Ladies and gentlemen, thank you for standing by, and welcome to the CyberArk Fourth Quarter and Year-End 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to turn the conference over to your speaker today, Erica Smith, Vice President of Investor Relations. Thank you. Please go ahead..

Thank you, Erica. Good morning. Thank you for joining us today to review CyberArk's Fourth Quarter and Year-End 2020 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 first quarter and for the full year 2021. 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 and Exchange Commission and those referenced in today's press release that are posted to CyberArk's website as well as risks regarding our ability to begin actively transitioning the business to a subscription model in 2021 as well as the duration and scope of the COVID-19 pandemic, its related impact on global economies in our ability to adjust in response to the COVID-19 pandemic.

CyberArk expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made today. 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 as well as in an updated investor presentation that outlines the financial discussion in today's call.

This information can be found at www.cyberark.com in the quarterly results section under Investor Relations, 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.

Udi?.

Access, DevSecOps and PAM, which together form our identity security portfolio. We believe this optimized structure will provide the right level of attention and resources and our Access and DevSecOps speedboats, while also driving growth of our core PAM business.

In addition, in 2021, we will extend our reach by strengthening our partner program across VARs, advisories and MSPs. Fueling our innovation engine is critical to staying a step ahead of attackers and also strengthening our leadership position in the market.

In 2021, we are stepping up our R&D investments to build our SaaS identity security platform and at the same time, continue to enhance our solutions. We believe delivering new functionality and solving complex security challenges will also be key to completing the virtuous cycle of success in our subscription model.

We are well on our way to transforming CyberArk into a high-growing recurring revenue company with significant contribution from our SaaS solutions. We continue to expect the transition to take 8 to 10 quarters, beginning from the first quarter of 2021.

This year, we are laser-focused on increasing our subscription mix, growing ARR and protecting our base of customers. We believe we will reduce friction in the sales process, increase cross-sell activity and build enduring relationships with our customers by delivering deeper value and stronger security.

Ultimately, the tighter relationships forged by subscription sales will generate higher lifetime customer value. We are in a growing market, and our solutions are aligned to the broader industry.

We are making the right investments in our go-to-market and innovation engines to drive growth, and are also focused on profitability and returning the company to the rule of 40 after we exit the subscription transition. We are heading into 2021 off a record quarter with strong momentum, and I'm excited about the year ahead.

I will now turn the call over to Josh, who will discuss our record results in more detail, our subscription transition and outlook for the first quarter and the full year. Off to you, Josh..

Thanks, Udi. Before we discuss the details of the quarter, we wanted to remind you that we posted slides to the website this morning that will be helpful as we walk through our results.

As Udi mentioned, we were pleased to beat our guidance for revenue, operating income and earnings per share, including record revenue in the fourth quarter of $145 million, that's up about 11% from $130 million in the fourth quarter of last year.

Our best quarter ever was driven by increasing demand across our solutions, and we accomplished this despite the increasing revenue headwind from the subscription transition of $18 million for the fourth quarter and about $45 million for the full year.

License revenue in the fourth quarter was $80.8 million compared with $76.5 million in the fourth quarter last year, and the recurring portion of license revenue was $17.4 million. That's 22% of our total license revenue. That's more than tripling from $5.7 million or 7% in the fourth quarter last year.

SaaS revenue grew by over 300% year-on-year, reaching $9 million and subscription or term-based license revenue increased to $8 million in the fourth quarter from $3 million the prior year. Our combined maintenance and professional services revenue was $64 million, increasing 20% over the prior year period.

The breakdown of this line is approximately $52 million from recurring maintenance contracts and $11.5 million in professional services revenue.

As Udi mentioned, we are on track with kicking off our subscription transition formally in the first quarter, with the known transition effect of increasing revenue recognized ratably we will emphasize total recurring revenue, the percentage mix of bookings from SaaS and subscription and annual recurring revenue, or ARR, as the key metrics to provide visibility into the health of our business.

Looking back in the fourth quarter, total recurring revenue grew to $70 million or 48% of total revenue. That grew 41% from the $50 million of recurring revenue, which was only 38% of total revenue in the fourth quarter last year.

