Erica Smith - VP, IR Udi Mokady - Founder, Chairman, CEO Joshua Siegel - CFO.

Saket Kalia - Barclays Melissa Franchi - Morgan Stanley Ugam Kamat - JPMorgan Gabriela Borges - Goldman Sachs Rob Owens - KeyBanc Capital Markets Fatima Boolani - UBS Gur Talpaz - Stifel Jonathan Ho - William Blair Shaul Eyal - Oppenheimer Gray Powell - Deutsche Bank Gregg Moskowitz - Cowen and Company.

Good day, ladies and gentlemen, and welcome to the Q4 2017 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 be given at that time. [Operator Instructions] And as a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Erica Smith, Vice President of Investors Relations. Please go ahead..

Thank you, Shanda. Good morning. Thank you for joining us today to review CyberArk's fourth quarter and full-year 2017 financial results. With me on the call today are Udi Mokady, 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 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 2018. Our actual results might differ materially from those projected in these forward-looking statements.

I direct your attention to the risk factors contained in the company's annual report on Form 20-F filed with the U.S. Securities & 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 herein.

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 in the Investor Relations section. Also a webcast of today's call will be available on our website.

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

Thanks, Erica, and good morning everyone. Thank you for joining our fourth quarter and year end conference call. During 2017, we delivered against the operational objectives we outlined for you last February. We continue to set the standard for Privileged Account Security, innovating our solutions and delivering new products.

We simplified and made it more secure for customers in cloud and in hybrid environments. We expanded our sales and marketing engine and while we experienced sales execution challenges in EMEA early in 2017, we stayed true to our operating discipline delivering both growth and profitability.

We had a strong finish to the year and in the fourth quarter our results exceeded our guidance across all metrics. Revenue reached a record $80 million and grew 25%, and we delivered operating income of $20 million or 24% operating margin. For the full year, revenue reached $262 million and grew 21% year-over-year.

Operating income was $52 million or 20% operating margin. And we generated a record cash flow from operations of $81 million, or an operating cash flow margin of 31%. Throughout 2017, the pace of hacker innovation continued to accelerate. Ransomware evolved to self-propagate, stealing credentials and completely paralyzing business operations.

High profile breaches demonstrated that hackers can exploit our protected secrets in the DevOps by pipeline, they steal information from services like [indiscernible]. Organizations are increasingly implementing clout migration strategies and hybrid environments are now the standard.

And organizations regardless of vertical are embracing digital transformation. They are using applications and development as a competitive advantage to accelerate growth. In this age of change, one thing has remained constant, unprotected, unmanaged privileged accounts are almost always at the center of Cyber attacks.

Your security offices today need to prioritize and protect the most critical assets first. As a result, privileged account security is at the top of priority lists. Compliance also continues to be significant lifer of our business.

In the fourth quarter we began to see early indications that organizations are moving beyond planning for GDPR and are beginning to make purchasing decisions. We ended the year with more than 3650 customers signing over 200 customers in the fourth quarter.

Today, nearly 30% of Global 2000 and more than half of the Fortune 100 are trusting CyberArk to help protect their most valuable assets. The vast majority of our new business deals in the fourth quarter and throughout 2017 continue to be Greenfield.

A few new business highlights from the Q4 include, a large 7 figure new business deal with a financial services company in EMEA. We won this business for three primary reasons. First, our proven track record in the world’s most demanding institutions, secured privileged accounts in 21 of the 25 largest global banks. Second, the breadth of our offering.

The bank was particularly impressed with our ability to protect assets and run in both AWS and Azure, and finally, our roadmap and track record of delivering innovation. We are viewed as the long-term partner who will support their security strategy.

An IT services organization for small to medium sized companies signed a standalone SaaS Endpoint Privilege Manager deal. The organization bought CyberArk after its customers began requesting lease privilege and application control at the Endpoint.

The organization sees tremendous value in our solution and intends to offer Endpoint Protection as a service to their installed base of customers. This win demonstrated that market awareness has grown significantly and organizations of all sizes recognize the need to lock down privileged credentials. Our momentum in U.S.

Federal continued in the fourth quarter. Two of our 10 largest new business deals were U.S. Federal including a 7 figure deal with an agency in the Department of Defense. As we built critical mass in U.S. Federal, we are seeing the network effect positively impact our business.

We are honored to be recognized as a top security solution for government agencies by GSN's Homeland Security awards again this year. Third party recognition is further validation that our investments in U.S. Federal are delivering results. Our installed base of customers results in important driver for growth.

During the quarter, our largest add-on deals were evenly split between the Americas and EMEA. A few fourth quarter highlights include, a transportation firm in France required a scalable solution to secure credentials for more than 5000 users and protect thousands of assets across a hybrid environment in Azure and On-Premise.

In the classic land and expand a financial services company became a customer in 2010 expanded with more licenses in 2013, 2014 and 2016 adding new products along the way. And in 2017 the organization made the strategic decision to deploy two of our products broadly across the enterprise. An insurance company in the U.S.

expanding with Application Identity Manager and Conjur, securing On-Premise applications, containers and micro services. Their CTO is focused on cloud, automation and containers. They truly understand that security is the foundation building block to successfully implementing a digital transformation strategy.

Our solution will empower the organization to move with the speed and agility of the cloud with piece of mind, knowing that its most valuable assets are secure. We are pleased with the early success we are having securing the DevOps pipeline. In addition, Conjur is enabling sales of Application Identity Manager.

Customers recognize that our solution can protect modern application development and on-premise applications in production. In fact Application Identity Manager was included in five of our 10 largest deals for the full year 2017.

From an operational point of view one of the highlights of 2017 was the successful post-merger integration of Conjur and delivery of our open source version just months after closing the acquisition in May of 2017.

With the Q4 enhancements to our solution, we automated on-boarding of AWS credentials, reduced our implementation times, enhanced our user interface and simplified our pricing.

Organizations are moving faster than ever and with our Q4 product rollout we significantly enhanced our leadership position further differentiating us from a competitive field. In 2017 we also strengthened our go-to-market engine with the globalization of our sales team.

To help support our growth in EMEA we recently expanded our team naming Richard Turner as Vice President of sales for the region. Rich brings deep sales and channel experience with leading security organizations which we believe will accelerate customer adoption in the region.

While EMEA had a strong fourth quarter, in 2018 we are focusing on executing our globalization strategy and delivering more consistent results. We also broadened the reach of our sales machine through our partner ecosystem. We increased traction with advisory firms who understand that protecting privileged accounts is mission critical.

Business influenced by these partners increased by more than 30% in 2017. In the Americas alone there were nearly 300 advisory consultants focused on CyberArk. Just two years ago we were in the early days of building these relationships and today our investments in the advisory firms are delivering tangible results.

Our indirect business represents more than 60% of total revenue and we ended the year with over 350 active channel partners. The C³ Alliance Program is an increasingly important differentiator in the field. We now have more than 70 partners and over 200 certified integrations.

Deals across all verticals and customer sizes are being influenced by partners like Tenable, OKTA and ForeScout among others. During the fourth quarter our relationship with Rapid7 influenced sizable customer engagements including a 7-figure new business deal with a financial services customer.

In addition, newer DevOps integrations with leading players like Puppet, Jenkins, and RedHat with open shift and Ansible played an important role in the fourth quarter. I believe the strength of our culture is an important contributor to our long-term success and we ended the year with more than 1000 employees.

Our employees have unparalleled experience in privileged accounts security and exhibit unwavering commitment to our mission. This differentiates us from the competition and helps fuel our growth.

We are all aligned in our 2018 objectives to expand our leadership position by further automating and simplifying our solution across on-premise, cloud, and hybrid environments.

Our digital transformation by securing the DevOps pipeline without sacrificing speed and agility, expand our relationships with existing customers and accelerate new customer adoption by maximizing the effectiveness of our global sales and marketing engine, and expand our reach through our global partner ecosystem and enablement program.

We continue to set the standard in Privileged Account Security by delivering the most innovative solutions and best-in-class customer support. The market for privileged account security is rich with opportunity and we have delivered a 41% compounded annual growth rate over the last five years.

We have a robust rapidly growing pipeline across all geographies. With our fourth quarter performance we enter 2018 with strong momentum. We are investing our sales and marketing engine to capitalize on this opportunity and deliver sustainable growth and profitability. With that, let me turn it over to Josh.

Josh?.

Thanks Udi, and good morning everyone. We were pleased to exceed our guidance for revenue, operating income and EPS. In the fourth quarter CyberArk generated record revenue of 80.4 million up 25% year-on-year.

Our outperformance in the fourth quarter was driven by demand for our solutions for both new and add-on customers as well as greater than expected year end budget rush. License revenue reached $48.6 million increasing 19% compared to 2016 and representing 60% of total revenue.

Maintenance and professional services' revenue was $31.8 million, increasing 35% over last year and representing 40% of total revenue.

In the fourth quarter the Americas revenue grew 18% to $43.6 million, representing 54% of total revenue and EMEA had a very strong finish to the year with revenue growing 41% to $32.5 million in the fourth quarter which was 41% of total revenue. Asia-Pacific/Japan grew 2% in the fourth quarter to $4.2 million, representing 5% of total revenue.

