Erica Smith - VP, IR Udi Mokady - Chairman & CEO Josh Siegel - CFO.

Jonathan Ho - William Blair Rob Owens - Pacific Crest Securities Fatima Boolani - UBS Taz Koujalgi - Deutsche Bank Andrew Nowinski - Piper Jaffray Catharine Trebnick - Dougherty Erik Suppiger - JMP Securities Ken Talanian - Evercore ISI.

Good day, ladies and gentlemen, and welcome to the Q4 2016 CyberArk Software Limited 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 be given at that time. [Operator Instructions] As a reminder this call is being recorded.

I would now like to turn the conference over to Erica Smith, you may begin..

Thank you, Michelle. Good afternoon everyone. Thank you for joining us today to review CyberArk's fourth quarter and full year 2016 financial results. With me today on the call are Udi Mokady, our Chairman and Chief Executive Officer; and Josh Siegel, Chief Financial Officer.

After preliminary remarks, we will open the call up to a question-and-answer session. Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements which reflect 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 2017. 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 20-F filed with the United States Securities and Exchange Commission and those referenced in today's press release.

CyberArk expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made here today. Additionally, non-GAAP financial measures will be discussed on this conference call.

A reconciliation to the most directly comparable GAAP financial measures is also available in today's press release, which can be found at www.cyberark.com in the Investor Relations section. Also, a webcast of today's call will be available on our website in the Investor Relations section.

With that I'd like to turn the call over to our Chairman and Chief Executive Officer, Udi Mokady.

Udi?.

Thanks, Erica and good morning, everyone. Thank you for joining us to discuss our fourth quarter and year end results.

In early 2016 we outlined our strategy to grow our top line and deliver strong operating margins, successfully integrate our acquisitions, and has our leadership position through innovation and expand the reach of our partner ecosystem. I'm pleased to announce that we executed successfully against all of these objectives.

Financially, we had a great fourth quarter capping off another tremendous year. Revenue for the quarter was a record $64.4 million and we generated 30% non-GAAP operating margins.

For the year revenue reached a record $216.6 million growing 35% and we recorded $58 million in non-GAAP operating income, a 27% operating margin and $45.2 million in non-GAAP net income. We are thrilled with the outperformance which reflects the power of our operating model and the ongoing execution of our land and expand strategy.

We closed over 200 new logos in the fourth quarter alone ending the year with more than 3,075 customers, an increase from about 2,500 last year. With our customer additions, more than 25% of the Global 2000 and about half of the Fortune 100 are trusting CyberArk to help protect their most valuable assets.

The vast majority of our new customer deals were again greenfield engagements illustrating that we have a long runway ahead of us.

New business highlights in the fourth quarter include a large manufacturing company in EMEA choose CyberArk not only because of our flexible modular platform but also because we can support its ongoing strategy which includes AWS, Office 365 and DevOps processes.

A mid-market SAP application vendor running an AWS will leverage three of our products to lock down coverage accounts while it monitors and control access into the cloud environment. Our momentum in U.S.

federal continued in the fourth quarter in one sixth figure when a federal agency will protect its infrastructure with five of our products, including Enterprise Password Vault, Privileged Session Manager, Application Identity Manager, SSH Key Manager and Privileged Threat Analytics. We began investing in U.S.

Federal a number of years ago making our record result in 2016 very rewarding. Given our strong pipeline of activity we continue to believe we are in the early stages of this market opportunity.

Our success with add-on business demonstrates the tremendous opportunity we have within our installed base and the importance of our platform records to privilege account security. I would like to highlight just a few of our seven-figure deals. First, a large hosting and telecommunications company in the U.S.

was using five of our products; wanted the securely stored rotate and control access to more than 100,000 SSH Keys, as well as go deeper into the organization to monitor and manage all servers, firewalls, and network devices across the enterprise with Privileged Session management.

In longstanding financial services customer in EMEA is another great example of our land and expand strategy at work. This company became a customer in 2007 purchasing three of our products and adding another in 2012.

In the fourth quarter we expanded the relationship further with Privileged Threat Analytics, SSH Key Manager and Endpoint Privileged Manager. Diversification is a cornerstone of our strategy. The Americas and EMEA deliver strong results growing revenues 39% and 34% respectively.

In APJ our investments in broadening awareness and in building a stronger leadership team began to generate results in the back half of 2016. While revenue in the region grew about 5% for the full year, we were pleased with the team's strong finish increasing revenue by 26% in the second half of 2016.

We believe APJ is now well positioned to capitalize on the greenfield opportunity across the region. Given our rapid growth we are focused on scaling the company and adding talent while maintaining the CyberArk culture that has been so critical to our success.

Recently we announced the addition of Adam McCord as Vice President of Sales for Latin America. Adam bring the extensive experience from leading security organizations like Palo Alto Networks, ForeScout and F5 Networks and we believe he has the experience necessary to expand the initial base of business in the region.

