jonathan Ho with William Blair. Your line is open..

Hi, guys. Congratulations on the strong results..

Thank you, Jonathan..

I just wanted to start out with multi-product comment that you had that there were over 30% of folks that were buying those products.

Can you maybe give us a sense of what they’re buying together, and has there been sort of any change particularly as you rolled out the new products?.

Yes, I would say definitely the growth engines are kicking in, and many new deals include Viewfinity, include our PTA, and include our AIM, our Application Identity Manager which is a very strategic and sticky product because it manages the non-human aspect. I know you know that, that product very well.

If I try to generalize the most common three, definitely enterprise [indiscernible] PSM the first two and followed by PTA, AIM and now more and more Viewfinity..

Got it. And then, you guys talked a bit about increasing the opportunity in sort of midsized businesses. And I guess, what I’m trying to understand is that, do you guys think that this could be a pretty significant portion of the business.

How much sort of TAM does this add and do you have sort of the right product and to go after this market just given the mid-market tends to want thing that are maybe less complex or less expensive in terms of those product SaaS?.

Yes. Jonathan, I think it’s a great question, because the greenest of the Greenfield right now for us that we’re going after is the enterprise and the top 10,000, 20,000 enterprises out there and that’s where the major go to market effort is and our focus. What we love about seeing the midsize opportunity are coming is twofold.

It just shows that the problem also exist down as we trickle down even beyond those enterprises, and they do find our solutions to be a fit and this is without going after it strongly. Number two, Viewfinity has a very strong mid-market play especially given with their SaaS option. And so it allows us to play more in parallel and into the mid-market..

Got it. Thank you..

Thank you..

Your next question comes from the line of Gray Powell with Wells Fargo. Your line is open..

Thank you for taking the question and congratulations on the good numbers..

Thank you, Gray..

So, just a couple on my side. My understanding is that you generally have very good visibility on deals that you close over the next couple of months, and that the typical sales cycle it’s more like, call it six to nine months.

Is that accurate? And if so, just based on your pipeline and visibility you have on demand; how much variability do you think we could see in the second half of the year?.

Yes, I think it’s pretty accurate to say that we’re an enterprise software company, and I think it’s pretty typical with a lot of others. We had pretty clear visibility on the deal flow over the next couple of months, and then pipeline visibility over the next several quarters.

I think the sales cycle we still look at it as kind of on average, six to nine months sales cycle. And I think if we look historically, we’ve seen -- because we’re in a -- we’re still in the early innings, and it’s still a Greenfield opportunity.

I think for the last couple of years we’ve seen some volatility, good volatility in favor of CyberArk with regard to this pipeline from quarter to -- when we go out another six months to 12 months.

And that’s actually allowed us to come into the beginning of each year and be able to show nice growth guidance each year as we did this year and as we did last year at the beginning of 2015.

So, typically the pipeline that we have shows us the opportunity, but as we get into the second half of the year new pipeline develops also for -- also for the current year, but for sure for the beginning of the following year..

Got it. That’s really helpful. Thank you very much..

Great, Gray..

Your next question comes from the line of Andrew Nowinski with Piper Jaffray. Your line is open..

Thanks. Just to start off with a question on billings. I know you don’t guide for it.

So I was just wondering, if you -- how will you characterize your billings relative to your internal expectations in Q1, and was there anything abnormal in that, that impacted billings in Q1?.

No, I don’t think there was anything abnormal. I mean, again we don’t guide for it because we’re not a classical SaaS company. We’re a perpetual license company. So for us, our classic rev rec model is to get orders and deliver and recognize with only the maintenance piece being recurring, and kind of affects billings with regard to revenue.

But if we look -- if we kind of did the classical calculation, billings moved in the right direction, they increased nicely on a year-on-year basis. So there is nothing unusual there from our perspective..

Okay. And then, just regarding linearity, I know a vast majority of your sales are really proactive sales. But did the market volatility early in the year have any sort of impact in this quarter..

As I mentioned a really fabulous quarter, and with the sales cycles that we just mentioned that there’s nothing in recent developments that affected us. We saw a healthy pipeline flows, and healthy pipeline continue to build. And it’s really the proactive nature of our business..

Got it. Thanks..

Of course it’s the combination of the demand, but also a real strong focus on having the best execution..

Your next question comes from the line of Erik Suppiger with JMP Securities. Your line is open..

Hi, guys. Thanks for taking the question. This is John on for, Erik. Your Q2, guidance calls for a significantly lower sequential increase than you saw last year and the year before. Is there something new that’s effecting seasonality? Would just be good to understand the puts and takes there..

No, I think that last year -- last year was a different growth environment that was going on. It was also still coming within our first couple of quarters out of the IPO.