Our recurring revenue growth is being driven by the record bookings for subscription-based licenses throughout 2020 as well as our continued strong maintenance renewal rates for our software. As a reminder, total return revenue includes Saas, subscription and the recurring maintenance revenue associated with our perpetual license contracts.

The mix of new SaaS and subscription bookings as a percent of total license bookings is an indicator of the pace and success of the transition. In total, SaaS and subscription bookings represented about 35% of our new license bookings, increasing from the 10% in the fourth quarter of 2019.

Our strong execution at year-end, including robust perpetual license sales as customers move forward with their mission-critical identity security programs added to our top line, while we still remain on track with our mix expectations related to our transition time line goals. The headwind created by the mix of bookings was about $18 million.

That's in line with what we discussed in November, demonstrating yet another record quarter for our SaaS and subscription business. Taking the headwind into consideration, our revenue in the fourth quarter with a comparable mix of bookings would have grown by about 25%.

For the full year of 2020, the significant shift in our new license bookings towards more recurring and ratable business effectively lowered our reported revenue by approximately $45 million. The metric we are also excited about is our AAR growth as it indicates the path towards becoming a high-growth subscription business.

At December 31, our AAR was $274 million, with growth accelerating to 43% year-on-year from $192 million at year-end 2019. Now I'll provide some further color on the business.

The level of engagement with our 6,600 customers continues to be at an all-time high, and we saw about 74% of license revenue coming from add-on business during the fourth quarter. We are pleased as well with the momentum in our new business with improved close rates and strong pipeline growth in the fourth quarter.

We also continue to see an increasing percentage of new customers land with our SaaS privileged access manager solution. Our expectation is that our new SaaS customers will start smaller, recognize time fast -- recognize faster time to value and quickly expand their overall CyberArk program following the blueprint methodology.

In terms of solution areas, our application or DevSecOps solution had a record quarter, representing about 16% of license revenue with more customers securing their digital transformation programs with CyberArk. Endpoint Privilege Manager was about 6% of license revenue, and that's with about 90% of the EPM bookings being SaaS.

The business remained well diversified across geographies for the quarter. Americas revenue in the quarter was $82 million, representing 57% of total revenue. I would also note that the Americas, again, had the strongest percentage of SaaS and subscription bookings during the quarter, which naturally impacts the recognized revenue.

EMEA revenue was $50 million or 35% of total revenue in the fourth quarter. APJ generated $12 million in revenue, representing 8% of total revenue for the fourth quarter. 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 and posted to our website. Our fourth quarter gross profit was $127 million or 88% gross margin.

As we demonstrated throughout the pandemic, we believe it is in the best long-term interest of our business and our shareholders to continue to make strategic, but disciplined investments to drive long-term growth. R&D expense grew by 28% year-on-year to $23 million to enhance our solutions.

Sales and marketing increased 16% to $54 million to expand the reach of our global sales team, with the increase a bit offset by the reduced travel spending. G&A expense grew single digits to about $10 million.

In total, operating expenses for the fourth quarter increased 18% to $87 million, and that includes about $6 million of incremental expenses associated with the Idaptive operations. Our operating income was significantly ahead of our guidance at $40 million or 28% operating margin.

As a reminder, the approximately $18 million revenue headwind had a corresponding impact on our operating income. Net income was $33 million or $0.82 per diluted share for the fourth quarter, also beating our guidance. Now let me summarize our results for the full year 2020.

Total revenue for the year reached $464 million, with $226 million in license revenue, $197 million from recurring maintenance contracts and $41 million in professional services revenue. Total recurring revenue accounted for 53% or $247 million. That's growing 41% from the $176 million and equaling only 40% of total revenue for all of 2019.

You can see the details of our revenue breakdown in the PowerPoint presentation on our website. Our gross margin for the full year was 86% compared with 88% in 2019 as we continue to invest in our cloud platform. Looking at the full year.

R&D represented 17% of total revenue, up from 14% last year driven by the acquisition of Idaptive, increasing investments in our cloud and on-premises offering as well as our identity security platform. Sales and marketing represented 41% of total revenue, that's up from 37% last year, and G&A represented 8% of total revenue, in line with 8% in 2019.

Our operating income was $91 million or a 20% operating margin. And in total, Idaptive lowered our annual operating margin by about 2%. As a reminder, the approximate $45 million headwind also had a corresponding impact on our operating income.

Normalizing for the headwind impact on the P&L, our operating margin would have been approximately 26% of for the full year. Over 70% of our operating expenses are related to head count. We ended the fourth quarter with 1,689 employees worldwide, we ended the year with about 772 employees in sales and marketing, that grew about 18% year-on-year.

Our net income for the year was $81 million with our earnings per diluted share of $2.05. We generated $100 million in free cash flow for the year or 22% margin for 2020. This cash flow contributed to our strong balance sheet, and we ended the year with $1.2 billion in cash and investments.

We also ended the year with $243 million in total deferred revenue. That's up 27% from $190 million at the year-end 2019. Our SaaS deferred, it grew by over 400% again this quarter, reaching $46 million compared to $9 million at December 31, 2019. Turning to our guidance.

As a reminder, our guidance does not consider any potential impact to financial, other income and expenses associated with foreign exchange gains or losses as we do not try to estimate future movements in foreign currency rates. So for the first quarter of 2021, we expect total revenue of $6 million $112 million.

We expect a non-GAAP operating loss of about $2.5 million to non-GAAP operating income of $2.5 million for the first quarter. We expect our EPS to range from a non-GAAP net loss of $0.03 per basic and diluted share to net income of $0.07 per diluted share.

Our guidance also assumes 39.2 million weighted average basic and diluted shares and 40.7 million weighted average diluted shares. And we are assuming a tax rate of approximately 23% for the first quarter.

This guidance assumes about 47% of new license bookings from SaaS and subscription, which results in a revenue and profitability headwind of about $10 million for the first quarter of 2021.

We are also initiating our guidance for the full year 2021, which reflects the strength of our pipeline, our overall opportunity and an assumption for the mix of our bookings.

We expect total revenue in the range of $484 million to $496 million, which assumes approximately 55% of new license bookings from SaaS and subscription, resulting in a revenue headwind to our guidance of approximately $39 million for the year. We expect non-GAAP operating income to be in the range of $20 million to $30 million.

We expect our non-GAAP net income per diluted share to be in the range of $0.45 to $0.64. For the full year, we expect about 40.8 million weighted average diluted shares and an effective tax rate of approximately 23%. For the full year, the increase in our expenses are related to 4 major areas.

Our increasing investments in cloud infrastructure is impacting our gross margin for the full year. We expect to now be between 80% and 82%. Changes in exchange rates are increasing our expenses by about $10 million over 2020, in particular, will hit R&D and G&A.

As Udi mentioned, 2021 is a year of R&D investment across our offerings and our identity security platform. Lastly, we are investing in sales and marketing. Our record results in the fourth quarter and record pipeline throughout 2020 give us continued confidence in our market opportunity.

It is critical that we invest today to drive long-term growth and get back to the rule of 40 after we exit the transition. As additional color, our guidance assumes that we resume travel at a lower level in the third quarter and a more normalized rate in the fourth quarter.

In terms of free cash flow, we anticipate that it will be in line with our non-GAAP net income margin over a 12-month period. We also expect our annual CapEx to be in the range of $8 million to $10 million, representing just under 2% of revenue at the midpoint. We had a record fourth quarter and are thrilled with our momentum as we enter 2021.

We are confident that our strategy to begin actively transitioning to a recurring revenue model will make growth more durable and profitable, which will drive value for CyberArk, our customers, partners and shareholders. We want to wish you and your families, health and safety. I will now turn the call over to the operator for Q&A.

Operator?.

[Operator Instructions] Your first question comes from the line of Saket Kalia with Barclays..

Udi, maybe just for you, just digging right into the subscription transition, understanding that it's still very early here.

What are you sort of seeing from customers in terms of preference for term licenses versus SaaS? And how do you think about that mix sort of over time, if you will? Does that make sense?.

Yes. Absolutely. Thanks, Saket. First of all, we're really seeing strong reception to our transition across the board, like I said, customers, partners and employees. With regards to the mix, I would say it's about a 2:1 mix towards preference for SaaS, and among new customers.

And we expect that to continue, really in line with the approach to consume more and more SaaS solutions. And they're very excited about our offerings there. So I would say that trend should continue, a 2:1 mix towards SaaS..

Got it. That's helpful. Josh, maybe for you. Thanks for the guide on mix next year. I think you said it should be roughly a $39 million headwind. And if I remember correctly, I think the headwind here in 2020, I think, is about $45 million. So it's actually a smaller headwind next year.

So I guess the question is, how are you thinking about that maybe given the increased sales focus on selling SaaS and subscription in 2021?.

Yes. Thanks, Saket. Well, basically, we are seeing -- we had a very big increase this year with that high headwind. And it jumped from, I think, 10% of our mix being SaaS and subscription to 35% for the year. And now we're talking about, in the guide, it jumping to high 40s in the first quarter, about 47% and a blended of about 55% for the full year.

So I would focus on that mix, which then basically is really going to drive the AAR growth for the year, in 2021 as well. So when we look at the headwind, the headwind obviously will decrease a little bit compared to 2020 because we did almost a 2.5 times increase from 10% to 35% compared to the 35% to 55% this year.

So we think we're very much right on the right track for our $8 million to $10 million quarter transition..

Your next question comes from the line of Sterling Auty with JPMorgan..

So with the imminent move to subscription. I'm wondering if you saw anything like what other companies like [Autodesk] did where customers realize that subscription might be coming, perpetual might be going away, and maybe accelerated the purchase of perpetual in advance of that transition..

Sterling, Udi here. I would actually say we looked at it carefully, and I think the overperformance in Q4 is very much execution on deals that were in the pipe. And so it wasn't a scramble. This is your last shot.

Because I think the way we position it, again, they'll be able to buy perpetual going forward, but they'll be incentivized towards the SaaS and subscription. So it's really been execution on that strong pipeline we've been building..

All right. Great. And then, Josh, one for you. Can you remind us under ASC-606, given the mix of the SaaS and subscription, how the revenue recognition treatment is for those 2 elements. And what I mean by that is, how much is still being recognized upfront because of certain amount being on-premise.

And also, maybe what is the average duration of the maintenance contracts that you've had historically?.

Yes. Right. Thanks, Sterling. So with regard to 606, with regard to our ongoing subscription term-based license that we've been selling for the last 12 months. It's really around -- it's going to be 50% upfront in 2021 and 50% over the term of the contract.

And as we move more and more into customers, buying our newer subscription packages, which are going to include SaaS components, integrated into the subscription, then it will be moving down from the 50% level. And it depends on really how much of the SaaS components they buy in the subscription. So 50% will be the most that we'll recognize on day 1.

But it could go down into the 40s or into the 30s as they pick up SaaS subscription packages that have more and more SaaS components. With regard to the second -- with regard to duration, we're about 2 years on duration, average duration for the maintenance contracts..

Your next question comes from Jonathan Ho with William Blair..

Congrats on the strong results. I just wanted to start out with some of your comments that you had on solar wins.

Can you talk about maybe what you're seeing from the customers? And what the typical cadence or timing is for a breach like solar wins to maybe translate into revenue?.

Absolutely, Jonathan. I think as industry veterans, we can both agree that this is one of those pivotal major events. I think every 5 or 10 years, we have an event that shapes the industry, and this is one of them. We were leveraging the virtual environment, actually meeting more and more customers, CISOs and CIOs.

And first of all, they all understand that this attack demonstrates that you need and assume breach mindset. The attacker will get that initial foothold and how do you protect deeply inside and that attackers want Privileged Access because they want to undermine all of the other controls like the attackers did here.

and attack tier 0 assets and undermined and went after trying to be a regular identity in the environment. So I think we're very much part of that second wave, the first response was to run patches. And of course, those that were directly affected. Look, if they had the malware installed. But the second wave, which we believe is the longer tailwind.

And what we're hearing from our -- the advisory firm partners and from instant responders is really how do we invest in trust systems in our environment. Let's make sure that we have the deep controls in our environment to protect identity in what we call identity security. So that would be on infrastructure -- on cloud infrastructure.

And then additional attention now to securing the DevOps and the DevOps pipeline because of how this whole thing happens. So I think we'll see a longer tail to this. But CyberArk with identity security is really right at the heart of creating that flight to trust..

Excellent. And then just in terms of, I guess, the R&D investments that you intend to make in 2021. Where do you see the most opportunities there? Are there specific product groups that you want to dedicate more funds to or add more features to? Just want to get some additional color on where that's going to head..

Absolutely. I think we'll provide even more color in the Investor Day. But I would say we're doing the following. First of all, as Josh alluded, we are continuing to support the many on-prem customers, so to investing across the board in our existing solutions. We need them happy, successful, and like I said, protecting our base.

And then the bigger investment is going towards our identity security platform, continuing to provide additional capabilities in SaaS-delivered identity security. So it's really in our SaaS platform. A lot of things have -- are being integrated on to onto a single modern SaaS offering that will serve our customers for many years to come..

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

Udi, maybe I'll start with you. The SaaS portfolio has obviously significantly in the last 12 to 18 months, especially with the addition of Idaptive.

So I'm wondering if you can talk to us about which particular products and/or SKUs within the SaaS portfolio, you expect to drive the bulk of the momentum and activity for 2021? And then I have a follow-up for Josh, please..

Sure. Absolutely. And sorry for that wait there on the call. I think we're really seeing -- I mean if you look at Q4 and this past year, we're seeing EPM, Endpoint Privilege Manager, and also in the context of the prior question on solar wins.

It's become the no-brainer solution for ensuring that endpoints, including servers, which were attacked in this case. Are in lease privileged mode and that we're preventing credential steps. So I would say, Endpoint Privilege Manager. Our privileged cloud, for sure, we're seeing really strong adoption of customers wanting to consume this as a service.

And of course, our Access portfolio, which is, like you said, Idaptive, but includes additional components like Alero, that was born organically. And so this is -- it's going to be a big differentiator for us to have such a wide portfolio as we think of the new subscription offerings..

Fair enough. Josh, maybe shifting to you. You did touch on some of the cash flow dynamics should expect to see in the business. But I'm wondering if we can unpack some of the puts and takes around cash flow and cash flow trajectory, especially over the next 8 to 10 quarters as you undertake this transition.

And also considering the maintenance revenue trajectory is going to look a lot different now that you are going to be emphasizing recurring subscription and term license. And so wondering if you could just sort of reconcile and help us with the trajectory of cash flow dynamics in the next 8 to 10 quarters of transition horizon. And that's it for me..

Great. Thanks, Fatima. So to start off with, just to remind on the call, what we're looking at for the year is going to be somewhere around -- our non-GAAP net income margin should be similar to the cash flow to the cash flow margin.

I think in the near term, there'll be some pressure on cash flow as it relates to duration and annual payments on the more -- on the increasing mix going to SaaS and subscription business. So I do think, in the past, we've historically been running at higher than our net income margin. And now we're talking about going closer to our net income margin.

And I think that's where you're going to see the -- that's where the pressure is coming in to reduce from less maintenance contracts, which are frequently paid all upfront on -- what if it's multiple years -- to multiple years a SaaS and subscription contracts, which will be now paid more likely to be paid annually.

But overall, we feel good about the cash flow margin relative to where net income will be. But -- and the duration that we're seeing of our SaaS and maintenance -- and subscription contracts are fairly similar on average to our maintenance contracts. It's just that there'll be more of them being paid annually as opposed to upfront..

Your next question comes from the line of Brian Essex with Goldman Sachs..

I was wondering maybe if I could start with the strength that you saw in the perpetual. I mean really nice results there.

How -- and I think you noted that 74% of license revenue was from add-on bookings, how much of that strength was, I guess, customers that may not have pursued a complete end-to-end solution coming back and rightsizing their rightsizing their solution, given the macro and elevated threat environment that we saw over the past year..

Brian, Udi here. Absolutely, that's exactly the trend we saw that if throughout the year, those customers were taking, and I would say, the small first bite because of the uncertainty macro, they were expanding as it came towards Q4 and really going for what they really needed.

And so we saw that both with new logos that landed throughout the year and had faster add on, and we saw that with add-on business in Q4, consuming more again, both -- we saw that both in both sides of perpetual and on the subscription side, but definitely, that's part of the overachieved on the perpetual side..

Got it. That's helpful, Udi. and maybe just a follow-up on the transition.

Maybe if I could get a better understanding of when Salesforce incentives went into place and what the trajectory of transition to SaaS and subscription as a percentage of total license bookings you might expect? And I'd imagine it would be back half weighted towards the end of 2021.

But just to maybe help understand how those -- how that migration may roll forward through the next fiscal year?.

Yes. Absolutely. So we -- I think the timing of announcing it to the world in November and getting the organization ready, really worked well for us. The entire team had gone through training, leading up to the end of the year. But we kicked off the year with a full kickoff, and that's when the full incentives and training went into play.

And it's really exciting to see, I think, how the sales team and the broad team really embrace this transition. So obviously, we have 6- to 9-month sales cycles. And so like you said, we believe that the bigger mix shift will occur towards the back half of the year. That's the way to think about the bigger impact.

We did see, as we move through 2020, a natural increase in pipeline of SaaS and subscription. So it's already bearing fruit for the first half, but the bigger impact is in the second half..

Your next question comes from Rob Owens with Piper Sandler..

You mentioned some wins that you had with regard to that. I think relative to restaurant change, car manufacturer.

Just curious, I know it's still early, but where you're seeing success, how competitive these deals are? Are these pre-existing customers and why you're winning in these?.

Yes, absolutely. I think there are probably 2 dimensions to talk about. One is the existing CyberArk customers. That we're always saying, if you'd have it, we would buy it from you.

And so that's a dynamic we would, of course, are seeing the early fruits of and will be bigger into 2021 now that we trained the full team and everyone on the team can sell the full portfolio. But those customers trust us for Privileged Access Management.

And while you've expanded, you can actually put security on our workforce, we want to expand with you. The second one is really actually creating that as a landing force and Idaptive came with a commercial team that we're expanding. And so I would say in both mid-market, but also in the enterprise as another way to land new accounts.

Of course, the bigger lever and the bigger flag we lease is the existing strong CyberArk customer base, but we're also seeing some healthy good examples of differentiated selection of Idaptive because of its security foundation and the fact that they can then expand to the full CyberArk portfolio..

Great. And then secondarily, while we've all started with our calendar for your Analyst Day in March, I'm sure we'll get a lot of commentary around AAR and the transition.

Prior to that, as we said, our '21 models, any guardrails around AAR growth that we should be thinking about?.

Yes. Rob, this is Josh. I think that I would probably -- we want to think about the mix shift that we talked about, which is going to be towards 55% blended for the year. And if I were to think about AAR, I would kind of use 30% is the right way to look at it. 30% growth..

Your next question comes from the line of Andrew Nowinski with D.A. Davidson..

I just want to start off with any large deals that you may have had in the quarter, anything abnormal in Q4? And were any of those deals, did they perhaps maybe pull-in from Q1? And into Q4? Or are they all expected?.

Actually a very normal quarter in terms of diversity. And hi, Andrew. A very normal quarter in terms of diversity in deal sizes, geographic mix and all of those. And so no [ pool ] in. This was execution on that expanded pipeline we've been talking about in the last couple of quarters, and that led to the overperformance..

Okay. Great. And then I just wanted to maybe touch on competition in the space. There's certainly some chat around, inside partners looking to sell psychotic. I'm just wondering if you could comments on any of the competition you're seeing if that's changed at all in your space..

Yes. I would say that our leadership in PAM has never been stronger. We recently shared in our internal kickoff, the continued strong win rates, the -- of course, the leadership in -- with the industry analysts. I would say, no big change in that competitive environment.

Really CyberArk continuing through doing all the right things, innovating, expanding organically and organically to that full portfolio. What you alluded to from the private equity holdings, I think that's one of the things that our customers and prospects look at.

They view this as mission-critical, and they want to partner with a company that's going to be there for the long run and that consistently invests in innovation. We use the term today of hacker innovation. I really think it's something to pause and think about. There is hacker innovation. So our industry has to invest in innovation.

Hence, our investment in -- which I was asked about earlier, continued investment in 2021. And it's a differentiator in this market. This is a nice -- it's not a nice to have layer. This is a mission-critical layer. And that's with regards to the PAM market.

Obviously, with our expansion into identity security, we're now playing in the adjacent opportunity. And of course, we're early there. But focused on the customers that put a preference on security. And lastly, DevSecOps is just a huge opportunity where -- it's probably about 1 additional player out there as we go after the DevSecOps opportunity..

Your next question comes from Hamza Fodderwala with Morgan Stanley..