One of our most important accomplishments in the year was integrating the two acquisitions we made in 2015. By all measures our acquisition strategy has been a success. We retain key employees; we incorporated both the on-premise and cloud offering of Viewfinity into our sales process.

In fact our Privilege Management endpoint product was included in nearly 20% of all new business engagement and was an important component of our number of strategic add-on wins.

We exceeded our revenue expectations and in the fourth quarter we integrated CyberArk [ph] Technology into the Viewfinity product to create a unique offering that now provides credential theft detection and blocking capabilities. This solution has been renamed Endpoint Privilege Manager.

Earlier in 2016 we extended our leadership position with the introduction of Privileged Threat Analytics version 3.0. We became the only vendor to provide a comprehensive platform designed to proactively protect domain controllers and automatically respond to stolen credentials helping to prevent attackers from taking over the network.

As you probably saw this morning, we announced a certified integration with Amazon and [indiscernible] to simplify the discovery and help prioritize the risk associated with privileged accounts in AWS. This is yet another step in our ongoing plan to further expand the value that CyberArk provides to our customers in cloud environments.

Industry analysts like Gartner have stated that while public clouds are secure, mismanaged credentials are among the greatest source of cloud security risk and that privileged accounts are often poorly managed. The cloud creates new challenges in securing and managing privileged accounts. The attack surface is larger.

Cloud source have super user capabilities and dynamically scaling elastic production environments create an enormous management challenge. So it is no surprise that the cloud is a key topic in the majority of our sales engagements.

In both new and add-on wins, customers are protecting privileged accounts across the enterprise including the datacenter in public or private clouds and in hybrid environments. We provide a single integrated solution that increases security and lowers the management cost and effort to secure privilege across the organization.

While our customers cloud migration timelines very significantly we are ready to support their programs now.

In 2016 we successfully expanded our indirect channel; relationships with leading organizations like PwC, KPMG, Altos and Computer Center are already contributing to our results through executive level influence and in closing sales engagements.

Momentum in the channel continues to build with indirect business representing more than 60% of total revenue. We ended the year with over 300 active channel partners and more than double the number of CyberArk certified privilege account security experts in the field.

And an important part of our ecosystem in our technology partnerships; we launched the CQ Alliance in April with 14 partners; and by the end of the year we had more than 35 alliance members supporting over 50 integrations.

Our Alliance program is creating a lot of energy and we are excited to see our strong field partnerships with Proofpoint, Servicenow, SailPoint and Tenable [ph] among others generate results.

The threat environment evolves throughout the year but one thing remained constant, protecting privilege accounts is critical to mitigating the damage of cyber-attacks. We have identified a proven framework to rapidly reduce the privilege credential risk within 30 days.

Our framework is built on lessons learned from several large data breach recovery efforts and has been validated by a panel of Chief Information Security Officers at Global 1000 enterprises like ING, Lockheed Martin, Starbucks, GX [ph] Corporation, and News UK.

These steps can help customers significantly reduce risk related to unprotected privilege accounts and rapidly demonstrate to value of CyberArk to the organization. 2016 was an outstanding year for CyberArk; we outperformed our guidance and delivered against our operational objectives.

The R&D team developed industry-leading innovation and we are well positioned to help customers migrate to the cloud. We also strengthened the sales and marketing organization, broaden our go-to-market reach and deliver meaningful returns on key long-term investment like U.S. federal and the global channel.

Today we have a robust rapidly growing pipeline across all geographies and demand for our solution continues to build. Because of this success we enter the New Year an even stronger company. Our objectives for 2017 aligned with our long-term strategy to establish CyberArk as an enduring leader in Cyber Security.

We plan to continue to innovate to enhance our existing solutions and introduce new products. Make it easier and more secure for our customers to migrate to the cloud, expand our sales and marketing engine around the globe including both, the direct and indirect channels, and deliver strong growth while staying true to our operational discipline.

We are very excited about the future and are looking forward to working together to deliver another great year. With that let me turn it over to Josh.

Josh?.

Thanks, Udi. Yes we are pleased with our strong results which again exceeded guidance for revenue operating income and earnings per share. In the fourth quarter CyberArk generated record revenue of $64.4 million, up 25% year-on-year.

License revenue for the quarter reached $40.8 million increasing 23% compared to 2015 and representing 63% of total revenue. License revenue was driven by strong growth from existing customers, as well as new customer additions.

Maintenance and professional services revenue was $23.6 million, increasing 28% over the fourth quarter 2015 and representing 37% of total revenue consistent with past years. In the fourth quarter, the Americas revenue grew 12% to $37.1 million representing 58% of total revenue.