We had broad based demand across verticals in the fourth quarter with insurance, transportation and travel, healthcare and professional services each more than doubling and manufacturing, government and IT verticals also growing by over 40% each. As I move through the P&L our financial was also we discussed on a non-GAAP basis.

Please see the full GAAP to non-GAAP reconciliation and the tables of our press release. The gross profit for the fourth quarter was $70.6 million, or an 88% gross margin. That is compared to $56.4 million consistent with the 88% gross margin from the same period last year.

Our research and development expense grew 43% year-on-year to $10.7 million, or 13% of total revenue. The increase in our R&D expense was driven by enhancing our solution, including increased automation, and helping our customers more securely migrate to the cloud and protect hybrid environments.

The increase also includes the expenses related to our acquisition of Conjur which closed in the second quarter of 2017. Sales and marketing expense for the fourth quarter increased 38% year-on-year to $33.9 million, or 42% of total revenue.

We continue to expand our sales and marketing engine throughout the year to further position ourselves to capitalize on the significant Greenfield market opportunities. G&A increased 27% to $6.2 million, or 8% of total revenue to support the growth of the organization.

In total operating expenses increased 38% in the fourth quarter to $50.9 million compared with $37 million for the fourth quarter last year. We ended the year with 1015 employees around the world compared to 823 at the end of 2016 and 966 employees at the end of the third quarter of 2017.

There were 491 employees in sales and marketing at year-end up from 377 at December 31, 2016. We generated strong operating income of $19.7 million or 24% operating margin in the fourth quarter which beat our guidance. This compares to $19.4 million or 30% operating margin in the fourth quarter of last year.

Net income was $15 million or $0.41 per diluted share for the fourth quarter of this year up from $14.7 million or $0.41 per diluted share for the fourth quarter last year.

As a result of the Tax Cuts and Jobs Act 2017 in the United States, CyberArk recorded a one-time adjustment to its deferred tax asset of $6.5 million which resulted in an increase in the GAAP effective tax rate during the fourth quarter and for the full year of 2017. Now let me summarize our results for the full year 2017.

Total revenue increased 21% reaching a record $261.7 million compared to $216.6 million in 2016. License revenue was $147.6 million increasing 12% year-on-year representing 56% of total revenue.

In 2017 just over 60% of revenue was generated from existing customers purchasing additional licenses and approximately 40% from revenue from new customers, which is consistent with the mix in 2016 as well. Maintenance and professional services revenue increased 34% over the last year reaching $114.1 million and representing 44% of total revenue.

We continue to deliver best in class customer service and that is reflected in our strong renewal rates that were again above 90% in 2017. For the year revenues in the Americas grew 20% to $162.5 million and representing 62% of total revenue.

EMEA grew 20% to $81.8 million or approximately 31% of total revenue, again this year EMEA experienced more pronounced seasonality with the fourth quarter representing 40% of the regions annual revenue. Asia-Pacific/Japan, revenue grew 30% and reached $17.4 million or 7% of total revenue.

For the full year our business was also well diversified across industries. Banking was again our largest segment representing 29% of the business compared with 31% last year. Global government was 10% of the business that was up from 9% last year and I would point out the U.S.

Federal had a record year and we are gaining momentum in governments across Europe and in Asia-Pacific/Japan. Manufacturing was 10% of the business this year also up from 9% last year and the diversification of the business is continued evidence that all organizations need Privilege Account Security.

During the last year, we saw deals over $100,000 increase 27% to 659 from 519. We also had 92 deals over $500,000. That's including our record number of million dollar deals for the year. This compares to 53 deals over $500,000 in 2016.

We saw an increase in larger deals from both our existing customers and expanding with CyberArk as well as from new customers landing with lot of protection of their environments.

Our gross margin for the full year was 86.5% compared to 87.4% the prior year and the slight decline in our gross margin was in line with planned increase in expenses for our cloud offering, for Endpoint Privilege Manager, increase in the midst of third party contractors for professional services delivery and our investment in partner enablement.

We generated operating income of $51.9 million for the year or 20% operating margin which was again ahead of our guidance. For the full year currency movements in the shekel, British Pound Sterling and the Euro impacted our revenue and operating expenses with a net impact of $3 million reduction in our operating income for the full year.

This compared to $58 million or 27% operating margin in 2016. Our net income was $41.9 million or $1.16 per diluted share in 2017 compared to $45.2 million or $1.26 per diluted share in 2016. Our effective tax rate for the year was 25%.

Turning to the balance sheet, we ended the year with $330 million in cash deposits and marketable securities that is up from $295 million at the end of 2016. Deferred revenue for the full year increased 43% to $105 million. More than 90% of our deferred revenue is from maintenance and professional services contracts consistent with year-end 2016.

For the full year we also generated record cash flow from operations of $80.7 million resulting in 31% cash flow margin. This compared with $56.3 million in cash from operations in the full year of 2016 or 26% cash flow margin.

Moving on to our guidance for the first quarter of 2018 and the full year, please note that the guidance takes into account ASC 606. For the first quarter of 2018 we expect total revenue of $68.3 million to $69.8 million or 17% growth at the midpoint of the range.

We also expect non-GAAP operating income to range between $9.2 million to $10.4 million and non-GAAP net income per diluted share of $0.19 to $0.22. This assumes $36.5 million weighted average diluted shares and a tax rate of approximately 23% for the quarter.

For the full year 2018 we expect total revenue in the range of $312 million to $316 million or growth of approximately 20% at the midpoint. We expect our gross margin to be approximately 87% for the full year.

We expect non-GAAP operating income to be in the range of $54.5 million to $57.5 million and non-GAAP net income per diluted share of $1.18 to $1.24. This assumes $36.7 million weighted average diluted shares.

Our guidance for the full year assumes effective tax rate of approximately 22% for 2018 which takes into account the lower tax rate in Israel as well as in the U.S. As a reminder, we typically experience a sequential revenue decline into the first quarter moderate sequential growth into Q2 and Q3 and Q4 is our largest revenue quarter of the year.

We also want to provide you with a bit more color on some of the line items as well as the impact of the new revenue recognition accounting standard ASC 606. Please note that the impact of 606 is an estimate based on the information we have today. For 2018 we will be using what is referred to as a modified retrospective approach to disclosure.

Given our perpetual license model we expect the total revenue impact to be relatively small. In 2017 approximately 1% of total revenue was related to term based licenses. Beginning in 2018 under 606 the majority of term based licenses of the revenue will now be recognized in theory up to a degree rather than pro rata over the contract period.

Because of 606 at this time we are forecasting that our starting balance for deferred revenue will be reduced by approximately $4 million. We currently estimate that we would have recognized approximately $1 million to $2 million of that deferred revenue in 2018 under the old revenue recognition model.

From an expense point of view we will be expensing commissions over the period that the licenses or services are delivered, maintenance and services contracts typically run between one and three years with a majority for one year. The impact of this change is reflected in our guidance.

Based on the guidance we've provided today, we estimate that our expenses will benefit from approximately $2 million related to commissions for the full year of 2018. As I noted before, the guidance we provided already is in accordance with ASC 606.

In terms of other line items in 2018 we expect total expenditures to be in the range of $10 million to $11 million, capital expenditures to be in the range of $10 million to $11 million which represents approximately 3% of revenue at the midpoint of the revenue range.

This includes approximately $5 million in resold improvements related to our offices in London, Singapore, and the United States as well as our Global Headquarters in Israel.

As we look at the full year 2018, we continue to expect our cash flow from operations margin to run between our non-GAAP net income margins up to 10 percentage points higher than our non-GAAP net income margin. And that is in line with the range we've provided for 2017.

We recommend analysts 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 2018 we remain committed to delivering sustainable growth and profitability.

Our key areas of investment will continue to be in sales and marketing to capture market share and grow our business and R&D to continue to extend our leadership position. We believe we are well positioned for the future and now I'll turn the call over to the operator or Q&A.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Saket Kalia of Barclays. Your line is now open..

Hi guys, how are you?.

Good Saket..

Hey thanks for taking my questions here. Josh, maybe just to start with you, you know, I know deferred revenue may start to move around a little bit in 2018 given 606, but if we look at the ending balance here in Q4 it looks like we saw a bigger increase in long term deferred than we have in the past.

I guess, you know, how much of this was perhaps customers opting for longer term maintenance contracts versus perhaps maybe higher deferred license?.

Actually it's all around support and maintenance contracts. As I pointed out in the remarks, we continue to have very high maintenance renewals for our contracts.

We did see an increase, some increase in multiple-year maintenance renewal contracts and you'll see that in the long term deferred revenue jump and also there is a seasonality of renewals happening in Q3 and Q4 because that is a bigger piece of our product and our maintenance starts as well in the second half of the year.

So we do see some seasonality in our deferred revenue going up in this part of the year, but it's really reflecting maintenance contracts and the percentage of the deferred revenue related to deferred licenses is still under 10% the same number that it's been tracking for the last really 1 to 1.5 years..

Got it. That's really helpful.

Maybe my follow up for you Udi, very nice 2018 revenue guide, I guess the question is, as you contemplated this revenue level for 2018, how did you think about competitive win rates qualitatively and also the ramp in productivity from some of the sales changes that we made here in 2017?.

Yes, Saket, so obviously we're - thank you we're very pleased with the Q4 performance and the momentum that carries into the New Year and of course the guide really reflects first of all our confidence and our market leadership.

We believe our competitive leadership has strengthened, particularly with the Version10 with Conjur, with EPM and a lot of things that we did on the technology front and definitely on the go-to-market we’ve globalized our sales force.

I still think that are in motion, but we believe we’re entering stronger and have the ability to execute on that and of course we look into our pipeline and that's the basis for our confidence..

Got it. Very helpful guys. Congrats again..

Thank you, Saket..

Thanks..

Thank you. And our next question comes from Melissa Franchi of Morgan Stanley. Your line is now open..

Thank you, and congrats on a good quarter.

Udi, I just wanted to ask you about EMEA since the growth was notable this quarter and I'm just curious, I know that you mentioned GDPR, but I would just like to hear your comments on to what extent that was actually contributing to the acceleration in the quarter or is that largely just simply because of the new sales leadership and better execution?.

So, hi Melissa. No I would say the GDPR comment is more as we look into the future in terms of early signs of it moving from something looming to something that's customers are more making decisions on and something that will be more of a tailwind into 2018.

The Q4 results were very much CyberArk execution, sales team execution, channels and the budget levels we typically see especially in Europe in Q4, so we put a lot of energy in putting things back on track and executed well..

Okay, that's helpful and then just one for Josh, thinking about the guidance for OpEx in ’18 it does call for an acceleration in growth despite the commissions benefits.

So I'm just wondering if you could maybe put a little bit more color behind where exactly you're investing in and then when do you expect to start to see leverage from those increased investments?.

Yes, I would say that the increased investment is going to be really divided into sales marketing for half of it and into R&D for half of it. And sales and marketing we talked about the opportunity ahead of us and we want to make sure we get it right and not leave it on the table.

With R&D investment, though and the migration to the cloud and the changing in the IT environment there are lots of things that we're moving forward to in the development side as well and that’s where we’re taking the – we're making sure that we're positioned well for the opportunity into the next year.

With regard to the impact from 606, actually it’s a nominal impact also on the revenue side but also even and on the expense side, so that’s not really impacting much the operating margin..

Got it. Okay, thank you..

Thank you..

And our next question comes from Sterling Auty of JPMorgan. Your line is now open..

Hey hi guys. This is actually Ugam Kamat on for Sterling this morning. So the EMEA growth has evolved really phenomenal, I mean 40% year-over-year growth.

Should we assume that most of the execution issues that you are facing in these regions in the early part of the years have been ironed out or do you believe that it is still work in progress?.

Thank you, Ugam. I would most, but we're still focusing on getting more consistency and so there is still work with the new place and we think there is a lot we could do to work closer with the channels and get more consistency. So I would say work in progress, but in the right direction and obviously we’re very pleased with Q4..

Okay, thanks and just a follow up on the operating margin guidance how much FX impact are you estimating for 2018, given the weakening USD and your R&D in Israel I think it would have some amount of impact on your operating expenses?.

Yes, you are right. As you know, we have our shekel in - our expenses in Israel are in shekels and so that will impact R&D expense in particular. And in terms of the margin impact, I mean it’s basically what is the number – it's between $1 million to $2 million..

Got it. That’s helpful. Thank you so much..

Yes..

Thank you. And our next question comes from Gabriela Borges of Goldman Sachs. Your line is now open..

Hi, great. Good morning. Thank you for taking my questions. Udi, you mentioned a couple of times during the prepared remarks on automating and simplifying the solution.

May be tell us a little bit more about some examples of why your automating, simplifying and do you think that this will help extend privilege access adoption outside of may be the traditional cohorts and traditional verticals that have adopted it? Thanks..

Yes, thank you Gabriela. It's been, a few things have strategic for us on the [Audio Gap]..

[Operator Instructions] Speakers, you may resume..

Thank you, Gabriela. I think we were cut off, but the point was to really do what’s best for our customers in scale and automation, not just for the on-premise environments would really join them in the journey to the cloud with more automation..

That’s helpful and actually the cloud question was my follow up to you, so to what extent are you seeing new business coming to the company, because customers have decided to go to hybrid deployments or cloud deployments at which point they decide to implemented Privilege Access Project, just give us a sense to as to what extent that’s the coming of pieces new business?.

Absolutely, I think it’s been a strategic investment for Cyberark for the last couple of years to leverage our market leadership and the awareness around what we do, also to customers that are going on the migration. There are many fronts where this is coming in.

It could be of course existing customers that take us to migration, but your question, a lot of new as they are looking to migrate and they want to be able to trust the cloud platform be able to secure their applications.

It’s coming in on the inbound side, a lot of it's on from own sales force marketing, but also from the advisory firms that consult them on migration.

I believe in the last call we gave an example of recovery of a customer that was recovering from a massive breach where they decided to recover into Azure and it was a new customer for us, we helped them with the recovery and doing it, it all deployed in Azure..

That’s helpful context. Thank you..

Thank you..

Thank you. And our next question comes from Rob Owens of KeyBanc Capital Markets. Your line is now open..

Great, and thank you for taking my question this morning. I wanted to circle back just on the margin front and understand why ’18 sets up as an investment year, especially given some of the success you’ve seen over the last six months in Europe, so any help there would be great? Thanks..

Hey, Rob I’ll start, this is Josh, and before I'll get to that and then second I did want to make a correction on the FX answer I gave a couple of questions ago and it wasn’t I think $1 million to $2 million, but it’s basically the OpEx guidance includes about a 1.3 on the operating margin 1.3% erosion of the margin because of the increased shekel rate for 2018 but...

There is a little bit in that but that’s offset by 606 to some degree understand the puts and takes there. So again, the spirit of the question just you, you’ve seen success after going through a bit of a sales reorg in Europe and it seems like you're investing even more this year.

Why wouldn’t it be somewhat of a consistent investments where we’d see some margin growth with the revenue growth versus what appears to be a more of an investment year? Thanks..

Yes, well I think we're basically checking out, making sure that we capture the opportunity and which we see is a very large and we want to – we're doing it both on the sales and marketing and R&D side. It’s not in terms of a growth year relative to 2017 the differential is lot less than prior years.

But in fact we do want to make sure we get it right with the number of - with the hirings that we’re doing across the sales and marketing organization and then across the development and so we see it continued investment given the fact that the opportunities still allows us to grow in this area..

Is there anything reflected in your win rates at this point, or I guess the top of the funnel in terms of the numbers of bats that you’re getting would suggest that you are you’re ceding share in the market?.

I think if we look at the number of bats it actually supports our continued investment in the sales and marketing organization. So we’re getting more bats, we’re getting more bat and we want to make sure that we’re taking a swing on all of them..

Great and then second, it didn’t seem like there was as much discussion around EPM this time understanding AIM was strong during the period, so just curious about an update on that front..

Yes, Rob it's Udi here. Absolutely, both of them were very pleased with AIM and we highlighted that because we’re excited about our play in DevOps security but it was a great year for EPM. And really we talked about some customers were at the driving forces is protection against ransomware.

We've had customers where it’s really all about preventing the initial stage of the attack and privilege escalation. So it's a great product for us and very often and it’s one of the products we have standalone deals and then opportunity for more add-on business..

Great, well thank you for taking my questions..

Thanks, Rob..

Thank you. And our next question comes from Fatima Boolani of UBS. Your line is now open..

Good morning. Thank you for taking my question. Udi, I wanted to drill into a comment you made in your prepared remarks around 2017 being the year where you've simplified your pricing and CyberArk typically has reputation of being perhaps more addressable to higher end organizations, larger enterprises and perhaps more on a regulated industry side.

But I wanted to hear your perspectives on and specific pricing changes you’ve made to broaden your addressability and what incremental steps you are taking this year as part of your investment to broaden the scope of the product offering? And then a follow up for Josh if I may..

Right, so Fatima definitely from - I would say from a position of strength, we saw that many of our customers were increasingly buying EPV and PSM together. It’s also our professional security recommendation as what we call that is doing the basics, doing the core combined with our privilege threat analytics.

So we made it easier for customers to have a starting point around our core products and then a stepping stone for expansion. And I would say it's good for both enterprises, but it is, it’s also a good preparation as we further go down-market..

And just to drill in on that a little bit more around the pricing environment vis-à-vis competitors, there's been some consolidation in this space, any comments you can share or perspectives you can share on what the pricing environment and the discounting environment has been in with that shipping up to be this year?.

Sure, sure, Fathima. So, I would say as we indicated in the past and no real change in the enterprise environment as we were getting deeper down-market and further into mid market, that’s where we saw some of the pricing pressures that we indicated in the past. For that we also executed on bundling prices earlier in the year.

And so, I would say, in that part, that segment of the market has more pricing pressures. Sometimes it's I would say comes in waves whereas in the enterprise our leadership is very clear and we’re focused on the customers.

