CyberArk Software Ltd.

keypad. If you would like to redraw your question, press star 1 again, thank you. I would now like to turn the call over to Sri Ananta, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning. Thank you for joining us today to review CyberArk's second quarter 2024 financial results. With me on the call today are Matt Cohen, our Chief Executive Officer, and Josh Segal, our 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 third quarter full year 2024 and beyond. I also refer to our expectations and beliefs regarding our proposed acquisition of benefit. 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 20f filed with the US Securities and Exchange Commission and those referenced in today's press release that are posted to CyberArk's website. CyberArk expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliation 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. A webcast of today's call is also available on our website in the IR section. With that I would like to turn the call over to our CEO Matt Cohn. Thanks

Sri and thanks everyone for joining the call today. We started the year with a clear vision and strategy to strengthen our position as the identity security company. In the second quarter we executed against this strategy exceptionally and a result succeeded expectations with momentum continuing to build across all aspects of our business. After a strong first half of the year and with our proposed acquisition of Venify in the second half on track we are well positioned to extend our leadership across all identity use cases with our industry leading platform and solutions. More on We delivered record total revenue of 224.7 million growing 28% -over-year. Non-GAAP operating income came in at 23.7 million highlighting the operating leverage in our business model. Non-GAAP earnings per share was 54 cents and we are pleased to report 41.7 million in free cash flow or a 19% free cash flow for the quarter. Another proof point of the subscription flywheel effect and the power of our business model. We are incredibly proud to be among an elite class of software companies that delivered faster than 30% ARR growth, increased net new ARR -over-year and drove meaningful upside in profitability and free cash flow. That's a testament to our relentless focus on driving profitable growth. Our expanded position as the leader in identity security and the unique value proposition of our unified identity security platform solving clear and present needs for the CISOs around the world. The strength of our results in business momentum gives us the confidence to raise our guidance for the full year 2024 on all metrics which Josh will discuss later. Today CISOs recognize that traditional methods of securing identity no longer work. Three forces, new identities, new environments and new attack methods are fundamentally redefining the market. The modern enterprise has to secure four different types of identities or personas with each one having unique challenges and levels of complexity. The four groups are workforce, IT, developers and machines. These identity groups are increasingly accessing heterogeneous targets located on-prem and in hybrid and multi-cloud environments, meaning security has moved from perimeter-based to identity centric. Given this complexity it's no surprise that in today's threat landscape all roads lead back to identity. Last year 93% of organizations were victims of an identity related cyber attack and nearly all of them more than once. As I talk with customers and experts around the world it's evident that a new paradigm for securing identity is required. This new paradigm centers around our fundamental vision that every identity human and machine needs to be secured with the right level of privilege controls. CyberArk's unified -to-end platform is the only one to deliver on this vision. Increasingly this is resonating with customers and it's driving tremendous business momentum and fueling our growth. In Q2 the strength of our platform and land and expand execution resulted in strong close rates and robust pipeline build. Customers are allocating significant portions of their budget to identity security, consolidating spend and most importantly consolidating trust with CyberArk. As an example of all these factors coming together we can look at a strategic customer protest. Less than a year ago the International Government Agency landed as a new logo with a seven figure deal that secured IT users with PAM, workforce identities with identity and EPM and machines with sequence management. Since then they have grown with CyberArk and this quarter they further expanded their workforce protection with another seven figure ACV deal. The deep relationship we have formed with ProDesk and the speed of expansion after initial land shows the power of our identity security platform and how it is well aligned with what great organizations like ProDesk need to do to be secure. As the scope of PAM programs continues to expand to include shadow IT, database and cloud administrators as well as high-risk workforce users we are continuing to help our customers modernize their identity security programs with broader more agile privilege controls across these personas. In a rip and replace new logo win a leading biotechnology company signed a six-figure deal to replace a competing PAM vendor. CyberArk's comprehensive identity security platform was a key differentiating factor as the customer wanted to modernize not just the protection of the IT user with privileged cloud but also enhance security for their workforce with Workforce Password Manager and protect machine identities with secrets management. Every organization today has a substantial and rapidly growing developer population in the pursuit of speed and efficiency developers are often afforded always-on privileges with only light if any security in place. Here too we have to shift the paradigm to one of security first without interfering with the developers pace of innovation. At the foundation of our developer solution is our secure cloud access or SCA functionality. SCA applies the principle of least privilege access to developers, data scientists and cloud engineers while allowing them to work natively and efficiently without having to change their preferred workflow. In a deal that included SCA and privileged cloud leading enterprise software company SAP saw standing access -in-time access and zero standing privilege from a unified solution as the key differentiator for choosing CyberArk. With SCA they can now seamlessly enable a zero standing privilege approach while fully securing their modern cloud environments. On the spectrum of identities the need to do things differently is especially top of mind for securing workforce users. Each workforce identity is more powerful today than ever before and can become privileged throughout the workday. Traditional SSO and MFA functionality on their own don't provide the security needed as evidenced in many high-profile breaches. In the second quarter our workforce solution was once again one of the strongest performers because we are solving this critical customer problem. We reimagined workforce identity by wrapping MFA and SSO with more controls that secure web sessions, the browser and manage passwords. In addition, workforce protection extends to the endpoint with endpoint privilege The following two deals showcase the power of bringing privilege controls to the workforce. A US financial services company who's a long time CyberArk PAM customer had a need to keep its workforce more secure by managing passwords. With WPM they can now do exactly that. The ability to add secure browser and secure web sessions on top of their existing vendors, SSO and MFA, means they can also benefit from the additional security layer of CyberArk's access suite that's integrated within our platform. In a different example of the importance of least privilege at the endpoint when securing the workforce, a major aviation company chose to protect their workforce workstations by implementing our EPM solution. Choosing to deploy EPM with our FedRAMP high certification, they landed with a high six-figure deal that closed through the AWS marketplace. In machine identity we had an outstanding quarter and our momentum continues to build. Underpinning our current machine identity solution are Conjure Cloud and Secrets Hub, which when combined empowered the developer with agility and security within their native workflow. In one outstanding deal from the quarter, a major airline who is a long-standing CyberArk customer recognized the need to move its secrets management strategy within the security team's remit. We quickly demonstrated the value of CyberArk Secrets Hub, resulting in a mid six-figure ACV deal. We believe that the market for protecting machine identities is inflecting and we have increasingly heard from customers that there's an urgent need to protect all machine identities. Machine identities themselves are growing exponentially due to the increase in cloud computing and the rise of AI. The machine identity landscape is also becoming more complex with increasing regulatory scrutiny and emerging standards like Google's guidance to rotate certificates every 90 days. All of this is happening as machine identities are increasingly targeted by adversaries as a weak point in organizational security controls. We are very excited to be building out and expanding our leadership position in machine identities with the pending acquisition of NFi, which is undergoing regulatory review. All machine identities need to be discovered, secured, managed, and automated to keep their connections and communication safe. Venafi's machine identity management solutions are complementary to CyberArk with no technology overlap. We believe that by combining our secrets management with Venafi's modern machine identity management, certificate lifecycle management, and SSH key management, we will set a new standard for -to-end machine identity security. As you can see from these deal examples, our platform provides the ability to land in multiple spots and with multiple products. In the second quarter, we signed 245 new logos and approximately half of these new logos landed with two or more solutions. In other words, customers are protecting multiple types of identities with CyberArk from day one. In addition, we had a strong quarter of expansion within our base across all our solutions, but machine identities with secrets management and workforce identities with our access offerings were particularly strong. At Impact, our marquee customer event held in May, attendance was up more than 25% compared to last year. We showcased that we are the frontrunner in innovation and are expanding the capabilities of our identity security platform, all serving our fundamental vision of securing every identity, human or machine, with the right level of knowledge controls. We announced exciting product innovations across the whole portfolio, but I want to highlight two of them here, Cora AI and ITDR. CyberArk's Cora AI provides identity security focused artificial intelligence embedded within our identity security platform. Our unique data set on the behavior of all identities enables Cora AI to do more and ultimately effectively analyze sessions, detect threats and recommend action. In addition, user and admin lives are made easier and adoption is faster with an identity security assistant that understands natural language. This will fundamentally transform how users interact with our platform, significantly reducing the time it takes to deliver critical information and analysis. Identity threat detection and response or ITDR is sometimes discussed as a separate market or product. We at CyberArk believe ITDR capabilities need to be part of a broader platform. They should not just be about monitoring the vendors infrastructure or limited to active directory, they need to look across all identities to detect identity risk and then be able to take automated response before damage is done. Our ITDR capabilities powered by Cora AI will detect and identify risky behavior, anomalous use of secrets and much more. The powerful combination of Cora AI and ITDR enhances security, improves resiliency, drives increased productivity and enhances engagement with our platform. In summary, I want to leave you with the following takeaways from today's. First, momentum continues to accelerate in our business. Identity security is a top priority for CISOs and customers are consolidating spend with CyberArk. Second, our solution selling is increasing our momentum in the market. Applying the right level of privilege controls to every identity is a security imperative that is recognized by boards, by the C-suite, security teams and increasingly by operations and developers. Third, we are leading the charge when it comes to thought leadership and execution in the identity security space. Our ongoing innovation and pending acquisition of VenteFi will further extend our leadership position and competitive mode and help further solidify our position as the identity security company. And lastly, we are executing. Deals are progressing at a faster pace and our close rates remain strong, a clear testament to the fact that customers are allocating budgets to identity security. Momentum continues to build across our entire business and the strength of our platform is driving our outstanding results. With our 28% revenue growth and our 19% free cash flow margin, we were a solid rule of 40 company in Q2. I'll now turn the call over to Josh, who will talk about our strong financial results and the increase in our yearly guidance.