EMEA revenue grew 53% and reached $23.2 million in Q4 which was 36% of total revenue, APJ grew 30% of $4.1 million, representing 6% of total revenue in the fourth quarter. As I move through the rest of the P&L, all financial results will be discussed on a non-GAAP basis.

Please see the four gap to non-GAAP reconciliation in the tables of our press release. Gross profit for the quarter was $56.4 million or 88% gross margin compared to $45.2 million, also an 88% gross margin in the same period last year.

Consistent with our strategy to drive growth and scale our operations, in the fourth quarter we continued to invest across the organization. R&D expense grew 20% year-on-year to $7.5 million as we continue to extend our leadership position by delivering innovations in the market.

Sales and marketing expenses for the fourth quarter increased 27%, year-on-year to $24.6 million as we further deepened our sales and marketing reach across our geographies. G&A increased 12% to $4.9 million to scale and support the organization as the company continued to grow.

In total, operating expenses increased 23% in the fourth quarter of 2016 compared to $37 million to $37 million compared with $30 million for the fourth quarter last year. We ended the year with 823 employees worldwide compared to 644 at the end of 2015. The 823 included 377 in our sales and marketing organization, up from 294 at the end of 2015.

Our revenue outperformance flowed through to the bottom line and we again delivered operating results ahead of our guidance. Operating income was $19.4 million.

This compares to $15.2 million in the fourth quarter of last year, even with our increased level of investment our operating margin hit 30% in the fourth quarter of 2016; similar to what we achieved fourth quarter of last year.

Net income was $14.7 million of $0.41 per diluted share for the fourth quarter of this year compared to $13.8 million or $0.39 per diluted share for the fourth quarter last year. Now let me summarize our results for the full year 2016. Total revenue increased 35% reaching a record $216.6 million compared to one 160.8 million 160.8 million in 2015.

We were pleased with the Viewfinity acquisition which contributed approximately $10 million in total revenue which was above the range of $7 million to $9 million that we projected at the time of the acquisition.

Our success also includes better than anticipated traction from the Viewfinity cloud offering which is recognized overtime as recurring revenue. As a reminder, we were reselling a product that was competitive to be Viewfinity during 2015, so we encourage investors to look at Viewfinity revenue as organic.

In addition, we do not plan to breakout revenue by product going forward but we did think it was important to help investors gauge the success of our acquisition. License revenue in total was $131.5 million increasing 31% year-on-year in 2016.

59% of license revenue was generated from existing customers who purchased more licenses or bought new products. New business was of course also an important contributor to our growth in 2016.

Maintenance and professional services revenue increased 40% over last year reaching $85.1 million resulting from license growth in prior periods and our strong renewal rate which was again greater than 90% for the full year of 2016.

Looking at geographies, Americas had another strong year growing 39% to $135.1 million and representing 62% of total revenue. EMEA grew 34% to $68.1 million or approximately 32% of total revenue.

Over the last three years, EMEA has experience more pronounced seasonality towards the back half of the year which proved true again in 2016 with the region generating 53% year-on-year revenue growth in the fourth quarter as I mentioned earlier. APJ revenue was $13.4 million or 6% of total revenue.

As Udi discussed, under new leadership the APJ region began to build momentum in the back half of 2016. Diversification across verticals has also been an important contributor to our success. In 2016 we experienced broad-based demand across industries. Banking again was our largest segment generated 31% of bookings in 2016 compared to 29% last year.

Telecommunication and hosting providers represented 9% of the business, that's up from 6% in 2015. Global government was 9% of bookings, up from 7% last year. The record performance by the U.S. federal team was an important driver to the growth in this segment.

Rounding out the Top Five verticals were healthcare and manufacturing with each represented 8% of the business in 2016.

In all, 8 verticals contributed 83% to our business with the balance of our bookings coming from another 7 verticals which we believe demonstrates the breath of our opportunity and that we are executing well on our diversification strategy.

During the year we signed 519 deals over $100,000 and we saw a bigger revenue contribution 2016 from deals over $500,000 in size. We attribute this to existing customers proactively expanding their relationship with CyberArk to take a more strategic and broad-based approach to their privilege account security.

Our gross margin for the full year was 87.4%, up from 86.4% in 2015. Our margin expansion was driven in part by the higher margin contribution from our now in-house privileged endpoint product through the Viewfinity acquisition compared to the third-party product we restalled in 2015.

In terms of expenses, we believe our operating model is especially efficient given our rapid growth and scale. For the year, sales and marketing represented 40% of revenue, R&D was 13% and G&A represented 8% of total revenue.

Our revenue outperformance coupled with our disciplined approach to investing in growth, delivered stronger than anticipated operating income of $58 million in 2016, up from $43.6 million in 2015 generating consecutive operating margins of 27%.

Our net income was $45.2 million or $1.26 per diluted share in 2016, up from $35.3 million or $1 per diluted share in 2015. Our effective tax rate for the year was 22%, in line with the 22% to 24% we previously forecasted.

Turning to the balance sheet; we ended the year with $295 million in cash deposits and marketable securities, up from $238 million at the end of 2015. We generated strong cash flow from operations of $56 million resulting in a 26% cash flow margin for 2016 compared with $59 million in the prior year.

When looking at our cash flow from operations, it is important to note that in 2016 we paid approximately $10.6 million in taxes compared to $4.8 million in cash tax payments for the full year 2015.

Before I share guidance for the first quarter and full year 2017, let me remind you that our guidance does not consider any potential impact of financial income and expense associated with foreign exchange gains or losses. For the first quarter of 2017 we expect total revenue of $57 million to $58 million or 23% growth at the midpoint of the range.

We expect non-GAAP operating income to range between $9.9 million to $10.7 million and non-GAAP net income per diluted share of $0.21 to $0.23. This assumes $36.2 million weighted average diluted shares. For the full year 2017 we expect total revenue in the range of $267 million to $270 million or growth of approximately 24% at the midpoint.

We expect non-GAAP operating income to be in the range of $56 million to $58 million and non-GAAP net income per diluted share of $1.20 to $1.24; this assumes $36.4 million weighted average diluted shares. Our guidance assumes an effective tax rate of approximately 22% for 2017.

As a reminder we typically experience a sequential revenue decline into the first quarter moderate sequential growth in Q2 and Q3 and Q4 is our largest revenue quarter of the year. We also wanted to provide you with a bit more color on some line items. In 2017 we expect capital expenditures to be approximately $4 million.

During the year we will also incur approximately $4 million in additional capital expenses for leasehold improvements, primarily related to the build out of our new office space in Israel which we expect to move into during the second half of 2017.

As we look at the full year 2017, we expect our annual cash flow from operations margin to run between our non-GAAP net income margins to 10 percentage points higher than our non-GAAP net income margin. Historically, we have operated the business at a cash flow margin between 5% and 15% -- percentage points higher than our non-GAAP net income margin.

The higher end of that range was in large part due to perpetual license revenue and deferred which we do not plan for -- and we saw less of in the last year. We recommend analysts to evaluate our cash flow on an annual basis given that our cash flow from operations can vary quarterly based on seasonality of the business and taxes.

We do not plan to provide quarterly updates on guidance for cash flow from operations.

In 2017 we plan to continue to invest in our cloud infrastructure to support the scale of Endpoint Privilege Manager implementation in training services to help speed the deployment of our software, sales and marketing headcount to capture market share and grow our business, and R&D to continue to deliver innovative products to market.

As our guidance demonstrates, even with these investments we remain committed to delivering strong operating margins.

Given the scale of our business, our growth rates, demand for our solution and our market opportunity; we believe it is in the best long-term interest of the company and our shareholders to continue to invest in capturing market share and extending our leadership position.

We have a significant opportunity in front of us and we are looking forward to a productive 2017. I will now turn the call over to the operator for Q&A.

Operator?.

[Operator Instructions] Our first question comes from Jonathan Ho of William Blair. Your line is open..

I just wanted to maybe start out with some of your comments around the cloud opportunity; and -- you know, what are you hearing from customers? How is your product used by some of the customers that are looking at public cloud opportunities? And what do you think that can -- maybe contribute in terms of growth opportunity going forward?.

I think what we're discovering is that our products basically have a new expansion frontier and opportunity for great moment and it has various aspects. Many of our customers are talking about capturing of the migration to the cloud and include their -- they have a growing infrastructure.

As a service, the exponential growth of servers and applications; all of them come with the privilege account or application credentials that need to be managed, and all exponential growth. So they are looking to leverage the trusted CyberArk platform but expand it to these cloud assets.

On top of that the strongest [indiscernible] and the biggest weakness in cloud infrastructure are the councils there are used to manage the cloud infrastructure and so we see customer securing the AWS councils, the Azure councils with CyberArk so that access to those super powerful users can be monitored and controlled.

Another very exciting dimension is the -- what we call the DevOps revolution where we're in the fast flying way of rolling applications into the cloud requires a lot of API connectivity and the components that are separated and the links between them or user SSH Keys or credentials; and we found that the need to manage these secrets and be able to secure them and rotate them is a perfect fit for us to extend there.

And so the critical advantage here is our experience with the scale of our organization in hybrid and to do that with the single solution that they can do on-premise in the cloud and on the endpoint..

Got it, got it.

And then just as a follow-up, as you start looking at sort of the investments that you'd like to make; I mean I know you guys are sort of balancing between showing more profitability and trying to pursue growth opportunities; now where do you see the most opportunity to leverage those investments? This is going to be more sort of new products or is this going to be more investment in sales capacity? You just gave us a little bit more color in terms of where that might fall and maybe what gives you the confidence that growth can sustain?.

I think what excites me the most is to see the diversity in everything we do. A greenfield opportunity means we're really going after the sales execution and bringing access to those field opportunities like the investments in Latin America or the increase in sales capacity across the world.

The add-on business which is phenomenal this year and we're scratching the surface with the customer base, and so definitely going out and leveraging the customer success teams and expanding that footprint to go after that.

But in parallel, as a long-term player we continue to invest in R&D and in the innovation to preserve and strengthen our market leadership in the privileged account security. And [indiscernible] would be the fine dimension and when we talk about go-to-market, definitely add channel investments there.

We think it's really going in the right direction, we feel great channel momentum from 2016..

Great, thank you..

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

Hi, this is German [ph] on behalf of Gabriela. I thank you for taking the question.

Can you give an update on the Application Identity Manager product; it was one that came up a little bit last quarter? And how are you thinking about what the growth opportunity is there? And do you think that longer term this could become a bigger part of the business than PSM?.

So first of all, absolutely application of any measurement is one of our very exciting products and one where we have very strong leadership.

The beauty with this product is that it relates to our legacy applications that haven't been at credentials and scripts but really takes off as per the prior question; when -- as customers migrate to the cloud and need to automatically provision applications and also tie in with the orchestrating systems and the tools they use in order to launch and manage their cloud infrastructure.

It also is getting an additional lift from our CQ Alliance where we manage the credentials that come in with off-the-shelf software products and we gave some examples there.

So I would say, it's well positioned also because of our leadership and past investments in this product is also taking a new dimension with the crowd migration and it had a great year. It had a great 2016 and in our campus it's labeled a growth engine..

Great.

And then in terms of your investment philosophy; could you say is there any upside this year to what you're guiding? How are you thinking about reinvesting that outside versus letting it drop through to the bottom line?.

Hi, this is Josh. I think we're -- just to reiterate where we're investing first -- you know, there is really three buckets; the first is sales and marketing which will have the lion's share of the increased investment related to headcount and really spreading and the channel development that Udi talked about.

And second on the R&D innovation, and also there is a piece within our operating cost for developing out further the infrastructure of our cloud environment and related to services for training and so forth for potential services group; so we'll see a piece of that in the cost of goods.

Overall, I think as -- if we -- I think as we see in our operating model, we're able to really leverage increased revenue given the fact that we run at over 85%, 86% gross margins. So I think -- we'll look at it during the year but for the most part we're already building into our guidance, some investments in growth that we're already planning for..

Great, thank you..

Our next question comes from Rob Owens of Pacific Crest Securities. Your line is open..

Thank you and good afternoon everybody.

Maybe you could talk at a higher level, regarding kind of the broader conversation around identity and where customers are? As you look at new customer acquisition; you know, what's coming from a greenfield standpoint? What's coming from a rip and replace -- in those rip and replace scenarios, how much larger are the deals now than say they were through a technology they've running for a decade plus.

Thanks..

Actually it's a very interesting question.

First of all, most of the new deals, we look at them closely and we found that most of them were greenfield opportunity in the world of identity management we have a theme that says, privilege first, first good controls of the things that can take over the network and we have great relationships with the identity management layers that manage the regular users.

So it's a very healthy ecosystem where we want to put the critical layer of security around the digital assets and infrastructure first.

In the display situations and you're right, actually when we do this place -- the older technologies, we find that -- it's because the customer is now moving from a compliance driven approach that maybe let them take an inferior product several years ago to a security driven approach which is a great opportunity for us to talk to them about it was account security program and not just a project and to go deeper and wider.

So in many of these replaces you can label them strategically replaces and lead to a larger deals and larger implementation..

And I guess along those lines the identity space is rather large but highly fragmented.

And so what's your appetite for M&A and to move outside privilege into -- you know, some of the other functional areas of potential governance or other types of things?.

Yes, I think we found that as a security company our core is really securing our customers infrastructure, is making sure that we help them understand the attacker mindset, what is the attacker trying to go after and the attacker is seeking control, the attacker is seeking a privilege. It leads us to really -- stay focused in -- on our market.

We of course look at a lot of other type of adjacencies from an M&A perspective and continuously look for how can we can better sure up the security posture of our customers but we're primarily partnering when it comes to governance and using the CQ Alliance for that and it's working very well in the field with great collaboration; I mentioned some of them earlier..

And just lastly, I apologize but [indiscernible].

So as you look at M&A what type of strategy would you deploy relative to size-scale profitability? You've done a couple deals at the end of '15 and then one in early '16 with a flat margin on a year-over-year basis; so would you do something that could be margin dilutive or we expect things that would kind of keep margins on par with where they've been if it came to M&A? Thanks..

Yes, so the M&A's we did were all within 2015 and 2016 was definitely very much about integrating and adjusting and we're very pleased with that. What it did -- it embolden us that we made the right strategic moves and were thinking correctly, it was strategically a smart move to buy and on Viewfinity.