I think part of it’s coming into Q2 this year is we exceeded, we had a nice -- we had a great Q1 where we exceeded guidance and expectations by close to $3 million, and we feel good about being able to present the 32% guidance for Q2.

And I think the numbers are getting bigger and so, I think we’re still showing good growth on a year-on-year basis in the Q2 guidance..

Okay.

And then can you talk about what you’re seeing in terms of the use case for PAM, and how that’s evolving? Are you starting to see PAM being used more as a broad security function rather than more of an operational function, and if so, how much deeper can you go into a customer when they’re starting to use the product for a little more broad used case in terms of security?.

Yes, as I mentioned earlier, we’re definitely seeing customers call this the CyberArk program and privileged account security exist in every piece of the IT infrastructure including their cloud assets and cloud infrastructure. So when customers take it as a program we’re a layer on the inside and across the board.

And we’re -- and to an earlier question, we’re seeing many more of these and we’re landing twofold. Very often we’re landing on customers that are taking a risky approach to putting in this program. But there are still customers that come to this for compliance reasons, and we landed in a part of the organization and then help them expand all across.

So we’re a security layer, that is used by IT operations and so we’re used and sold across the security organization..

Are you starting to see more business users, add licenses or is it still mostly for the IT operations user?.

Okay, I see your question. So Viewfinity is definitely an expansion to all users and going across. And giving our model with the rest of our products, the footprint is not really depending on just number of IT users which is with one of our products, but actually the extent of the IT infrastructure.

So we can be a piece that is protecting every user in the organization because we protect every desktop, every server, every application, every database. And that’s how we get a footprint that’s not depending on the IT user population..

Got it. Okay. Thank you..

Thank you..

Your next question comes from the line of Catharine Trebnick with Dougherty. Your line is open..

Thank you for taking my question. Udi, could you talk a little bit, you had a nice quarter. Anything -- a lot of the companies discussed January and February sales being a little light.

Did you see any linearity, and should we be seeing in your -- in this quarter?.

Hi, Cathy. No, we did not see any change in the linearity. We’re an enterprise software sales company. So definitely we do a lot of business at the end of the quarter, but there was really nothing different from previous years..

And is there any difference in when you approach an enterprise organization.

Is it usually the CIO or the CISO that you sell to when you go into market?.

So our prime engagement is the Chief Information Security Officer, and what we’re seeing is many more CIOs, again especially in North America, but also around the world many more CIOs know that privileged account security is measurable security and they really like that.

And we find that we’ve had visits from senior customers to the CyberArk offices where the CIO attends. We’ve had meetings at the RSA conference with CIO in [indiscernible] really understanding and knowing what this is all about. Because I think that with -- that what they’re looking for now is measurable security..

All right. Thank you..

Thank you..

Your next question comes from the line of Ken Talanian with Evercore ISI. Your line is open..

Hi, guys. Thanks for taking my question, and congrats on the quarter..

Thank you..

I just wanted to touch on your go to market. I was wondering if you can elaborate a bit more on how you manage the split investments on channel versus direct.

And then with regards to the channel specifically, you mentioned their focus on quality and I was wondering how you’re managing incentives for your partners there?.

Okay, great. So I would say that, even in areas where we work in a hybrid fashion like in North America, the direct sales force or the -- are working hand in hand with the channels and are augmented by channel management team on our side.

So if you take a metropolitan area, they would be working directly with accounts, but also interacting with the local channels and getting help from our own channel management team. So it’s a very -- there’s a very clear message of being super channel friendly, channel first in every opportunity.

But also back to your second point expecting the channel, those who invest more will get more, and that’s kind of my point on the quality. If they get trained, if they get enabled, if -- when they bring us, when they register deals, they get higher margins. And we believe that really incentivizes the right behavior and its best for the customers.

Because this a mission critical software and the customer wants knowledgeable people coming in and advising them about that. And so, I mentioned the partner advisory meetings we had here where we’re seeing more partners really get it, that the more they invest, the more margin they will get.

They will get the services opportunity and it’s really in the right direction. This includes also advisory firms that we’ve had more and more advisory firms build the practice around CyberArk for privileged account security..

Okay. And just in terms of the actual sales and marketing dollars.

Is it skewed in one direction in terms of the headcount?.

It would be -- we have more direct sales than we would have on the channel side. But if you add in all the overlays that are related to channels and up-sales and business development and related, it starts to even out..

Okay. Great. Thanks very much..

Thank you..

Thank you. I show no further questions at this time. I will now turn the call back over to Mr. Mokady..

Thank you. I would like to thank CyberArk’s customers, employees and partners for their hard work and dedication which has been key to our success. We are looking forward to seeking you at conferences and events throughout the year. Thank you very much..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect..