Good morning. My name is Amoy and I will be your conference operator today. At this time, I would like to welcome everyone to the CyberArk Q1 2019 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Erica Smith, VP, Investor Relations, you may begin your conference. .

Thank you, Amoy. Good morning. Thank you for joining us today to review CyberArk's first quarter and 2019 financial results. With me on the call today are Udi Mokady, Chairman and Chief Executive Officer; and Josh Siegel, Chief Financial Officer. After prepared remarks, we will open up the call 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 second quarter and the full year 2019. 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 US Securities and Exchange Commission and those referenced in today's press release. CyberArk expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations to the most directly comparable GAAP financial measures are also available in today's press release, or in the supplemental disclosure information both of which can be found at www.cyberark.com in the Investor Relations section.

Also, a webcast of today's call will be available in the Investor Relations section of our website. With that, I'd like to turn the call over to our Chairman and Chief Executive Officer, Udi Mokady.

Udi?.

Thanks, Erica, and thank you everyone for joining our first quarter earnings call. We were pleased to start the year with strong results exceeding guidance across all metrics. Revenue accelerated year-over-year to 34% reaching $96 million.

Operating income was $25 million and our powerful business model generated a record $46 million in cash flow from operations. Before we dive into the details of the quarter, I wanted to discuss the broader markets. Since we founded CyberArk, security solutions have evolved to keep pace with the expanding attack surface and hacker innovation.

Over the last few years, we have reached a level of unprecedented change, digital transformation strategy, the migration to cloud, hybrid and modern architectures and the increasing connectivity among enterprise systems, our accelerating business and at the same time, creating massive security challenges.

These trends have been driving progressive shifts in our business. In our major markets, we no longer educate enterprise customers and prospects about the importance of Privileged Access.

Today we are recognized as a mission-critical solution that empowers and protects business operations by reducing risk across on-premise, cloud and hybrid environments, and enabling organizations to move faster, more efficiently and most importantly securely as they execute digital transformation strategies.

All of these trends have contributed to our results over the last few quarters including record revenue in the Americas and APJ in Q1. While we believe EMEA revenue which grew 60% in the first quarter was impacted by our strong Q4 2018, the pipeline across the region and globally continues to be robust.

In addition, the business was well diversified across industries, banking, healthcare, insurance, media and IT software and services grew faster than 50%, while banking, healthcare and global governance, each represented more than 10% of the business in the first quarter.

I had the pleasure of meeting with chief information security officers from a number customers and partners at the RSA Conference in March. These discussions were focused on expanding our solutions to drive Privilege Access Security Programs enterprise-wide.

Existing customers continue to represent more than 60% of our revenue as they expanded deployments with CyberArk in the first quarter.

A few examples include, a large mutual fund is migrating all of its datacenters to AWS and will be expanding its core Privilege Access Security deployments to secure this new environment as well as an increasing number of SaaS administrators.

A leading European manufacturing company is rolling out CyberArk to secure a major Robotic Process Automation or RPA project as part of its digital transformation strategy and a financial services firm is standardizing on CyberArk enterprise-wide and will be leveraging our Application Access Manager to protect and share mission-critical data to leverage other key security investments.

We also won nearly 150 new logos in the first quarter bringing our total customer count to about 4600. Notable additions include, a large U.S.

retailer will be protecting UNIX and Windows systems with core Privilege Access Security and will be securing Jenkins pivotal Cloud Foundry and other DevOps tools as part of its application development running in Google Cloud platform.

In a seven-figure deal with a Fortune 100 financial services firm, we were chosen for our scalability and AWS and Azure environment and because we are the only vendor who could protect its expensive RPA project with UI path.

And as a payment company, we will secure access between more than 40 physical locations and gained visibility into privilege activity enterprise-wide with CyberArk. This was a rip-and-replace of a niche vendor who could not scale to meet the long-term needs of this entertainment powerhouse.

We are also pleased with our progress to drive adoption of newer solutions. In Q1, we introduced Application Access Manager which unifies Conjur and Application Identity Manager into a single solution for both dynamic and static application environments.

In fact, the solution was included in eight of our top-10 largest license deals in the first quarter. Software applications are the lifeblood of every organization today and we still see ourselves in the early innings of the opportunity for our application solutions.

In addition, Endpoint Privilege Manager continues to gain traction within customers of all sizes and across industries as an important component of security hygiene. We also took our first steps in formalizing the mid-market sales motion. The team is in place.

We are establishing our channel relationships and the pipeline is building with both new and existing customers. We are just getting started in the mid-market and are excited about the early progress.

As we analyze our first quarter results, I am confident that we have a significant runway for growth across both new and existing enterprise customers and our competitive advantage continues to be our unwavering commitment to strengthening customer security fabric through ongoing innovation across on-premise, hybrid and cloud environments.

With the innovation we delivered in the first quarter, we are the only solution that automatically identifies and protect Privilege accounts in AWS such as unmanaged users including shadow administrators, and instances.

We also strengthened our response capabilities and are rotating credentials based on risk scores for potentially compromised sessions in the cloud. Our advisory, value-added reseller, and technology partner ecosystem contributed to our results with more than 65% of revenue coming from indirect channel in the first quarter.

Momentum continues to build within our C3 Alliance program as we become more tightly integrated across the business operations of our customers.

With C3, we make it easier for customers to strengthen their overall security posture across technology investments including RPA vendors like Automation Anywhere, UI PAS and Blue Prism in addition to partners like SailPoint, Okta, Proofpoint and Tenable.

As we position the company for long-term growth and scale, we strengthened the team adding Rich Wenning as VP of North America Sales and Clarence Hinton as SVP of Strategy and Corporate Development.

Rich brings deep domain expertise having run enterprise sales most recently at Paulo Alto Networks and previously at Cisco where he helped scale the organization to more than $2 billion in enterprise sales. Clarence is leveraging his extensive experience from BMC Software and Nuance to help drive the long-term growth and scale of the organization.

We are thrilled to have them join the CyberArk team. We were pleased again to deliver strong results in the first quarter. The market for Privilege Access Security is rapidly growing and as we look ahead, we are well positioned to capitalize on that opportunity. With that, let me turn it over Josh to discuss our strong financial results.

Josh?.

Thank you, Udi. As you just heard from Udi, we were pleased to exceed our outlook across all guided metrics including revenue, operating income and EPS. Total revenue increased by 34% year-on-year to $95.9 million. License revenue was $51.3 million increasing 33% over the first quarter last year and representing 53% of total revenue.

Both new and on-business contributed to our results in the first quarter. On the product side, Application Access Manager represented about 10% of license revenue and Endpoint Privilege Manager represented about 7%.

As we look more closely at the EPM, we were pleased to see the percentage of EPM bookings derived from SaaS deals increased in the first quarter compared to the year ago period. Maintenance and Professional Services revenue was $44.7 million increasing 34% over the prior year period and representing 47% of revenue.

The Professional Services revenue associated with this line was $8.2 million or 8.6% of total revenue. Geographically, as Udi mentioned, the Americas reached a record of $62.1 million in revenue increasing 41% year-on-year and representing 65% of total revenue.

APJ also reached a record $8.5 million in revenue increasing 45% compared to the first quarter 2018 and representing a 9% total of revenue. EMEA revenue grew by 16% year-on-year to $25.3 million or 26% of total revenue.

When we analyzed our first quarter EMEA business, we believe the year-end budget flush which helped to drive our Q4 2018 record results impacted our first quarter business. This is reflected in the higher dollar amount of deals over $500,000 in EMEA we saw in the first quarter compared to the first quarter this year.

Overall, demand trends remain healthy across all geographies with a growing pipeline of activity. As I move through the P&L, all line items will be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release.

Our first quarter gross profit was $84.8 million or an 88% gross margin compared to 87% gross margin in the same period last year. Our top priorities for this year continues to be investing and innovation, growth and scaling the operations.

R&D expense grew by 22% year-on-year to $14 million or 15% of total revenue as we continued to deliver innovation. Sales and marketing increased 18% to $37.7 million or 39% of total revenue as we expanded our sales organization across all geographies to support direct and indirect sales.

G&A expense increased 21% year-on-year to $7.6 million or 8% of total revenue to scale the business to support our growth. In total operating expenses for the first quarter increased 19% to $59.3 million, compared with $49.7 million for the first quarter last year.

Our revenue outperformance and disciplined investments drove strong leverage again in the first quarter. We posted operating income ahead of our guidance at $25.5 million or 27% operating margin more than doubling from $12.6 million representing an 18% operating margin in the year ago period.

Our overall expense growth is primarily related to headcount and we ended the first quarter with 1204 employees worldwide, up from 1053 at the end of the first quarter last year and we ended the quarter with 567 employees in sales and marketing compared to 502 at the end of the first quarter of last year.

Net income was $25.5 million or $0.56 per diluted share for the first quarter of 2019 and increasing from $11.8 million or $0.32 per diluted share for the first quarter of 2018. In the first quarter, we were pleased to generate record cash flow from operations of $45.9 million or a 48% cash flow margin.

The strong cash flow was driven by our record results in the fourth quarter as well as better than anticipated collections from our maintenance renewals which seasonally – which is seasonally high in the first and fourth quarters of the year.

We ended the quarter with $510 million in cash, deposits to marketable securities and this compares to $451 million at year end. Deferred revenue increased 43% year-on-year to $171 million at March 31. On January 1, 2019, we implemented Accounting Standard ASC 842 related to long-term operating leases in the financial statements.

As a result of the new standard, we capitalized these leases and recorded assets of $24.8 million and liabilities of $26.1 million as of March 31, reflecting the value of the leases. The P&L related impact of the adoption was not material. Turning to our guidance.

As a reminder, our guidance does not consider any potential impact with foreign exchange gains or losses as we do not try to estimate future movements in foreign currency rates.

For the second quarter of 2019, we expect total revenue of $96 million to $98 million or 25% growth year-on-year at the midpoint, we expect non-GAAP operating income to range between $22 million to $23.5 million and non-GAAP net income per diluted share of $0.45 to $0.48.

This assumes a 39.1 million weighted average diluted shares and an effective tax rate of 21% for the second quarter. For the full year 2019, we are increasing our guidance for total revenues to be in the range of $415 million to $419 million or growth of approximately 22% at the midpoint.

We are also increasing our guidance for non-GAAP operating income to be in the range of $100.5 million to $103.5 million and non-GAAP net income per diluted share of $2.10 to $2.16. This assumes 38.9 million weighted average diluted shares. Our guidance for the full year assumes an effective tax rate of approximately 21% for 2019.

For modeling purposes, as you’ve seen our guidance, we plan to continue to invest in the business in the second quarter. Please note that we also expect to see a larger step-up in expenses between the second and third quarters related to marketing programs, and seasonal employee expenses.

While we deliver the exceptional cash flow from operations in the first quarter, we still expect our cash flow margin for the first half of 2019 to be at the midpoint of the range of 5 to 10 percentage points above the non-GAAP net income margin.

And for the full year, we continue to expect our cash flow margin to run between 5 to 10 percentage points higher than our non-GAAP net income margin. 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. We were pleased with our strong results in the first quarter. Our priority for the remainder of 2019 is to invest in the business to deliver profitable growth over the long-term. I will now turn the call over to the operator for Q&A.

Operator?.

[Operator Instructions] Our first question comes from the line of Shaul Eyal with Oppenheimer. Your line is open. .

Thank you. Hi, good afternoon guys. Congrats on the solid set of results, as well as the guidance. Udi, I want to start actually big picture.

You’ve mentioned in your opening remarks, cloud, digital transformation as driving or even accelerating from our perspective to the business, can you specifically touch on the digital transformation trends you are seeing out there? And I have a follow-up..

Thanks, Shaul.

So, definitely, first and foremost, we are seeing Privilege Access Security be a top priority for security and chief information security officers, but we are continuously excited to see that we are an enabler and a big part of organizations adoption of digital transformation strategy whether it’s moving their applications, workloads into the cloud and therefore the new to manage application secrets with our AAM or previously we call the Conjur supporting digitization like robotic process automation more and more.

Those robots are actually mega super administrators and users and vivid and enable the use of RPA for these projects. And then, increasingly also to bridge that gap of trust with the cloud providers and moving servers and the administration of workloads in the cloud, we provide that layer that enables trust for adopting this move. .

Got it. Got it. And maybe a follow-up either for you, Udi or even for Josh, and it could be a little bit of a tricky one. When you look, for example at, I don’t know your top-10, even top-20 customers, especially those that have been with you for the past, let’s say 10, 15 years.

Do you have some sort of an LTV analysis or even maybe some sort of magic number meaning to say those that started with you ten years ago, investing, what would that number be now? Is it 3 x? Is it 4 x? Is it 10 x? Anything along these lines that can assist us a little bit?.

Yes, hi, Shaul. Thanks for calling in. I think when we look at the analysis and we’ve done a lot of cohort analysis going back, seven, eight, nine, ten and plus years, and I would say that, if we look at cohorts that are eight, nine years old, we are looking at seven times their first year purchase. .

Got it. Thank you, Josh..

That would include obviously some component making it, obviously, as part of it. Bu we see that probably two-thirds of it coming from license and then the third coming from maintenance. .

Our next question comes from the line of Melissa Franchi with Morgan Stanley. Your line is open. .

Okay, good morning. And congrats on the quarter. So, it seems like, it was sort of business as usual for CyberArk in Q1. But if I look across the security space, it was a little bit of mixed results kind of across the board with your peers.

So, I am just wondering from your perspective, Udi, did you see any change in the overall spending environment for security.

And is there any reason to believe that 2019 maybe a little bit softer than what we saw in 2018, just from a high level perspective?.

Yes. Thanks, Melissa. I think if we would look from our prism, no, I would say, we started the year really being bullish on the opportunity in our space. Privilege Access Security is actually risen to the top end in priority and hence the results and hence our confidence in the pipeline.

I also – I wouldn’t say that I have heard anecdotal comments from customers about other partners of ours or other security initiatives. I think in general, security spend is moving towards the assumption of zero troughs and therefore you really have to strengthen your core and putting layers that are hacker-resistant.

So little bit beyond the perimeter. And – but other than that, I would say the same trends that we saw last year are continuing. .

Okay, great. And then just a follow-up for Josh. You noted better than expected SaaS adoption in EPM and we did know that there is really good growth in your deferred revenue. So I am just wondering if you’ve seen higher kind of term license adoption across the board in the portfolio and how we should expect that for the rest of the year..

Yes, absolutely, we saw an EPM. We actually did see stemming in the first quarter some – nice compared to first quarter last year had an uptick in SaaS bookings relative to the perpetual bookings on EPM last year. But I would say still on the deferred revenues, we are still kind of in the same category of the same percentage point.

So, the deferred is still the majority of our support contracts, but the SaaS and the term based license is creeping up. But I would not say that’s yet materially changed..

Great. Thank you so much..

Thank you. .

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

Hey guys. Thanks for taking my questions here. Josh, maybe just to start with you. Can you just talk a little bit about the average deal size in the quarter? It seem like it had gone up.

And so, the question is, is that coming from really larger lands with customers starting with more products than you initially have in the past? Or is Cyber perhaps finding just maybe a little bit more pricing power given the competitive environment?.

No, I think, what we look at – overall, if you look at the entire license business, we would say that the – it’s pretty – it’s staying pretty stable. But if we were to break it down, we would see an increase on the new business deals on an average deal order and we would see, even maybe some slight decline on the add-on business.

And I think the new business increase is attributed to what you are commenting on is that we actually are – because of the simpler pricing and so forth, we are seeing customers coming in and taking bigger chunks on day one, because it’s a much easier acquisition for them. And – but overall, on a consolidated basis, we are seeing it about the same..

Got it. Got it. Udi, for my follow-up, may be for you. Clearly, the competitive environment remains favorable based on these results and guidance.

But, I am just kind of curious, what you’ve seen out there from your competitors? Whether there is any sign of them trying to get back on track with any sort of success or any signs of incremental improvement from, maybe some of those ankle biters in the past? Anything that you would add?.

Yes. Sure. Hi, Saket. First of all, I would say that, we are stronger than ever. I think, the competitive landscape has changed, I think positively across and there is even the additional external third-party validations that we didn’t have in previous years from the Gartner and Forrester reports that came in end of last year about our clear leadership.

I would say that, enterprises, when they buy the invites are better, especially in new deals and when one is disrupted, then others make way. So, I would say that the niche competitors are probably invited more often in palace of companies like CA and Dell where they were in the past.

The disruptive type organizations like what we talked about disruptions from PE acquisition, we have not seen them regain foothold. Our working assumption is that we have to work hard to always retain our leadership and break forward with innovation.

So we assume that even if they have not regrouped, let’s work as if they are regrouped and push further on all fronts, execution, but also innovation. .

Our next question comes from the line of Sterling Auty with JP Morgan. Your line is open. .

Yes, thanks. Hi guys.

I want to go back just to the demand environment and ask it this way, how was the linearity in the quarter? And what have you seen, obviously, you’ve given the guidance for the quarter and for the full year both, what are you seeing in terms of the start to the second quarter?.

Hi, Sterling, it’s Josh. I’ll start with the – on the linearity, we actually – after coming out of the strong Q4 of last year, we were a bit more backloaded in the first quarter of 2018. And – but, overall though, we didn’t see any other – nothing that was different and within the marketplace. What was your second question? Was it on...

The beginning of Q2..

Yes, I think, at the beginning of Q2, that’s where our guidance is based off of where we saw the pipeline going into Q2 and how it started and we feel very good about the Q2 growth guidance, as well as full year growth guidance. .

Okay. And then, in terms of the – you mentioned, I think the purchase from existing customers, how much of the demand you are seeing from existing customers is just – same solutions in more used cases versus adding on more of the portfolio..

Certainly, Udi here. I’ll take that. I think, it’s really the continuous progression on moving from project to program and I mentioned the artificial, I just had the ability to meet so many of our customers at once and of course, since – and they are just taking this layer much more seriously.

So with our simplified pricing, some of it really goes into core PAS. But more or like you said, like more use cases across more piece of their infrastructure and not just to areas that were sales compliance in the past. But actually thinking risk and taking it across.

And then more advanced customers are taking also some of our growth engine in our earlier or newer products again, for starting with the most critical use cases as we walk them through the program. .

Got it. Thank you. .

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

Good morning. Thank you for taking the question. I have a couple. Udi, I’ll start with you. You’ve got a year under your belts now with respect to the bundled sales motion around PAS.

So, I am wondering if you can share the exact patterns in terms of how customers are buying and deploying and to the extent there is a change in how pervasively they are deploying because it’s a bundled package. That’s the first question and then I have a couple others for Josh..

Sure, sure. Yes, well, definitely, hi Fatima, we are definitely on a full year of the new pricing and it really enables the core PAS to continue to be the major driving force in our acceleration here of revenue and license where it’s easier for customers to scope what they need and decide how they want to start with CyberArk.

As you alluded, it’s also leading to the right way to start an implementation, because of this bundle, it’s not just a simplified pricing. They are also getting all of the necessary components from day one that used to be broken down into smaller – into modules, they get from day one. And then, they start-off right in the right way to deploy CyberArk.

And then, kind of spend easily down the road. So, it’s kind of – as we alluded this bundling and the pricing along with the simplification of products is a win-win, because customers are putting this layer at the right way from the gecko. .

Understood. And actually just to stay with Udi, on with the mid-market efforts in your prepared remarks, could you just talk about taking the first step on building out that go to market motion, if you will.

I am curious, if you can give us more details on what exactly is in play – and in place? And how we should see yield of those investments that you announced putting in some mid-markets?.

Sure. I think, the beauty is that, one of the reasons we began on working on the mid-market muscle is that, we wanted to optimize productivity for the enterprise team, where we still see the biggest opportunity. But wanted to start ceding the mid-market opportunity for the future.

And so, our marketing focus continues to be on the enterprise and hence, I talk about it as a newer muscle to the mid-market.

What we’ve done is, actually created a dedicated team that can focus on the mid-market, invested in channel enablement because we really expect that that most if not all of this business will be driven through channels and it’s – we are early into it. But we are seeing progress and it’s really an investment for the long-term.

And of course, all of that goes along with the continued simplification of products as we think of the mid-market expects. .

Got it. And Josh, two quick ones if I can sneak them in for you. Long-term deferred revenue growth continues to kind of surpass how we thought about it.

So, wanted to understand if there is any dynamics around maintenance contracts spending, there is any incentives that you’ve put in place to maybe incent that type of behavior? And then, as it relates to sales hiring, how we should think about the linearity of those capacity additions over the course of the year? And I’ll jump back in the queue.

Thank you so much..

Great. Thank you. So, with regard to long-term deferred, it’s really a reflection of our long-term support maintenance contracts for most of it. And we’ve always had some kind of a pricing incentive for customers in terms of a discounted rate. But nothing has changed with that regard.

We still see the overwhelming majority of our contracts be one year contracts, but we are seeing in terms of dollar amounts some trends tick up to on the three year contract dollar side. So, it’s – there is nothing I think remarkable going on. There is nothing inside the company that’s trying to motivate that change.

But I do believe it’s just a reflection of our customers seeing the importance of our product for the long-term. And coming in early on, and particularly new customers, frequently making a claim for three years. But not that remarkably different that what we’ve seen in years past. But other than this slight trend up.

With regard to hiring, I think what we see in hiring every quarter on the sales and marketing side and we increased – you saw the growth in our sales and marketing year-on-year, specifically and I expect it to be every quarter hiring. .

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

Hi, good morning and congratulations on the strong results. I just wanted to start with a question on the competitive environment.

With all the disruption that’s taking place, can you maybe give us a sense of what your win rate looks like now, maybe in comparison to before some of the disruption took place?.

Yes, I would say, hey Jonathan, Udi here. I would say the win rates are the same and because they have been increasingly strong as we talked about in 2018 because of past investments in simplification of products and of pricing. But I think we are in a very strong rate, especially, when we talk on the enterprise side, which is our major focus. .

Got it.

And then, just in terms of the Application Access Manager, can you talk a little bit about why combining the two products, maybe it makes a little bit more of a difference here and maybe talk about how much of an upsell opportunity there is with the Application Access Manager?.

Yes, absolutely.

Because of the customers are going through this journey of a combination of on-prem and applications and the migration of workloads into modern environments, like containers whether keeping them on-premise or migrating to the cloud, we found that the hard line of separation between static application and dynamic is actually and makes it harder for the customer to scope and also in the sales motion.

So this was an optimization that we did for both the customers and for selling motion where we are actually showing up as the trusted partner to solve this problem that exists both in static application and dynamic applications and actually in the same breadth, show the customers that, okay.

This is what we are going to do with these applications that you have here running your quick applications, you're trading floor and your self-developed applications that are static and this is what we would be helping you with your CITD pipeline as you take on DevOps workflows. And so, we combine it into one solution case.

And we also integrated the two products as you recall where from the acquisition to Conjur really integrating to the same platform. So, it’s a positive for the customer, but also helps them to find the sales motion.

And as we look at it, it’s one of our biggest opportunities, because on top of everything everybody is so aware of you Privilege Access and the importance in every major attack.

But the same thing happens with applications where they are served with a credential or are given a pathway to strong access and therefore it’s kind of the new frontier for upsell for us. It takes a slower pace than core PAS. But we view it as a big part of our add-on business opportunity. .

[Operator Instructions] Our next question comes from the line of Gary Powell with Deutsche Bank. Your line is open. .

Great. Thanks for taking the question. Yes, so, I was thinking, I never heard you mention the adoption of RPA as a growth driver before.

Can you maybe talk about that dynamic and the impact on demand for your Application Access Manager products?.

Yes, absolutely. I give it as an example of digital transformation drivers. So it would be on a list of types of programs that customers would do that elevate the need to secure Privileged Access. So I wouldn’t put it as the one, but it’s a growing one.

And through the C3 reliance we partnered with the major players there and as they get scoped out and in their sales motion, one of the biggest things that highlight is, hey, we are giving this robotic process administrative or very strong access to replace some human manual work. But to do that, they get very strong access.