And on that space, we were previously reselling a solution space so we feel good about the decision we made and how we integrated and executed there. And it means from an M&A pipeline, we will continue to look at adjacent opportunities.

I would say that I would want to set the stage right now that we would be looking at a super huge deals because we have a very strong market opportunity in front of us and would not want to distract them from that.

So anything we do would stay aligned with -- our customers want to buy this from us, our partners want to resolve this from us, and our employees can execute on it. This is how we're seeing it in the near future..

Great, thank you so much..

Our next question comes from Fatima Boolani of UBS. Your line is open..

Hi, a question from Udi. Udi, you talked a lot about the international opportunity and it really sounds like at least in APJ and Latin America, you know there is still a lot of room to grow.

In your mind from a big picture perspective, what are the one or two things that you think you really need to unlock the opportunity there? And then a quick follow-up for Josh..

I couldn't hear well, what are the things that we need to further unlock the opportunities in those international markets?.

In APJ and Latin America..

Yes. I think as a company that always went after the globe, we actually have a strong blueprint plan in how we go after a new region. And what we found is -- its building critical mass of customers and teaming up with the right partners and expanding that. I mean countries like France we're a new market five, six years ago and had a phenomenal year.

And we replicate that into new markets. Latin America has a base foundation with customers and partners and we're putting more and more energy behind it. So it's really down the products, work internationally; our marketing is internationally oriented and so we know how to execute on it.

The difference with these two -- you mentioned there is definitely more education on switching from compliance driven to the risk based but we've done it in other markets, is showing the customers that you can pick up the compliance reasons to buy privilege account security but the most important thing is taking risk and securing your organization.

So right now we're really looking at this as a great growth opportunity..

And if I may, is there a product localization initiative that you have to undertake in anyway?.

In the past we had -- we had to make investments in some localization for -- to support the characters in Asia but most of that has already been done earlier when we first went into these markets and right now it's ready to sell..

That's helpful. And my follow-up for Josh; Josh in your prepared remarks you talked about your expectations for deferred license coming down for calendar '17. I know historically that's been more of a customer pause or you pushing.

But why is it that this year your expectations are coming down? Are you doing something differently with the sales force? I just want to get a better sense of why that paces here. That's it for me, thank you..

Sure Fatima, thanks for the question. Well, first of all we saw it coming down in 2016.

So we have some new kind of what's happening out in the field, is that -- and I think you guys have been tracking it, and we've been tracking it internally is that we -- the amount of perpetual licenses that are being deferred, certainly in 2016 was dramatically reduced.

I don't think that there is -- you know, we never really planned to have that in our business model and so we can't really predict going forward exactly where to fall out but we are seeing that -- I think the types of transactions that we're doing and the relationships that we have with our customers and with our channels are really just paving the way for the deals to not have the types of things that were acquired in the past.

From time to time we may still run into those cases but certainly in the last six to nine months we've seen a dramatic decrease of those types of transactions.

I would point out, not necessarily for 2017 but certainly into 2018, anyway with the new revenue recognition also those types of things would also reduce deferred revenue because the new guidelines for revenue recognition would allow more recognition upfront, even when there is a different deliverable components on the way..

Our next question comes from Taz Koujalgi of Deutsche Bank. Your line is open..

A couple of questions; one is, if I'm doing my math right on the headcount at this quarter; I believe that you added 33 hats which I think is one of the lowest numbers that I've seen in the last couple of quarters.

Actual thing about headcount adds in 2017, what are your plans for adding heads going forward?.

We are planning a significant headcount adds. They will be the part of our investment in growth. As you know, 65% to 70% of our expenses are headcount related expenses and so when we talk about investment and growth, a large number of that is coming in and had -- and around the world.

And I would say that the majority of those increased investments will be coming in the sales and marketing organization..

Got it.

And then, did you say Americas grew 12% in the quarter, revenue?.

Yes, on a year-on-year basis, correct. And for the year they grew 39%..

So that slowed down quite a bit from the previous quarters.

Anything unusual that happened in Americans in Q4 this quarter?.

No, actually Americas had a great year and again, like just said with 39%, well our metrics in the Q that we don't get into but I can tell you it had a great war and has a great pipeline. I think it's one of the healthiest markets that we can talk about..

Got it.

No change in buying behavior or demand from what you've seen in the past?.

To the positive; I think this is the market where we're seeing privilege account security really rising up to the top and Chief Information Security Officer priorities; and when I talked about the 30-day spread methodology that we have -- it's really taking place in many of the accounts here where they are taking a risk-based approach.

So it's a very healthy market, had a record federal year in there and some great seven figures and add-on and new business, it was a strong year for Americas..

Got it, thanks. Can I sneak in one more if I may or I can ask on the call back, if you don't mind.