Josh, just one question for you. I wanted to follow up on your comment around AAR growth, thinking about it, maybe in the 30s to start with. If I look at the AAR growth directory this year, right, it's been accelerating in the 40s now, right? You mentioned, I think around 50% of your bookings were recurring, this year. You're saying 55% for next year.

And you really -- like you're just starting to basically incentivize the sales force towards selling SaaS.

So I'm just curious, like do you think that initial outlook is just conservative? Or is there anything else that we should be mindful of?.

Yes. Great question. I think the other thing that we need to be mindful of, we anticipate -- if we hit our mix shift that we're talking about, of 55% of the new license bookings coming from SaaS and subscription. Then we're confident for very high AAR growth on the SaaS and subscription side of the business.

The one thing that we need to keep in mind, though, is there will be a drag on the AAR growth as it relates to the maintenance, which will be flat. And depending on what the mix shift is, there could even be a minus drag.

So I think that's the 1 piece that the model needs to consider is, is the mix shift of -- is the mix of the bookings because that's going to also play into how much does the AAR from the maintenance contracts related to the perpetual goes up.

But I would say that overall, we're looking at great growth on the SaaS and subscription side of the AAR, much higher than the 30%..

Your next question comes from Gregg Moskowitz with Mizuho..

All right.

I guess just first question for Udi, just from an ecosystem standpoint, where do things stand with respect to the number of certified professionals on CyberArk? And about how fast would you say that's been growing?.

So Greg, I actually don't have an updated number for you, but we've continuously been investing in that ecosystem and made it more and more accessible for our partners. So I think it's been growing every quarter. And next time around, I'll make sure to share a number of certified professionals out there..

Perfect.

And then just for Josh, what are your expectations of SaaS and subscription adoption by companies that are based in EMEA and Asia Pac? How do you sort of see that evolving from here?.

Yes. Clearly, and I pointed out in our call, Americas contributed to the largest percentage of the SaaS and subscription business in 2020. But we've started already in the back half of 2020, starting to see it come in, in EMEA and in APJ.

We're set up on the SaaS side across all the regions with regard to our data centers to be able to sell all of our SaaS products with local data centers in the regions. And we expect it to pick up into 2021 as we start to, one, really roll out the subscription packages, and the account executives get comfortable there.

And two, of course, the incentive plan is the same incentive plan for the EMEA and APJ regions as in the Americas. So they will be -- they're going to be well incented to learn how to sell subscription and SaaS in those regions as well..

Your next question comes from the line of Joshua Tilton with Berenberg..

I just wanted to touch on. You mentioned incentivizing the sales force to sell SaaS and subscription.

Are you also disincentivizing the sales of perpetual and then also when you just talk to customers who choose to pick term, what are the reasons for not wanting to go with the cloud offering?.

So by the way, great question. And no, we're not disincentivizing the perpetual. We're incentivizing -- so it's the [CARA] technique. We're incentivizing the SaaS and subscription. I would say it's still early to have like a lot of examples of customers on the fence. But again, like I said, there's a 2:1 on -- mix towards Saas.

The ones who do prefer subscription are organized this way. They still want -- are still leaning to having on-prem. And of course, ones who would push for perpetual, I would say, more on the -- in government sectors and APJ like Josh mentioned, I would say those were kind of organized and still used to buying perpetual.

But that's really we expect that to be a decreasing minority as we go through this..

That's helpful. And if I missed this, I apologize. But if you look at the SaaS business from 2020, could you possibly break out how much of that was Idaptive, and maybe give us a sense of what that business is growing at.

And then also, did you just see the lower pricing relative to some of your peers maybe play in your favor during this macro environment..

So I wouldn't say that lower pricing was the dynamic in Idaptive wins. And I think the portfolio in general is really considered the robust security-minded portfolio. But it's for the security for the security oriented buyer were really differentiated. And Josh, I don't know if we can give anything on the mix..

Thank you. At this time, I will turn the conference back to Udi Mokady..

Thank you. Thank you, Erica. And of course, thank you, Erica Smith and Josh Siegel here. I want to thank our customers, partners and employees for contributing to our record fourth quarter, and supporting our transition to a modern subscription company.

I'm confident that as we execute our strategy, we will build an even deeper relationship with our customers and partners. Thanks, everyone, for joining today. Thank you..

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