Thanks, Matt. Q2 was another strong quarter for CyberArk. Once again, we exceeded our guidance across all metrics, highlighting our strong execution and durable demand for identity security platform. We delivered strong net new ARR growth, 245 new logos, solid top line growth, and our subscription flywheel is helping us drive robust operating leverage and healthy free cash flow. Now moving into the results. Total revenue grew 28% year on year, reaching $224.7 million and exceeding the top end of our guidance range. Annual recurring revenue reached $868 million. That's growing 33% year on year with $57 million in total net new ARR. As expected, SAS made up a larger share of our bookings in the second quarter compared to the year ago period from last year. Subscription ARR grew 50% and reached $677 million and is now 78% of total ARR. We added $56 million in net new subscription ARR. That's an increase from the $49 million in the second quarter last year and a record for any non-Q4 quarter. Maintenance ARR was $191 million. Like for like, conversion activities still represent a single digit percent of our -on-year ARR growth. Our business continues to benefit from the momentum we are seeing in upselling and cross-selling new solutions across our platform, which is a significant factor in our strong growth. In the second quarter, the cohort of customers with more than $100,000 in ARR grew to nearly $1,900 and the cohort with ARR of more than $500,000 is now over 340 customers that grew 38% year on year. Moving into the details of the revenue lines for the second quarter, recurring revenue reached $208 million, growing 32% year on year and accounting for 93% of total revenue, continuing to go up from the 90% in the second quarter last year. Subscription revenue was $158.4 million, growing 49% year on year and representing 70% of total revenue. Maintenance and professional services revenue was $62.7 million. Of that, recurring maintenance revenue was $49.6 million compared to $51.6 in the year ago period and our maintenance renewal rates remain strong and in line with historic levels. Professional services revenue was $1.1 million. From a geographic perspective, all regions showed healthy growth. Americas was $129.2 million, growing 21% year on year. EMEA revenue was $69.9 million, up 39% year on year and APJ revenue was $25.6 million, growing 40% year on year. All P&L items now will be discussed on a non-GAAP basis. Please see the full GAAP to a non-GAAP reconciliation in the tables of our press release. Second quarter gross margin gross profit was $186.9 million or .2% gross margin. That's up from .5% in the second quarter last year. In the second quarter, our operating income was $23.7 million or .6% operating margin, also up compared to the operating loss of $5.6 million in the second quarter of last year. The significant improvement from the year ago period highlights the inherent operating leverage of our business model. Net income came in at $26.1 million or 54 cents per diluted share, also significantly outperforming our guidance and up from earnings per share of 3 cents in the year ago period. We ended June with 3,200 employees worldwide, including about 1,370 in sales and marketing. We are pleased to deliver another strong quarter of free cash flow, which was $41.7 million in the second quarter as compared to a negative $12.6 million in the second quarter of last year. That means we have delivered $108 million in free cash flow in the first six months of the year. That's well ahead of our expectations. We believe this is a clear demonstration of the inherent cash flow potential in our recurring revenue model. Before going to guidance, I want to briefly touch on our proposed Venafi acquisition, which is still expected to close in the second half of 2024. As we noted previously, Venafi had approximately $150 million in ARR with more than 550 customers. Like CyberArk, about 95% of Venafi's revenue is recurring. Adding to our durable subscription revenue model, importantly, we expect Venafi to be immediately accretive to non-GAAP margins. It's rare to find an acquisition opportunity that meets both strategic and financial objectives. We're confident with Venafi. We did exactly that. Now let's turn to our guidance. For the third quarter of 2024, we expect total revenue of $230 million to $236 million, which represents 22% -on-year growth at the midpoint. We expect non-GAAP operating income in the range of $20.5 million to $25.5 million for the third quarter. We expect our non-GAAP EPS to be in the range of $0.38 to $0.49 per diluted share. Our guidance also assumes 48.2 million weighted average diluted shares and about $12 million in taxes. For the full year 2024, we are increasing our guidance across all our metrics. We now expect total revenue in a range of $932 to $942 million, representing 25% -on-year growth at the midpoint of the range. As we look at our pipeline for the remainder of the year, SASC continues to be expected to lead the way. Reflecting the power of our subscription model and our continued commitment to driving operating leverage, we are increasing our full year operating income to a range of $107.5 million to $116.5 million. We expect our non-GAAP earnings per share to be between $2.17 and $2.36 per diluted share. We expect about 48.2 million weighted average diluted shares and about $53 million in taxes for the full year of 2021-2024. We are also raising our annual recurring revenue to a range of $985 million to $995 million at December 31, 2024, or about 28% -on-year growth at the midpoint. We are significantly increasing our pre-cash flow guidance for the full year to a range of $145 to $155 million. That will represent 16% pre-cash flow margin at the midpoint. I want to note that our guidance for the third quarter and full year 2024 does not include contribution from the proposed acquisition of Venafi. We will update our guidance for the Venafi acquisition in the first quarterly earnings call after we close the transaction. To sum up, we are thrilled to report another strong quarter to finish out a successful acquisition and confidently raise our guidance. We are pleased with the progress we have made towards closing the Venafi acquisition and look forward to the industry leader joining CyberArk later this year. With reporting now the 33% ARR growth, 11% operating margin, 19% pre-cash flow margin, we are firing on all cylinders. Identity security is a top priority for our business and our platform is a clear industry leader delivering tremendous value for our customers. And I will now turn the call over to the operator for Q&A. Operator?

Thank you. At this time I would like to remind everyone in order to ask a question press R than the number one on your telephone keypad. Your first question comes from the line of Saket Kaliya with Barkleaf. Please go ahead.

Okay great. Hey good morning guys. Thanks for taking my questions here and congrats on the strong execution. Thanks Saket.

We appreciate it.

Absolutely. Matt, maybe just to start with you. You know I think we all understand CyberArk's sort of undeniable leadership right in the PAM market. But I was wondering if you just talk about how you feel like you're differentiating in areas like workforce identity and secrets management. Because during your preparative marks it just sounds like there's a lot more functionality that you could offer in at least those two areas versus competitors. But just wanted to hear how you think about that.

Thanks Saket. I actually love that question. I might spend a little bit more time on answering it because I think it's core to kind of our growth strategy here is our ability to be able to differentiate on those two pillars versus the market competitors. So if we start with securing the workforce and you've heard me say this before but we really have taken a stance that we need to reimagine how we secure workforce identities. And you know for a long time now we've been securing the workforce, the general workforce with single sign-on and multi-factor authentication. And those are really important core security controls. And we offer it and the competitors offer it. But the reality is in this breach environment we need to go beyond those basic security controls. We need to do things like extra security when a high risk user is accessing the increasing number of SaaS applications. That's our secure web sessions. And the idea there is a normal user who's going through their daily work, they can look like a regular user when they're accessing certain applications. But if you're the admin in HR accessing the Workday system, you're actually a high-risk privileged user every time you go into that SaaS tool. And so we need to be able to wrap extra security controls for those use cases. We add in our secure browser. You know the idea of really enterprise-grade security browsing for these users so that we can tie in things like cookie list browsing. We can have the ability to be able to monitor the sessions. The idea of Workforce Password Manager which we heard about in the release. So these ideas together into one integrated solution puts our package, our solution, versus the competitors. And the customers are increasingly saying, wait, I can get that? Why wouldn't I go with that? Because we need to think about how we substantiate a better security posture for the workforce. So we are having a higher win rate. We are seeing strong growth on the workforce side. And you hear the excitement as I'm describing it. It's a similar story over on the machine side. I'd say it's a story that's even going to get better post Eventify acquisition. But here we're talking about the idea of how do we get control across the broad spectrum of machine identities that sit out there? And we can be talking about legacy applications that are still sitting in the data center. We can be talking about modern container-based applications coming out of the developer group. We can even be talking about the idea of the microservices or the workloads that sit underneath all these modern applications. They all have identities. And we need to be able to make sure that we can discover them, we can secure them, and we can manage them. But we have to do it in a way that's native to the workflow of the people who are actually building these applications. And our combination of Conjure Cloud and Secrets Hub allows us to differentiate both the ability to offer a full-scale solution like Conjure Cloud, but also to be able to add or layer on top of the secret stores that sit within the hyperscalers, AWS, Microsoft, Google, so that the developers can actually choose what tools they want to use, but security can layer the right controls on top. And you heard that in the example I used in the script of the airline, who basically made a decision that machine identity security was going to be under the control of the security team. And the minute that decision was made, CyberArk became the only choice. So I think this is what we're seeing out there in the market. And as we think about Venafi and the expanding opportunity to actually go after certificates and other forms of machine identity, we just see a long runway of growth ahead of us.

That makes a ton of sense. Josh, maybe for my follow-up for you, the inflection in free cash flow is just great to see. You know, I know that billing isn't a metric that we've really focused on much in the past, but I'm just wondering, as that sort of flywheel with subscription renewals grows, how do you sort of think about when that metric becomes more meaningful?

Yeah, hi, Zach, and thanks. First of all, you're right. We're really excited with the free cash flow that we generated, not only in Q2, but really for the whole first half of the year. And also excited that we're able to continue to raise the guidance significantly for the full year. And it's really based off of, you know, the factors around, you know, just really strong renewal rates, strong bookings as well. And I think, you know, when we think about billings, one of the things that, you know, it's the reason why we've always kind of shied away is the noise that comes from the maintenance piece of the component within the deferred revenue that goes into the billings calculation. So I think to the extent that when ARR for the maintenance, you know, goes down dramatically and we've become where everything around the ARR growth and the deferred revenue is focused around the subscription staff, I think that's where billings becomes a lot, you know, more of a clear predictor or indicator of the growth in the business. And that's why we're still really focused today on our ARR growth, which is really the strongest indicator because it kind of helps to wash out, you know, any impact from the tail of our transition out of the perpetual business model.

Makes a ton of sense. Thanks,

guys.

Your next question comes from the line of Jonathan Ho with William Blair. Please go ahead.

Hi, good morning. Matt, can you maybe give us a little bit of additional commentary on how your platform vision is resonating with customers? And are you perhaps seeing channel partners start to bring you more into these types of deals as well?

Yeah, hi, Jonathan. So absolutely. I mean, I think the platform is the very foundation of our ability to do solution selling. And it's the combination of both that is actually differentiating us in the market. So, you know, we come to the to the customers and we're talking about these four personas, these four identity groups, workforce, IT developers and machines. And then we're talking about this vision, which is the idea to be able to secure every identity with the right level of privilege controls. The only way that that's possible is with an integrated platform, with the ability to be able to understand the behaviors of each identity group and apply the right level of controls. We call that intelligent privilege controls based upon what behaviors we're seeing, what the user is trying to do, what the target they're trying to access. And so we're not even into the discussion yet around the particular technologies that we offer. I'm talking about a high level vision with customers about this ability to be able to expand across all their identity groups. That introduces the notion of the how. Well, how do we do that? Well, we do that with one integrated platform, one user experience, one ability to be able to run unified audit and unified reporting. And absolutely, that is not only resonating with customers, but I think it's the backbone of the relationship, because even if a customer decides, you know what? You're the PAM leader. I want to get started with securing IT. They feel future proof. They feel safe in the relationship because they know they can expand off of one platform into those other identity groups when the time comes. Now, of course, as we mentioned, about half of our new logos land with more than one solution, more than one identity group, because customers actually from the from the Echo want to get started with leveraging more and more of the platform. So I do think it's fundamental to our strategy and it's fundamental, actually, to the elevation of our relationships with our customers as we map out their long term identity security strategy.

Got it, got it. And then just in terms of a quick follow up, when we look at the strength in the free cash flow margins this quarter, I mean, it's just sort of the normal level or should we expect there to be additional leverage just given the strength in your performance? Thank you.

Yeah, thanks, Jonathan. So, you know, I think we guided and increased our guide for the full year so that, you know, that's the expectation, you know, going to the back half of the year. But I do think that what what what the cash flow from from the second quarter and also from the first quarter indicate is that, yes, we do have a lot of leverage in our model to be able to continuously increase increase our cash flow margin, our free cash flow margin against revenue going forward. And we anticipate doing that in the years to come.

Thank you. Your next question comes from the line of Madeline Brooks with Bank of America. Please go ahead.

Great. Thanks for taking my question and nice performance this quarter. Just two quick ones from me. First of all, in that, you're prepared and worked, you called out some nice wins. And I just wanted to double double click on those and try to understand that or I guess confirm with you that second quarter was really driven by a host of different deals versus one or two really oversized large ones. And then second question for me, both for Matt as well as for Josh, is just getting an mention that over 50 percent are landing with two or more solutions. So how should we think about growth in just core PAM versus the other areas in your in your portfolio? And additionally, to just touch on any type of NRA type of a metric. I know last time you spoke, I think it was still trending above one twenty five. So we could just kind of get an indication of where it is now. That'd

be helpful. Thanks so much.

Percent make up from the top 10 deals as a percent of our overall bookings. And we continue to see a really strong breadth of business across all our markets, actually driving our results. So it's a it's a great indication, actually, of the strength of the business when we look under the covers from that perspective. I think when you think about, you know, the the metrics that we're seeing out there, I think we're continuing to feel we feel good about about all of them. I think when we think about our new logo lands, we were we were really happy with that. So, yes, multiple multiple solution lands, but just in general, you know, getting to two hundred and forty five new logos in this economy, it feels like a strong landing spot for us. And we continue to plant seeds across the board and we plant seeds across the board, across all of the of the product lines. And I think that's the other kind of underlying message. We've talked about this mix or this pie for a while, and the pie continues to maintain in the in the consistent kind of slices, as we've seen in prior quarters. And the reason for that is that PAM continues to grow. So our our our newer areas obviously are growing faster and they're performing well. But the core PAM business itself, from an ARR perspective, continues to grow. And so the overall shifting of the underlying pie doesn't change all that much, which is where you want to be. Right. You want your core business to continue to perform and you want your emerging businesses to to to perform even better, but not catch up so much because you have any weakness in your core. And so this is what we're seeing. You know, I think we're still too early to really talk about NRR as a as a as a number out there. You know, we want to get through some more cycles. So it's actually not a number that we've disclosed out there. But, you know, I think we feel very strong in our ability to be able to to harvest deals within our base. And we see really strong expansion within that base.

Thanks so much. Your next question comes from the line of Rob Olin to Piper Sandler. Please go ahead.

Yeah, thanks for thanks for taking my question this morning. And in that, you know, you're you're coming in at the tail end of earnings and your call sounds quite different than pretty much what we've heard out there. And so I want to drill down a little bit into that relative to is there a sense of urgency you're finding from companies or customers? Excuse me. I mean, your new logo counts up. Few companies have had the the net new ARR growth in the first half that you guys have. So is it just all coming together at this point? Or is there is there some sense of urgency? Because the economy has been relatively uneven or flat at best for most.

Yeah, Rob, it's it's a good question. And it and I think it is indicative of what we're seeing out there. So let's let's break down again what the landscape looks like at the moment in time, the threat vectors, the adversaries out there, it continues to elevate. Right. And so the breach environment, the risk environment increases. And CISOs and security teams are under a tremendous amount of pressure. And within that construct, they're asked by their boards, by their C-suite, to focus in on what's most important, what's most likely to reduce risk. And that's the ability to actually secure environments. And then, frankly, also, what's most likely to help them be resilient if risk materializes. And we within the identity security space as a whole and as the leader in identity security are just at the forefront of those conversations, because ultimately, the CISOs prioritize identity security at the top of the list. So the answer of what they can do to reduce risk is implement core controls, implement privilege controls, understand how to protect the workforce more securely than just MFA SSO, go and attack the machine identity environment that has been neglected for years, expand out or modernize how we secure IT to make sure that we're not just doing, you know, the basics, but we're moving beyond that to actually, for example, secure access to VMs and to cloud. And so all of that then becomes a conversation with us and the customer about, all right, how do we move and how fast can we move? Our partners get it. So they're pushing it harder. So we become a top priority for our partner ecosystem and ultimately materializes in the results that we see. I think, you know, independent of macros and independent of other factors out there and uncertainty. Ultimately, security teams have a mission, and it's the same mission of ours, which is to secure their environments, to protect their organization and their digital transformations. And I think we're just top of mind for that. And then we're able to go deliver. And we see that in the results and we see it even in the outlooks of what we see in the pipe moving forward.

Thanks for your your commentary there, Josh, just a quick one on free cash flow margin. If I look on a 12 month basis, you're closer to about 20 percent. Historically, the shape of free cash flow in any given year is a little more second half weighted, if not even throughout the year. So is there something unique in this year relative to that second half? Because I think you're you're guiding to roughly 16.5 percent the cash flow margin at the high end of the range, which is actually below your TPM numbers. Thanks.

Yeah, thanks, Rob. You know, so when we look at the when we look at the guidance for for the full year that we that we raised, I think by 30 million dollars, but we're still handicapping, so to speak, for for the impact of of the benefit transaction of the investment that we're doing today around it and and related costs. We're also taking into consider consideration potential rate cuts in the second half that could be significant on the interest income. And third, I would say that there's there's consideration of tax obligations in the second half. So when we kind of think about that and we obviously we're much more bullish on our free cash flow this year than we had started out in February. And and and we were glad that we were able to still increase the guidance for this for the full year. But we did consider some of these other factors about to the extent that we

increased our guidance. Thank you.

Your next question comes from the line of Shawl Ayal with T.D. Shawl and please go ahead.

Thank you. Good morning. Good afternoon, guys. Congrats on the ongoing consistent execution. Guys, any any views on how the public. Any views on how the public vertical has performed this quarter, maybe just a word about linearity trends during the quarter and maybe how it's been performing during the month of July. Thank you.

Sure, I'll take that. So I think we've talked about this before, but as the as the nature of our of our solutions have become more mission critical, we've seen kind of more even distribution in our in our federal government space kind of across the board. And so, you know, we don't we don't generally see a huge kick up. We actually are seeing just good, good, solid behavior across government, global government, across SLED and state and local, which is a which is a growth area for us. And so, you know, I think we're happy with our performance overall. We expect it to continue. But I wouldn't say there was any outsized differences in the quarter. And and frankly, I don't think there'll be any outsized differences in the in the in the quarter to come. I think we're just going to continue to see strong growth. I think our global government vertical represents about 10 percent of our of our overall error. And, you know, I think we continue to see that perform well.

Any views about the familiarity trends?

Across the entire business, you know, we continue to see we see our normal hockey stick. So we are we are always back and loaded in a quarter. We saw Q2 perform kind of consistent with normal Q2s. I would say we've had a strong start to Q3 here. So we're feeling we're feeling pretty good. But I haven't quite solved the the the quarterly hockey stick. It's one one thing yet to be solved here at at Cyborg.

Thank

you so

much.

Your next question comes from the line of John Dufriti with Guggenheim. Please go ahead.

Thank you. I'd like to follow up to Rob's question because, you know, the results here, as everyone is saying here, is impressive. But it's not only Matt, the CISOs that identify that have said, hey, identity is a priority here, but it's also cyber insurance companies. I know this you and I've talked about this a lot in the past, but I'm just curious, are you seeing sort of any uptick in at least conversations around cyber insurance or demand? Because to Rob's point, having new logos grow year over year for the first time in a year and a half in this quarter in this IT spending environment is not only impressive, it's also very unique. Like you spoke about the origin of the strength of the CISOs. They've recognized they really need to protect identities in a more robust way. But what's the tactical catalyst to that happening other than some of the, I guess, breaches we've heard about out there? Is cyber insurance, because cyber insurance, to get cyber insurance at a decent price, you have to have PAM. And is that part of what's driving this sort of uniqueness?

Yeah, listen, I think we've talked about it. Cyber insurance is a nice tailwind for us and absolutely, you know, the cyber insurers, as they've kind of perfected their models, look at core security controls that need to be in place. And, you know, PAM is there. By the way, EPM is increasingly there. You see them starting to move over and look at the machine identity space, given the threat vector there. For sure, MFASSO has always been there. So I think cyber insurance is a nice tailwind. And you kind of started to hit on other factors, you know. And what I would tell you is there's a lot of tailwinds. The regulatory environment is a tailwind for us. We're talking about DORA regulations in Europe or SEC regulations here in the US. They create an awareness of what is most important to go do. Cyber insurers, as you just talked about, create an awareness of what's most important to go do. You mentioned the breach environment, and increasingly we're seeing both customers and even the IR firms making sure that the first thing they go do or recommend is come talk to us. And we see, you know, kind of post breach deals picking up, coming our way from a cyber arc perspective. So I think I think across the board, the tailwinds that support the fundamental thesis that I gave Rob, which is we're top of mind and we're a priority. They all kind of reinforce that point and ultimately lead to stronger results.

OK, so it sounds like a lot of things are happening out there.

OK, well, nice job, guys. Thank you. Thank you.

Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.

Hey, guys, thanks for taking my question. Just one for me, Matt, I think you mentioned that win rates were improving on the workforce side. I know you guys talk a lot about how your workforce product portfolio is differentiated because, you know, you have some adjacent offerings that just makes .S.O. and MFA feel more secure. But can you talk to some of the strategic pricing initiatives you're taking that help make customers not only feel like the product portfolio is differentiated, but they're just getting much more value from it as well and how that's maybe helped driving those improving win rates?

Sure, Josh. So thank you. I think we talked about this a little bit at our investor day, but we've moved to this solution motion. And it's a really simple concept, right, which is we're pricing per the persona group, or we're launching solutions per the persona group. So there's workforce, again, IT developers and machines for each one of those personas. We've got a kind of standard and an enterprise package. And our goal is to make sure that even the standard package is better than anything you can get from any competitor out there. And obviously, the enterprise takes it one step further. And so, you know, when we think about the workforce side for a second and you think about our standard workforce solution, certainly our enterprise one, you're getting a slice of not just MFA, .S.O., but you're getting the first two layers of security of secure web sessions and standard and the second two layers in enterprise. You're getting a level of identity management around lifecycle management and workflow engine. You're getting the browser. You're getting an element of workforce password manager. And so, as you kind of pointed out, you know, in spaces where we're competing from the the the the let's say challenger position, you know, especially in workforce, we're not the biggest biggest shark out there. Then we're competing on value and security. And we're going in with our new solutions and we're saying, wait, you you you really want what they offer for .S.O., MFA versus what we offer as a total solution to secure your workforce. And and I think that's resonating. And by the way, it resonates even if the customer doesn't want to swap out their IDP, their .S.O., MFA provider. And I I share that example in the script because it's an important one, which is to say, listen, if you've made a choice on on Microsoft or even Okta recently and you don't want to swap that out, that's fine. We can start to wrap our security controls on top of that. We can bring you into our platform and then over time we can see what happens. And I think that's what the sales team is feeling energized by. And they're out there competing not only more effectively, but I think with a lot more confidence.

That makes a lot of sense. And then just maybe a quick follow up. You know, you I think also in the prepared remarks, you called out how the lifetime of certificates kind of shrinking to 90 days when it used to be, I think, you know, multiple years. There seems to be a lot of little incremental news headlines and just, you know, companies out there losing faith in their incumbent certificate management providers. Are you seeing a rate of change in the demand with which people are realizing that benefit is a modern solution that can handle these new requirements that the market is impressing upon these companies?