So, CyberArk has an integration that’s very simple for our customers where we actually intercept the need for Privilege Access and broker and give the application the access they need. We are not leaving any exposure for somebody to take that over and get to the data as a Privilege user.

And so, a smooth integration and it’s a hot topic now for many enterprises. .

Got it. Thanks..

And it’s also interestingly another way for Chief Security Officers to bridge and bring value to the organization in digital transformation and be an enabler. And so, it’s a hot topic. .

Understood. Thanks a lot. .

Thank you..

Our next question comes from the line of Gur Talpaz with Stifel. Your line is open. .

Hi, this is actually Chris Spears on for Gur. Congrats on another impressive.

Can you speak to the degree to which the partnership with both Okta and SailPoint has contributed growth into Q1? And how to expect or how we should think about that as a growth driver through the rest of the year?.

Sure, sure. Thanks, Chris. I would say, it’s on a continuum. I think, we see a lot of field partnership on – probably, every couple of weeks you can see us also in joint field events with SailPoint Okta paying on the identity side.

And so, I wouldn’t say it’s an accelerated driver, but I would say, it’s an ongoing strong driver in addition to other partnerships that we have in the C3 alliance that are in other spaces of security, like vulnerability management and RPA that we talked a lot about and others..

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

Yes, thank you for getting me in the queue. My quick question is, you talked about the vertical markets. They look pretty consistent. Are there any programs you are putting in place in 2019 to facilitate more growth or equip the channel to drive across 10 or 15 of them? Thank you..

Yes, I think, really, part of our strength is that diversity, that we can sell the same software to whether you are a manufacturing company in the Philippines or a top notch financial services firm in New York. And so, it’s really about the sales motion and we continuously train our team to be able to go and – about this horizontally.

And as we strengthen our channel and reach, we can also go after the different verticals.

The one vertical that takes on special attention is of course the federal vertical where we have a dedicated team and we continuously invest both in the team itself but also in the certification that helped the adoption in the federal market and through working with a lot of strong partners in that vertical. .

All right. Thanks, Udi..

Thank you..

Your next question comes from the line of Howard Smith with First Analysis. Your line is open. .

Yes, good morning. Thank you for taking the question. You’ve talked about how the simplified pricing and product enhancements allow customers to kind of scope and get easier implementations. And I am curious, how it has affected you have enough data yet.

The follow-on purchases in terms of either timing of when they come back or scale larger, smaller, byte sizes, et cetera.

Any commentary around that?.

Yes, hi, Howard, this is Josh. Thanks for the question. It is a bit early for real data, because, we just introduced this pricing last year and so the real follow-on, I think one of the earlier callers asked, how many times do they come back and it’s seven times their initial order. But we looked at it over seven, eight, nine years.

So, I think it’s still a bit early. I think in the next year or two, we will be able to see better. Overall, with regard to average deal sizes though, and that’s some reflection of it. We are seeing on the new business an uptake and the on add-on, we are seeing more volume in deals, but slightly down on the average size..

Okay. And a follow-up. You mentioned a rip-and-replace on one of your new logos.

I know that historically it’s some of the exception, but are you seeing as this industry matures more displacements for your new logos? Or is it still primarily almost all Greenfield?.

Hi, Howard, I would say it’s primarily all Greenfield and as we look in the pipe, we continue to see that being the majority. But also, some seasoned with some rip-and-replace, especially the enterprises that do have something and are now looking now at it as a security layer. So, I think, we expect more displacements over time.

It’s still the minority of the deals. .

Great. Thanks and congrats on a strong start to the year..

Thank you. Thank you very much..

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

Hi, good morning and thanks for taking the question. Just one question and then one follow-up. So, your guidance for 2019 implies a fairly material slowdown in license growth in the back half of the year.

I am just wondering whether that is conservatism or if there are any other factors we should consider?.

First of all, we haven’t changed our guidance methodology. We’ve been public almost now five years and we continue to use our same guidance methodology, we have to reckon with our pipeline growth, but also at the same time, with being an enterprise software company.

So, I think, we are very happy with the strong growth we saw in the first quarter with being able to raise the full year guidance on the revenue and the growth that we see there. And I think, we are continuing to guide in the same manner as we have in the past giving the strongest number that we feel comfortable of giving..

Okay, got it. And then, at your Analyst Day back in 2018, you talked about medium-term growth of 20%.

Given the current demand trends underpenetrated both mid-market and enterprises, would you consider fiscal 2020 as within the medium-term?.

Yes, I mean, I think, we haven’t – we certainly, we’ve guided for this year and I still think that, we haven’t refreshed the last year’s Investor Day. But then, I think, we look at the overall, the trends in the market that we look at the analyst reports and so forth and we haven’t changed any of our outlook for that. .

All right. Thank you..

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

Hi, thanks for taking the question.

