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CyberArk (CYBR) Jumps on Splendid Q3 Earnings & Upbeat View

Shares of CyberArk Software Ltd. CYBR jumped over 11% yesterday after the company reported splendid results for third-quarter 2017, wherein it exceeded its guidance at every point and surpassed the respective Zacks Consensus Estimate as well. An optimistic guidance for the next quarter and upbeat outlook for the full year also contributed to the surge.

Now let’s discuss quarterly results in detail.

Revenues

CyberArk’s revenues were up 17.9% year over year to $64.8 million and came ahead of management’s guided range of $62-$63 million (mid-point $62.5 million), as well as the Zacks Consensus Estimate of $63 million. The company’s top line mainly benefited from new customer acquisitions and add-on business from existing clients.

During the reported quarter, the company closed a number of deals, including the largest numbers of seven-figure new clients in its history. Also, CyberArk witnessed a record number of federal deals in the third quarter. The company added over 100 customers and ended the quarter with more than 3,450 clients.

Segment wise, License revenues which accounted for 55% of total revenues, increased 7.7% year over year to $35.8 million. Maintenance and Professional Services revenues, contributing 45% to total revenues, surged 33.6% year over year to $29 million.

Geographically, the company witnessed revenue growth across every region. On a year-over-year basis, revenues from the Americas increased 17% and contributed 65% of total revenues. Revenues in the Asia Pacific and Japan were up 13% year over year, representing 6% of total revenues. EMEA witnessed a 23% jump and accounted for 29% of total revenues.

Operating Results

CyberArk’s non-GAAP gross profit came in at $55.8 million, representing year-over-year growth of 16.9%. However, gross margin contracted 80 basis points (bps) year over year to 86% in the third quarter. The decline was primarily due to slight change in the revenue mix, and investments in cloud infrastructure and professional services.

The company reported non-GAAP operating income of $10.7 million, down from $14.3 million reported in the year-ago quarter. However, operating income was way higher than the company’s guidance range of $8.2-$9 million.

Non-GAAP operating margin dipped to 16.5% from 26%, primarily due to lower gross margin and elevated operating expenses as a percentage of revenues. Escalated operating expenses were mainly stemmed by increased investment toward enhancing product offerings and expanding sales capabilities.

The company reported non-GAAP net income of $8.9 million, down from $11.7 million reported in the year-ago quarter. Net income margin came in at 13.7% compared with 21.4% reported in third-quarter 2016.

On per-share basis, the company reported non-GAAP earnings of 25 cents, down from 33 cents reported in the year-ago quarter. Benefits from higher revenues were more than offset by increased operating expenses.

However, quarterly earnings came ahead of management’s guidance range of 17-19 cents and surpassed the Zacks Consensus Estimate of 18 cents as well.

CyberArk Software Ltd. Price, Consensus and EPS Surprise

 

CyberArk Software Ltd. Price, Consensus and EPS Surprise | CyberArk Software Ltd. Quote

Balance Sheet & Cash Flow

CyberArk exited the third quarter with cash, cash equivalents, short-term deposits and marketable securities of approximately $297 million, marginally up from $296 million at the end of second-quarter 2017. Receivables were $33.9 million at the end of the reported quarter.

CyberArk’s balance sheet does not have any long-term debt. The company generated cash flow from operations of approximately $36.2 million in the first three quarters of 2017.

Guidance

Buoyed by splendid third-quarter results, the company raised its full-year outlook and provided impressive guidance for the fourth quarter.

For the current year, CyberArk now anticipates revenues in the band of $256.3-$257.3 million (mid-point $256.8 million), representing 18-19% year-over-year growth, up from the previous range of $253-$256 million (mid-point $254.5 million). The guided range is higher than the Zacks Consensus Estimate of $254.71 million.

Non-GAAP operating income projection has been raised to $48.9-$49.7 million from the previous guidance range of $46.4-$48.4million. Similarly, non-GAAP earnings for 2017 are now expected to be between $1.09 and $1.10 per share, up from the earlier guided range of $1.02-$1.06. The earnings projection is way higher than the Zacks Consensus Estimate of $1.04.

For the fourth quarter, CyberArk estimates revenues in the range of $75-$76 million (mid-point $65.5 million), representing 17-18% year-over-year growth. The mid-point of the guided range is almost in line with the Zacks Consensus Estimate of $75.7 million. Non-GAAP operating income is predicted to lie in the band of $16.8-$17.6 million. The company projects non-GAAP earnings for the fourth quarter in the 35-36 cents range. The Zacks Consensus Estimate is currently pegged at 36 cents.

Our Take

The company’s fabulous third-quarter results, along with an overwhelming future outlook, indicate that its ongoing investment in sales and marketing strategies are paying off.

Furthermore, it should be noted that, in the second quarter, the company had reported the slowest revenue growth rate of 14% since its listing in September 2014. Prior to that, it was around 25%. Therefore, its third-quarter actual growth rate, along with fourth-quarter’s projection, makes us optimistic about its long-term revenue prospects.

Furthermore, CyberArk’s expansion strategy through acquisitions is encouraging for the near term.  Per the company, the recently acquired Conjur business has received strong customer response. Conjur specializes 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.

Moreover, CyberArk’s strategy of enhancing relationship with channel partners is bringing in new customers. The company noted that channel partners make a key component to its go-to-market sales strategy and generated roughly 60% of the business in the third quarter.

Apart from this, the company’s C3 technology alliance program is also influencing deals, in turn, bolstering its revenues. CyberArk has nearly 70 partners, now, under this program, which includes companies like Proofpoint PFPT, Qualys QLYS and ServiceNow NOW.

We believe, the company’s continued focus on the aforementioned initiatives will continue to drive its top-line performance.

However, CyberArk has underperformed the industry to which it belongs to in the year-to-date period. The stock has returned just 1.3%, while the industry recorded growth of 20.8% during the time period.

Currently, CyberArk carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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