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Bear of the Day: CyberArk (CYBR)

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CyberArk Software ((CYBR - Free Report) ) is a $4 billion provider of IT security solutions, serving more than 5,400 global businesses, which include over 50% of the Fortune 500 and more than 35% of the Global 2000 companies. Headquartered in Petach Tikva, Israel, CyberArk Software Ltd. was founded in 1999.

CyberArk offers services, which protect organizational privileged accounts from cyber-attacks. Its products include CyberArk Shared Technology Platform, Privileged Account Security Solution and Sensitive Information Management Solution.

On November 10, the company reported Q3 2020 non-GAAP earnings of 31 cents per share that exceeded the Zacks Consensus Estimate by 6.9%. The bottom line, however, declined 52.3% year over year.

CyberArk’s revenues fell 1.4% year over year to $106.6 million and missed the consensus mark by 5.7%. Markedly, 59% of quarterly revenues were recurring in nature, which grew 40% year over year to $63 million.

Impressively, ARR (annual recurring revenues), an important measure for software companies with enterprise customers seeking more of their services, increased 40% year over year to $250 million.

But after the company outlook and conference call, analysts took down 2021 EPS estimates dramatically from $2.33 to $1.47, or 37%, resulting in a -20% earnings wipeout for next year -- following a 34% decline this year!

It's a wonder the stock is even higher after their report considering this reaction. But maybe that ARR growth number is winning the day, over EPS, with investors. They also unveiled some new enterprise services that integrate with Microsoft's Azure platform.

Quarter Details

Segment-wise, License revenues (42.9% of total revenues) decreased 20.9% year over year to $45.8 million. On a combined basis, SaaS and subscription revenues increased roughly 200% year over year and accounted for 28% of total license revenues.

Maintenance and Professional Services (57.1%) revenues increased 21% year over year to $60.8 million. Within the segment, professional services revenues came in at $9.9 million, representing 9% of total revenues.

The company witnessed strong year-over-year growth in financials, healthcare, telecom, pharma and the IT services software vertical.

CyberArk’s non-GAAP gross profit was $89.5 million, marking year-over-year decline of 4.8%. Moreover, gross margin contracted 300 basis points (bps) to 83.9% on unfavorable revenue mix (higher SaaS revenues) and increased cloud infrastructure cost related to SaaS business.

Operating expenses increased 20.8% year over year to $94.7 million. As a percentage of revenues, operating expenses were 88.8% compared with 72.5% reported in the year-ago quarter.

The company reported non-GAAP operating income of $13.1 million, down 55.4% year over year. Non-GAAP operating margin declined from 27.2% reported in the year-ago quarter to 12.3% in the reported quarter.

Key Developments

During the reported quarter, the company introduced CyberArk Cloud Entitlements Manager, an AI-powered service, to remove excessive cloud permissions.

Moreover, the company’s solutions are now available on Microsoft’s ((MSFT - Free Report) ) cloud platform Azure. Further, CyberArk achieved AWS Digital Workplace Competency Status and AWS Outposts Ready designation.

Guidance

For the fourth quarter of 2020, CyberArk estimates revenues of $125-$135 million.

Non-GAAP operating income is expected in the band of $25-$33 million. The company projects non-GAAP earnings in the 52-67 cents per share range.

Bottom line on CYBR: The company is a differentiated provider in security and the MSFT alliance will be a key driver going forward. We just want to see the estimates stop going down and start heading back up. The Zacks Rank will let you know.

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