Is there time for one more?.

Yes, go ahead..

Josh, for you. On the operating cash flow, if I'm doing my math, the operating cash flow margin was towards the lower end of your guide of 5% to 15% on top of the net income margin. I think it was like 5% this year.

You're guiding to 10% next year; what's driving that? What's changing in '17 that you're thinking the gap between net income margins and operating cash flow margin will go up in '17 versus '16?.

Well, first of all when we talked, we talked about the past that we're looking historically -- our cash flow margin was running 5% to 15% above our net income margin on a non-GAAP basis. So for 2016 we generated 26% cash flow margin, $56 million which was on the lower end.

One of the other things though I pointed out in the prepared remarks was actually we had about $4.8 million which was in tax payments which were related to operations from 2014 and 2015. So really the cash flow margin; if you adjusted for that would be closer to 28% or net income margin plus 7%.

And going forward as we look at our modeling, we really wanted to take into consideration the main point that I just talked about earlier in the prior question is that one is, when we went back and saw when cash flow margin was 15% or in that neighborhood it was typically because we had higher deferred license revenue amounts on our books.

And as I talked about with Fatima in the last question, we're seeing -- we're just seeing less of that, it's less of the deal transactions and so we can't predict that it will go back up again in the forward and we don't plan for it. So we decided that to be comfortable.

Looking forward we do expect cash flow margin to be above our net income because we do collect maintenance contracts upfront whether it's one-year or three-year and -- but if you -- we feel like the right number probably is net income to plus 10%..

Got it. Very helpful guys. Thank you very much..

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

Alright thanks, just two questions here. Palo Alto just announced new partnerships with [indiscernible] in leveraging their firewalls and platform that deliver Identity Management Services.

Do you see any long-term threats from partnerships like that where the larger firewall vendors is being moving into your market?.

No. I think we've been asked about that before. There is a very big difference in securing, managing, rotating credentials and the traffic and blocking and managing traffic into the network.

But these integrations with goods at any services makes sense; they are basically more oriented towards the anti-phishing and making sure that the wrong users don't get in from a regular user perspective. So we see that as a normal evolution..

Alright, thanks. And then you guys talked about investing to drive growth in – throughout all 2016 and you only had really one quarter where revenue growth actually outpaced OpEx growth.

So based on the results it would seem that you're in the late innings of the investment phase, yet your guidance for 2017 suggests that OpEx growth largely outpace revenue growth again this year.

So I guess can you give us any color as to where you are in that investment phase? And then when we start to see the leverage in the model?.

Well, I think -- first of all, I think we're still really in the early game of the privileged account security market. As we talk about, many of our dealers are still greenfield opportunities when we took new customers and we're still at a relatively large runway with our existing customer base.

So we actually still believe we're still in the early innings of our market opportunity.

In terms of leverage on the model, we've been generating significant leverage over the last several years but as we guide towards 2017 we're actually proud about still being able to provide guidance of 24% growth with over 20% operating margins; it makes us a top performer in our space.

And you know, what we have seen is that we'll be able to frequently flow down overachievement on the revenue line. The guidance includes our -- already considering the investment that we're making particularly on the sales and marketing side of the business..

Okay, thanks..

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

Thank you for taking my question. What I wanted to ask is you had talked a lot about the add-on business and could you discuss any of the modular that seem to be more popular than the other one; so example-wise you close one of these deals fixed eight year five modules.

But outside that if there are like a traditional customer which ones do you go in? And really farm first thing, give us an idea or a background on that..

Sure Catharine. So if the question is which product lend themselves the most to add-on business; so we typically are customer land [ph] with our enterprise Presidential vote we with the accent we would see growth in those products; we're seeing more customers of course land with three products.

As we've mentioned but the rest of the growth -- right now it's really – the add-on is really of seen application at any management as a cross sale growth, especially as a mentioned in the cloud and DevOps dimension.

Viewfinity which we now call EPS and point privilege manager is a great add-on product and then the rest really depending on the specific customer but I would say, there is add-on of what they brought in the initial purchase; and often a lot of that and then cross-sell of the other five or so customer -- products that they don't have..

Alright, thank you very much. Nice quarter..

Our next question comes from Gregg Moskowitz of Cowen & Company. Your line is open..

This is actually Mike [ph] on for Gregg. I just had one quick one if I could. What was the mix of on-premise to cloud -- following meant for Viewfinity this quarter? Thanks..

Yes, hi, Mike. It was about 40% deployed off the cloud and 60% on-premise..

Great, thanks..

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

Yes, I want to just -- I apologize if I missed this but did you give -- did you say that the number of certified engineers had doubled over the last year?.

Yes..

No, I thought you had said after the third quarter that year-to-date they were already double where they were the prior year.

Was that not correct?.

Yes, that was correct. I think what we're talking about -- that it's more than double. So we continue to increase in Q4..