So everything we did here is to make sure that they step up from the get-go they get the right security solutions in place to really protect themselves against advanced attacks..

That’s really helpful. And Josh, just a question on your CapEx guidance, just wanted to understand what’s going in there, it’s a little bit of a step up from the past, so I wanted to understand if it's building out your other service capabilities or really what’s going into that step up? And that’s it from me. Thank you..

Yes, so first of all I called out that there is about $5 million of the CapEx which is being, which is ready to be sold improvements for really offices around the world that we're building out to as part of our expansion in the U.S and then Europe and in Singapore and also as well in Israel.

And then I would say we are, we’re also expanding in our IT infrastructure and related CapEx as well in that area..

And then Fatima I wanted to also, you asked about consolidation, yes, we've seen some of our smaller competitors get acquired by other smaller competitors, so overall we see that as a net positive and again a sign for this market and demand out there and we actually expect the consolidation to continue within the competitive landscape..

Very helpful. Thank you..

Thank you..

Thank you. And our next question comes from Gur Talpaz of Stifel. Your line is now open..

Great, thanks for taking my question. So Udi, you know, in August you hired Ron as a Chief Revenue Officer.

Can you talk about the impact he has had on the organization? And then more broadly, can you talk about the visibility you now have into the broader global sales pipeline?.

Yes, Gur thanks. Actually we did hire we promoted, because yes Ron was leading the Americas and he has been with us for many years and was really the natural candidate to take over the globe and so he has been doing a great job. I think we're seeing the results.

And to your second part of the question, it was - we also saw the advantage of globalizing the last non-globalized department in CyberArk where especially with some of the large enterprise accounts we were always serving them in the different regions, but now really getting that alignment in supporting their needs around the world and that’s in line with the fact that we’ve a globalized services and support organization and so that’s working hand-in-hand very well..

That’s great, and then and apologies for the misstatement. I want to rephrase one of the prior questions.

Udi, how often do you see customers coming to you and choosing you because your solutions support their vision of a future cloud deployment? So may be a deploy on-premise never because you have this vision and these products that support the natural migration to the cloud.

You’re picking you deploy your on-premise now, but the future plans call for you to be deployed in other parts of their networks. Thank you..

Absolutely, it’s becoming very common. I think every prospect and customer meeting we walk into, they are either in some hybrid form or in some migration form and they look at those two angles that you talked about, our ability to be deployed in the cloud and of course we have the Amazon machine image and ability to be installed on Azure.

So they look at that capability even if they’re not contemplating to do it now and the second aspect which is super strategic they look at our ability to support the vision for deploying their applications in containers and micro services and now the combination of AIM and Conjur super, is the super differentiator for us of our ability to take them into that journey.

We saw it in Q4 already and we’re seeing that with a lot of our customers..

That’s great helpful. Congrats on the quarter. Thanks a lot guys..

Thanks Gur..

Thank you. And our next question comes from Jonathan Ho of William Blair. Your line is now open..

Hi, congrats on the strong quarter.

I just wanted to start out with your comments regarding the advisory channel, can you may be give us some thoughts around how far we are in terms of that opportunity and do you see this helping more on kind of the lead gen side of things for core privilege or is this helping you more with the add-on solutions or both?.

Both, I think we've made - as I mentioned we've really made a long way with the advisory firms.

They’ve recognized two things, they've recognized that Privilege Account Security is a business opportunity for them to really make an impact on their customers and they've recognized that CyberArk is the company that’s going to be out there for the long run.

That’s really investing for the long run and they could partner with us and expect to have this long term partnership. They bring to the table the ability to have C-level access, to have risk based discussions, and so we saw their impact both in new lease but also in existing accounts becoming more strategic and going deeper.

The other element of it was our investment in training and enablement and so while they solve the opportunity we also invested in them and I think that’s how we saw the fruits.

And a big part of their practices these days is taking the customers through the cloud journey and more and more it involves not just the basic cloud infrastructure, but also the DevOps evolution of how do you run your applications in cloud and understanding that they need to address that resource management and our solution for that..

Got it and then just given the turnaround that’s already been taking place in EMEA, I guess where do you see the incremental opportunities for Mr.

Turner to I guess drive additional growth or additional improvement in the region?.

Yes, absolutely. We think its work in progress and one of the basic things is to achieve consistency, so we had a great Q4 and we see a healthy pipeline. Rich brings a great experience especially on the channel front.

We’ve already cherry picked and partnered with the best channels out there, but we can do much more with them and get them more self sufficient.

And as I alluded to in the past keep us closer in the loop especially for add-on business within customers ensure that we're in there, that we are strategic for them and so he walked in as we see a great opportunity for to making the CyberArk..