Yeah, listen, I think we remain incredibly enthused by the Venafi acquisition. We need to go finish it out, close it and get them on board. But I'm out there talking to customers, our customers, really every day. And, you know, of course, as you might imagine, I'm discussing machine identities and we're talking about this kind of broad end to end machine identity landscape. And and I just want everybody to try to understand this for a second there for each machine identity. Let's take an application. It can be an application. It can be a bot. It can be an AI driven body, can be an IoT device. But let's take an application that application has multiple identities. So that application can have an identity that looks a lot like a username and password. We call that a secret. It can also have an identity with its with its core identifying features. Think like the equivalent of a human with their passport or their driver's license. That's a certificate. And without the ability to be able to identify themselves through a certificate, they can't, for example, the application can't get listed on websites. It can't get listed in Google. So the idea here is our end to end machine identity goes across all machines and then within each machine can manage whether it's the secrets, the credentials, it can manage the certificates, these identifying features, it can manage their keys, these H keys, modern keys, and our combination of Venafi plus CyberArk allows us to be able to be really the only provider that can do that end to end. Now, diving into your question, actually, that was that was all a long preamble is when we think about the certificate space, there has been organizations out there that aren't on the upper tier of the enterprise or aren't highly regulated that been able to thought they could do this themselves. You know, I can create a spreadsheet and track all my certificates, which can be in the in the thousands or even more. And I can figure out when I need to rotate or issue a new certificate when it expires through an automated script. That's impractical today. If you are managing more than 5000 certificates, the idea of doing it manually or through an automated fashion is just not possible. And so that then triggers real interest in a enterprise grade certificate lifecycle management tool in a modern SAS environment, which is really what Venafi offers. And so I really think we're at this inflection point where the do it myself or or or do it with some smart people on IT is no longer applicable. So you add that with the total end to end story. And that's why, as you can tell, because I'm going on about it, that's that's why you can see this idea of, wow, what can we do a CyberArk as the leader in machine identity? And, you know, when we when we close this acquisition and we come back, we'll talk a little bit more about what that offering looks like and the momentum will say.

Your next question comes from the line of Fatima Bulani with CP. Please go ahead.

Good morning. Thank you for taking my question. Just one from me, Josh, you alluded to maybe bringing down the free cash flow directly in response to some of the things that you might be doing around the benefit. So I'm wondering if you could give us a little bit more detail or maybe a taste of what maybe some of these anticipatory investments or plans or efforts or initiatives might be around benefit, you know, provided that hasn't closed yet. But again, anything anticipatory that you're doing, you could give us a flavor on. Thank you.

Yeah, I'll start and if you have anything to add. But, you know, first of all, I think it's, you know, from my angle, when we're trying to forecast cash flow, free cash flow for the second half of the year, it's it's really more around what are we doing now around, you know, PMI for the transaction, the additional investments around making sure that is successful. The full integration as well as, of course, related transactional costs that are going to be going into it, whether the dry ones of legal and various advisory advisory costs as well. And I also would not I would want to repeat. There's also, you know, we took actually a consideration of where interest rates are going in the second half of the year, which is also has as an impact on the free cash flow. But it's really the things around related to what we know we're doing today around direct and indirect costs related to the integration with benefit.

Your next question comes from the line of the Cd Queen with security. Please go ahead.

Great. Thank you for taking my question. Matt, you've talked about the importance of the channel and have really leaned into it. Could you talk about the traction that you're seeing in the console that you recently launched and maybe any other initiatives that are contributing to growth and new logos?

Yeah, sure. No, I think MSP's are important component of today and an even more important component of the future. You know, I think more and more organizations, not just down market, but actually enterprise organizations are choosing to outsource their security stack to the MSP providers throughout there. And so we see that as a as a big piece of our partner program. We talk about it actually regularly. We did launch the MSP console earlier in the year and it's gotten rave reviews. It's made the life of the MSP significantly easier and it allows them to be able to focus on going out and helping find us customers. Once they have it, keeping those customers happy and satisfied and the console itself really helps with kind of tenant management. It helps with the ability to understand usage and again, just makes their life easier. So I think MSP's are a big piece of the future of Cyborg. You see more and more of the, you know, kind of non-traditional, you know, kind of SIs get into MSP's, resellers become MSP's. And I think it's a big piece of how we see ourselves going forward. It also allows us, by the way, to talk about a broader portfolio stack. You know, if you had talked to us maybe a year or two ago with the MSP's we did have, they were really focused in on PAM. And now we see the MSP's really embracing the full portfolio strategy, the platform itself, you know, actually moving into machines, moving into the access side. You know, one of the areas that all of our partners, not just the MSP's are most excited about is actually this idea of cloud access and how do we secure developers, whether they're cloud architects sitting in IT or developers sitting in the developer organization. And what we've seen here, and it was evident in the SAP example, we have released a press release and I mentioned them in the script. They really wanted to think about how they expand the notion of PAM to a modern stack that actually secures the cloud environment. And they adopted our secure cloud access as the fundamental component platform of how developers will access the cloud environment. It's a really exciting win for us. And, you know, those types of new use cases come to play with the MSP's as well. And they realize that they can cover all of the personas of their organizations if they effectively adopt the CyberArk platform.

That concludes our question and answer session. At this time, I will now turn the call over to Mr. Matt Cohen for closing remarks. Please go ahead.

Thank you. And as you can tell, we're just thrilled to deliver another strong quarter. We're delivering innovation and we're continuing to build our vision around this idea of delivering the right level of privilege controls to every identity. We couldn't be more excited about the Venafi acquisition, which remains on track to close in the second half of 2024. And we're in an amazing position overall to continue expanding our leadership position and identity security. I want to end by thanking the more than three thousand employees at CyberArk all around the world for their hard work and their diligent effort in making CyberArk what it is today. Thank you. And we'll talk soon.

This concludes today's call. Thank you all for joining. You may now disconnect.