I was curious, are you seeing seven figure deals representing a higher percentage of your pipeline versus this time last year?.

I think it’s – there is not a dramatic change and we’ve always seen a very large amount, 10% of deals that are seven figure.

If we look at a year-on-year basis, we continue to see trending up on the number of deals – larger deals, whether it’s over a 100K or over a 500K deals, each quarter on a year-on-year basis and in order to do that, we are seeing more of them in the pipeline as well. .

Okay. And as a follow-up, you have a nicely growing cash balance.

Can you give us your updated thoughts on use of cash and the M&A environment?.

Absolutely. I think, we have been very prudent in past M&As and to really look at how we horizontally secure Privilege Access Security for both humans and applications and made some strong moves in the past. We – I alluded in the prepared remarks that we hired a very experienced Head of Corp Dev.

But it’s mandated very much to take its time and figure out long-term opportunities for us. So, I think the robust cash balance is very important. It’s important to our customers to see that we have the financial strength and we will be very prudent on how we use it. Definitely, we feel that we’ve done well with that M&A..

Your next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open. .

Okay. Thank you very much and I’ll add my congratulations on a good Q1, as well. Udi, you briefly alluded to Gartner and Forrester paying more attention to this space and with respect to Gartner anyway, it’s been a few months since the first magic quadrant report was published.

Have you seen any change in the rate of inbound activity or closure rates or anything along those lines? Or is it’s simply just too early to tell?.

I think, we actually look at that and I would say that it’s more or less the same level of increased awareness. But over the last couple of years. So I think, it helps in new educating markets in our expansion to some of the emerging geographies.

It’s clearly enables us to get more attention and to sign up the leading channel partners, especially in a new region. But I will say it affects the pipeline pace. It’s really good for decision-makers in competitive situations and so, it’s overall another supportive tailwind, but not a mega tailwind. .

Okay. That’s helpful. Thanks, Udi..

Thank you..

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

Yes, thanks for taking the question. Couple questions first off. On the EPM front, you talked about contributions from cloud driving it.

Can you discuss what the split is within EPM between the cloud and the on-premise version? And as the cloud component becomes larger, do you think EPM will become a larger driver of revenue? And then I have a follow-up..

Yes, thanks, Erik. This is Josh. Yes, in fact, I mean, we saw for the first quarter, we did see our bookings on EPM go gravitate towards the SaaS. So I think it was about two-thirds of SaaS dollars versus one-third perpetual dollars or maybe 70% SaaS dollars. Just – yes…..

Okay, and that which is growth rate compared to last year.

And the second question?.

That was compared to first quarter last year, it was significant growth on the SaaS dollars..

Okay. And then, clearly it was a strong quarter. To the extent, there was surprise upside in the quarter.

Could you discuss whether you think that is a function of general demand? Or do you think that’s more of a function of a more favorable competitive environment?.

Hi, Udi here. I would attribute it to the general demand. I think we’ve been gradually – and we pioneer this space. So, I think we started off with really a strong position in the market and through continuous innovation and some smart M&A we involved in that leadership.

But the biggest shift has been the rise in this being a layer in priority and in the past we showed how it’s been in the top-10, top-5 priorities for organizations similarly in our channel partners, it rises up and I can’t say enough about the importance of the value-added resellers and our advisory partners giving attention to this space.

So the rise in priority and execution against that demand is the explanation for the results and that we relentlessly continue to innovate just to make sure we extend that leadership. .

Very good. Thank you very much..

Your next question comes from the line of Dan Ives with Wedbush Securities. Your line is open. .

Yes, thanks. Just one question. With, Rich obviously joining, very experienced background what is some things that he has brought to the sales team in North America? Maybe any changes or just maybe strategically how he is really changing the organization? Thanks..

Yes, I think, thanks for that. I think we’ve been very – we took our time and we were very selective in hiring a leader in the Americas that would come in and fit to culture and actually embrace a lot of things that were working so well for us, but bring us the experience of scale and some of you have seen us scale before.

So, I think it’s – first of all, he hit the ground running and he is well integrated to the team.

But probably the first impression I would put out there is the importance of consistency of execution, like really looking at the things that are working and replicating them and driving them across the regions down to the last rep in anywhere in the region.

He also comes with strong channel background which is super strategic for us and just to add that continuously integrating our work with the channel. So, I’d say consistency of execution. The continuous partnering with channels and I could probably add like putting systems in place that supports the scale, because that’s the mandate.

Like, we want to grow as bigger and we want that scale experience. .

Your next question comes from the line of Alex Henderson with Needham. Your line is open. .

Thank you very much. I was hoping you could talk through the issues around the sales force staffing levels. You’ve got expectations out there of 25% plus top-line growth. But your staffing is increasing at a 12% cliff.

Can you help us bridge between the rate of growth in staffing and increased productivity, increased deal sizes, other metrics that give us some confidence that the rate of increasing sales and marketing capacity is keeping up with your targeted growth rate...

