CyberArk (CYBR) Tops Q1 Earnings, Stock Dips On Soft View

Keeping its earnings streak alive for the 11th consecutive quarter, CyberArk Software Ltd. (NASDAQ:CYBR) reported better-than-expected first-quarter 2017 results. Furthermore, the company’s top- and bottom-line results not only marked significant year-over-year improvement, but also exceeded its outlook across all metrics including revenue, operating income and earnings.

The company reported non-GAAP earnings per share of 28 cents which came well above management’s guidance range of 21–23 cents and marked year-over-year improvement of 21.7%. On an adjusted basis, earnings per share (excluding amortization of intangible assets and other one-time items but including stock-based compensation) on a proportionate tax basis came in at 23 cents per share, up from the year-ago quarter earnings of 15 cents. The Zacks Consensus Estimate was pegged at 13 cents.

Quarter Details

CyberArk’s revenues jumped 25.8% year over year to $59 million and surpassed the Zacks Consensus Estimate of $58 million. The company’s revenues increased on a year-over-year basis, primarily due to higher-than-anticipated demand for its privileged account security platform.

Revenues were also boosted by a 20% increase in License revenues, which came in at $33 million and accounted for 56% of total revenue. Also, a 34% year-over-year increase in Maintenance and Professional Services revenues (44% of total revenues) positively impacted the quarterly results.

Geographically, on a year-over-year basis, revenues from the Americas increased 28% and contributed 63% of total revenue. EMEA increased 11% and accounted for 29% of total revenue. Revenues in the Asia Pacific and Japan surged a whopping 90% year over year, representing 8% of total revenue.

CyberArk’s non-GAAP gross margin declined to 86.5% in the first quarter from 87.6% in the year-ago quarter. On an adjusted basis (excluding amortization of intangible assets and other one-time items buts including stock-based compensation), gross margin contracted 130 basis points (bps) on a year-over-year basis to 86.9%. The decline was primarily due to slight change in revenue mix, and investments cloud infrastructure and professional services which were outlined during the fourth-quarter 2016 earnings conference call.

The company’s non-GAAP operating margin shrunk 120 bps to 21.6%. On an adjusted basis (excluding amortization of intangible assets and other one-time items but including stock-based compensation) operating margin contracted 300 bps from the year-ago quarter to 12.7%, primarily due to lower gross margin and higher adjusted operating expenses as a percentage of revenues.

Adjusted operating expenses grew 28.7% year over year to $43.1 million mainly due to increased investment toward enhancing product offerings and expanding sales capabilities.

CyberArk exited the quarter with cash, cash equivalents, short-term deposits and marketable securities of approximately $267.7 million, up from $238.3 million at the end of fourth-quarter 2016. Receivables were $34.9 million at the end of the quarter.

CyberArk’s balance sheet does not have any long-term debt. The company reported cash flow from operations of approximately $16 million for the first quarter.

Guidance

The company provided guidance for the second quarter and updated the full-year 2017 outlook.

For the first quarter, CyberArk expects revenues in a range of $61–$62 million (mid-point $61.5 million), representing 21–23% year-over-year growth. The mid-point of the guided range, however, is below the Zacks Consensus Estimate of $62.35 million. Non-GAAP operating income is expected to be in a range of $10.9–$11.7 million. The company projects non-GAAP earnings for the second quarter in the 23–25 cents range.

For the year, the company raised its revenue guidance range, but lowered non-GAAP operating income and earnings views. CyberArk now anticipates revenues in a range of $268.5–$271.5 million (mid-point $270 million), representing 24–25% year-over-year growth, up from the previous range of $267–$270 million (mid-point $268.5 million). The guided range at the mid-point is higher than the Zacks Consensus Estimate of $268.71 million.

However, the non-GAAP operating income expectation has been lowered to $55–$57 million from the previous guidance range of $56–$58 million. Similarly, non-GAAP earnings for 2017 are now expected to be between $1.18 and $1.22 per share, down from the earlier guided range of $1.20 per share to $1.24 per share.

Conjur Acquisition

Concurrent with the first-quarter results, CyberArk announced that it has acquired privately-held Conjur Inc., for a total cash consideration of $42 million. Conjur is specialized in offering DevOps security software. Therefore, the acquisition is anticipated to boost CyberArk’s capabilities in empowering companies to accelerate software deployment in their organizations with more security.

Our Take

CyberArk is an Israeli company that specializes in protecting accounts from cyber attacks. The company offers several products that protect passwords, close loopholes in the security system, and secure cloud-based assets.

Despite reporting splendid first-quarter results, shares of CyberArk were down over 8% in today’s pre-market trade as the company’s second-quarter revenue fell short of our estimates as well as it lowered its full-year non-GAAP operating income and earnings guidance ranges.

However, the stock has outperformed the Zacks categorized IT Services industry in the year-to-date period. While the industry gained 9.9% in the said period, CyberArk returned 21.2%.

Furthermore, it should be noted that, for the last two quarters the company has reported the slowest revenue growth rate of around 25% since it was enlisted in Sep 2014. Prior to this, CyberArk had witnessed over 35% revenue growth every quarter.

Moreover, its outlook for the first quarter as well as full year indicates that it will remain in mid 20%. This makes us slightly cautious about its future prospects. Intensifying competition from peers such as CA Inc. (NASDAQ:CA) and Microsoft Corp. (NASDAQ:MSFT) , and an uncertain macroeconomic environment add to its woes.

Nonetheless, we are optimistic about CyberArk, given a healthy security market, strong product lineup, deal wins and investment plans, which are likely to boost results in the long run. Furthermore, CyberArk’s strategy of growing through acquisitions is encouraging. Additionally, investments in product suite and go-to-market are the other positives for the company.

Currently, CyberArk carries a Zacks Rank #3 (Hold).

A better-ranked stock in the IT Services industry is DXC Technology Company (NYSE:DXC) which sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has a long-term expected EPS growth rate of 8%.

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