Great, thank you..

Thanks Jonathan..

Thank you. And our next question comes from Shaul Eyal of Oppenheimer. Your line is now open..

Hey guys, this is Tanner on for Shaul. Congrats on the strong quarter. Last quarter you mentioned 60% of your sales came from the channel and this has been at the high end of your historical range.

Just wondering what percentage of deals were through the channel this quarter and how your channel initiatives continue to pay dividends this quarter?.

Yes, actually as we mentioned. Hey Tanner, as we mentioned it was 60% and now as well and so we’re seeing it as a healthy mix..

Got it. Thanks for the clarity and just as a follow up cloud seemed to accelerate this quarter for not only cloud service providers and also for some of your peers and the broader cyber security group.

Just a follow up on one prior question and not to beat a dead horse, but what are some of the trends you’re seeing in win rates for your cloud complementary offerings if you want to call it and is this is a dynamic your moulding your 2018 investments around particularly within the channel?.

Yes, absolutely.

I think as I said it's something we started a couple of years ago really investing in and it's a big part of our customers journey and really and we're there to start with however they want to, if they’re still securing their on-premise environment we help them with that and show them the path towards the hybrid and cloud migration, but very often we're landing and were joining them just as they are looking at how do they secure their cloud environment and their application environment and that’s become a great source of also as for the earlier question of new lead generation for us..

C:.

Great, thank you very much..

Thank you..

Thank you. And our next question comes from Gray Powell of Deutsche Bank. Your line is now open..

Great, thanks for taking the questions. I just had a couple if I can. May be to start, I just want to make sure that I have the 606 revenue impact correct.

Were you saying that it’s a $1 million to $2 million benefit to revenue per quarter in 2018?.

Yes, let me make it clear. For 606 we expect to see $1 million to $2 million less in revenue for the year and about $2 million less in expense for the year..

Got it. Okay. That’s helpful. And then so I’m going to try to follow up on some of the other questions, but I mean you guys clearly have a best in class enterprise grade product. We hear that a lot of the growth is more coming from the middle market or more price sensitive customers.

So how do you target those customers without impacting your core installed base of what enterprises, is it more the bundling or is it more like on sort of a feature set and may be less functionality for middle market customers?.

No, no, I would say that our growth is actually very much coming from the enterprise play and both a lot of Greenfield on the enterprise and add-on to the enterprise and were going further downstream.

So it’s an added way for us and some of the investments we’ve made in simplifying products for the enterprise are fruitful for us as we go further downmarket.

So we’re actually leveraging those investments and we're continuing to invest in simplification and automation and they serve both the enterprise customer, but also our journey further downmarket..

Got it. Okay, thank you very much..

Thank you..

Thank you. And our next question comes from Gregg Moskowitz with Cowen and Company. Your line is now open..

Okay, thank you very much and good afternoon guys.

Udi, you’ve always expected side around the potential as Conjur, but if anything you guided me on this call anyway its perhaps even a bit more amped up if you will around Conjur and secure DevOps as an opportunity, how is the customer response to Conjur thus far compared to your original expectations when you acquired the company and when do you expect it to really begin contributing to revenue?.

I think we’ve presented it in two large customer conferences and then in various conferences afterwards.

And to previous questions you can see that whether they’re already in the midst of it or contemplating it, it just strengthened our belief that CyberArk is the company with the vision to where this market is going and are ahead of the curve to go with the journey for them.

Tangibly I can say that five of our 10 largest deals had our application as any management with Conjur in it. Some of it was still application as the any management securing more legacy type applications, but those decision makers wanted to know that we can support them in the journey as they move their applications to containers and into cloud.

So that’s the source of our excitement. It's today but it's also the future and how it supports our today application at any management offering, but also the path forward..

Okay, that’s very helpful color and thanks Udi.

And then just a follow up for Josh and I know you don’t of course explicitly guide to license revenue, which is just part of your 2018 guidance, any sort of high level color or thoughts about how we should be thinking about licensed growth over the course of the year?.

We, its right we don’t breakout our license by revenue, but I think that we’ve been pretty consistent with our breakout for percentage of license as compared to the total pie over the last few years and we don’t see that shifting materially..

Okay, great. Thank you very much..

Thank you. And that concludes our question and answer session. I’d like to turn the conference back over to Udi Mokady for any closing remarks..

Great. Thank you very much. I want to take this opportunity to really congratulate the CyberArk team and our channels on the strong finish of 2017. I want to thank our partners, customers and employees, who really contribute everyday to our success and thank you all for joining us this morning. Thank you..

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 day..