Hi, Alex. Thanks, this is Josh. First of all, with regard to our sales organizations, we are growing them pretty much every quarter.

So, a lot of what you see on this quarter it’s not necessarily reflective of - doesn’t necessarily translate to exactly growth rate for this quarter and for next quarter, because, we groom them over time and productivity increases dramatically when they get over six to nine months in in-house.

And so, really, we look at it over the course of last four and eight quarters in terms of the real strength for how much productivity we need for each current period. And I think we are happy with the increase that we have for the first quarter. We anticipate to continue growing that sales organization during the year.

We see sales and marketing growing to be 40% of revenue this year and we are kind of farming. So to speak, to ensure that we have the right productivity levels at the right tenure levels in order to achieve our guided growth rates. .

If I could follow-up with a second question, you identified EMEA as negatively impacted by the strong fourth quarter. But obviously, its growth rates were considerably less than the rest of the other two geographies.

Can you give us anything forward-looking in terms of a understanding the scale of what you have in your pipeline or other variable data that would suit give us confidence that that should reaccelerate to corporate average growth rates are better?.

Yes, if we look at it from a pipeline perspective, then, we are totally on track for the type of growing with the business. We’ve look at our diversification of our business over the last many years on an annual basis and you see EMEA growing with the business year in and year out.

The percentage of the pie has been very stable over the last many years and the pipeline today substantiates that as well. And that’s actually one of the strengths that we have within our diversified model both geographically and vertically is that, we are able to kind of flow through the fluctuations from the quarter-to-quarter behavior.

So, from a pipeline perspective, which I think, and what you raise, it’s a key trigger for us to really determine and give us the confidence that we see EMEA in a good place to grow with the business this year..

Your next question comes from the line of Shebly Seyrafi with SBM Securities. Your line is open. .

Yes, can you talk about your expense growth expectations in the second half? In my model, I am getting over 30% year-to-year. You were, in the last several quarters, in the 20s.

Why are you picking it up so much?.

We do see a step-up as we talked about in the cloud step-up on expenses in the back half of the year compared to the first half. It’s seasonal with related to our marketing event and also to employee expense step-ups that we typically see in the second half. I think also, we see multiple-year growth opportunity for CyberArk.

We want to ensure that we have the – still the ability today within our guidance to allow for us to continue investing for that growth in the second half of the year. And both on the sales and marketing organization and also on the innovation side, as it relates to our R&D investments..

Okay. And then, second one is, related to Andrew’s question, the embedded revenue growth in the second half of this year, it’s something like, 16% to 18% which is below the medium-term target of 20%. And so, if you are sticking to that target in 20% it would imply an acceleration in the growth rate next year.

Is that something you are thinking about?.

I am not sure – I am not sure I understood the second part – the second part of your question about next year..

Well, the medium-term target is 20% growth. If that’s what you are thinking about for next year, that would imply an acceleration from the 16% to 18% growth rate in the second half of this year. .

I think, I’d prefer we stick to the guidance that we gave for 2019 on this call, which is the subject of this call and we are pleased with the – and feel confident about the guidance that we gave and I think, on another occasion, we may choose to discuss medium-term, again, in a formal basis..

Right. Thank you..

Your next question comes from the line of Taz Koujalgi with Guggenheim Partners. Your line is open. .

Hey guys. Thanks for taking my question. Can you comment a bit on the customer growth this quarter? And what do you expect going forward for the rest of the year, because you had a good inflection in customer adds in 2018. It looks like the customer growth in this quarter was flat year-over-year..

Yes, I think, we saw, basically kind of a similar pace in the new customer base. We still view it as a Greenfield opportunity. So, based on looking into the pipe and especially as we continue the motion downstream, we will continue to add new logos in a good pace..

Thanks, Udi. And then, on summing up on Europe again, you said that you had budget flush in Q4 in Europe which help Q4, but then impacted Q1 numbers. Why was Europe different than U.S.? I mean, I would assume that you had budget flush both in U.S. and EMEA.

Why do you think the impact was higher in EMEA for Q4 which pulled down your Q1 EMEA revenues?.

Yes, I think, in general, EMEA is more back-end loaded and very much channel-oriented as well. And we are running a global operation and you see sometimes a region behave a little differently in that respect. So we felt Q4 was just phenomenal and then, we saw a softer spend in Q1.

But when we look at it, we actually said okay, and this is a natural cadence of spend. Let’s look at the pipeline, the pipeline is healthy and we are benefiting from this diversification we have on a global perspective, because even with a slower EMEA, total revenue accelerated to 34% and license accelerated to 33% growth. So, pleased with that.

And like I said, the pipe is healthy in EMEA and in the rest of the world..

That concludes our question and answer session today. I would now like to turn the call back to Udi Mokady. .

Thank you. I want to thank our customers, partners, and our employees who contributed to CyberArk's strong results in the first quarter. And thank you, everyone, for joining us on the call today. Thank you..

That concludes today's conference call. You may now disconnect..