Okay.

So it was double and now it's more than double is what you're saying?.

Exactly. And it's a great phenomenon for us because there was big shortage for CyberArk..

Did you give the percentage of sales that included three products in the quarter?.

Yes. We said that for the year more than 25% of new deals included three or more products..

Okay.

But you didn't give it for the fourth quarter?.

We did not give it..

Yes, but it was just about 25%, it was close to 28%..

Okay.

So that was on an upward trajectory during the course of the year, and end of the year at a high point, is that fair to say?.

Yes, it's fair to say but you know, we try to look at things. When we get to the annual, we're focused on the 25% and if we compare that to the 2015, it was about 23%. And I think the year before it was closer to 21%. So we are kind of up into the right..

Okay.

And then lastly, did you give the tax rates for the -- for Viewfinity or for the EPP for new deals?.

Yes, 20% of new deals included EPM..

Was that consistent with last quarter at 20%?.

Yes, we've been running like 15% to 20% of new customer business during the last year taking -- it's of the new customer business, not all of our -- not all of the transactions..

Any prospects for that increase from 20%?.

We're pleased with that and like I answered on the previous one, we have a lot of products to attach and we really work with our customers based on their building a security program..

Very good. Okay, thank you..

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

Thanks for taking my question and congrats on the quarter.

So first half I was wondering, could you just rank order the primary growth drivers that you're liking at for 2017?.

Sure. So first of all, thank you. The way we look at it and we're back from a great sales kick-off with -- I would say the strongest team we've ever had. And the way we framed it is -- on the one hand it's just a greenfield opportunity that we prove every day.

We're in 25% of the Global 2000, but we're scratching the surface on the Top 30,000 enterprises out there. So it's a greenfield opportunity across geographic and across vertical; and that is something we're proving every day, the vertical diversity.

Number two is the customer base; we're now working off of a growing a larger customer base with 3,075 customers, up from 2,500 last year. And so there is a huge opportunity for expansion there and they need it.

Many customers selected us for compliance reasons throughout the year and they need to move into a program and take us deeper and wider for security reasons. The third dimension I'm really excited upon and again one includes [indiscernible] is what I'm excited about.

But the third dimension is really what the cloud opportunity represents for us; almost an additional frontier that we can join our customers on that journey. So we really geared the team and are now extending that to training our channel partners to go after them..

Okay. And then sort of as an add-on to that; as we think about your sales and marketing investments -- are any of them being focused disproportionately to specific geography or even a vertical like federal, for example..

Well, obviously the Americas is the largest team and the larger contributor to the pie but we've been very diligent throughout the year to really spread our go-to-market investments because we know that we want contribution from other countries.

For example, Japan has seen investment in the team throughout 2016 was the Regional Director and a team built around that; Australia, similarly. So I would say definitely based on the pie contribution, you can expect that we have bigger teams but we're also investing in the newer markets.

And in terms of verticals, the truly focused vertical team is federal and they had a phenomenal year and with opportunity to invest in that and continue to replicate that on a global fashion..

Great, thank you very much and congrats on the results again..

Thank you very much..

Our next question comes from [indiscernible]. Your line is open..

Alright, thank you for taking my question. Congratulations on a good quarter. You know, many of the enterprises we have been talking to talk about having applications in multiple clouds. So my question to you is can you provide us some color, how you engage in such a situation? And I have a follow-up please..

Yes, actually that back to I think the first question that I was asked it's part of our advantage is to take a platform approach and you hit it because enterprises are not standardizing on just one provider and our approach say it doesn't matter which provider you're working with, we'll manage your privilege accounts across.

Those systems including the on-premise and we finding the same thing that they are looking to diversify with call providers and then we're in a position to work with the provider of choice..

Okay. You might have mentioned this in the call, I'm sorry I might have missed it. You know, you difference the C3 Alliance, have you been referred to any new customers through your participation in the Alliance? And how do you see this opportunity evolve in the near-term? Thank you..

Great. I think the CQ Alliance is -- of course, it has -- it creates market opportunities where we can collaborate with the partners in there; and I mentioned Proofpoint as an example, and SailPoint as an example and tenable [ph] where we can mention; we can partner in the field and bring each other to customers.

But I think the biggest advantage is credibility and creating value for our enterprise customers because they are looking -- they understand that security is a team sport and they appreciate that this is the time to manage their privilege accounts and connect between the variety of security systems that that put in place.

And of course, once in a while that does lead to a deal but it's a bigger game plan than that..

That's all the time we have for today. I'd like to turn the car back over to Udi Mokady for any closing remarks..

Thank you. I'm very proud of our team for again delivering such a strong year. I want to thank our partners, customers, and employees who work hard and contribute every day to the success of CyberArk. And thank you all for joining us tonight. Thank you very much..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great evening..