Cyberark Software Ltd (CYBR) 0 Q0 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CyberArk Preliminary Second Quarter 2017 Financial Results.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to hand the floor over to Erica Smith, Vice President of Investor Relations.

Please go ahead.

Thank you, Karen.

Good afternoon.

Thank you for joining us today to review our preliminary second quarter 2017 financial results.

This call is intended to provide some perspective on our results for the quarter based on preliminary information.

Additional details will be provided during our Q2 2017 earnings call, scheduled for August 8 at 4:30 p.m.

Eastern time.

With me on the call today are Udi Mokady, Chairman and Chief Executive Officer; and Josh Siegel, Chief Financial Officer.

After the prepared remarks, we will open the call up for questions.

Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflects management's best judgment based on currently available preliminary information.

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.

CyberArk expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements made during the call today.

Also, please note that financial information provided is preliminary and is subject to change based on the completion of our quarter-end review process.

Please refer to the Investor Relations section of our website for important information, including our preliminary earnings release issued this afternoon.

A replay of this call will also be available on our website.

With that, I'd like to turn the call over to Udi.

Thanks, Erica, and good afternoon, everyone.

Thank you for joining us on such a short notice to discuss our preliminary second quarter results.

We are disappointed that our results in the second quarter will be below the guidance we provided in May.

The primary reason for our revenue shortfall was our performance in EMEA, where certain deals that we anticipated would close did not close by the end of the quarter.

In EMEA, we experienced less predictable sales and extended sales cycles in larger transactions as well as more scrutiny and longer approval processes.

These issues resulted in a very back-ended loaded quarter, and revenue from EMEA declining by approximately 5% for the second quarter of 2017 compared to the second quarter of 2016.

We have begun a rigorous analysis of the shortfall to determine what steps will help improve execution, drive stronger results and increase visibility into our EMEA performance.

Despite our financial results in the second quarter, the overall demand environment continues to be strong across all geographies.

Deals with expanded sales cycle are still active in the pipeline, and we continue to work towards closing these deals.

Our win rates remain high.

We are confident that there have -- has not been a meaningful change in the competitive landscape.

There were a number of positive highlights in the quarter.

The Americas and APJ continued to grow.

Revenue in the Americas increased by about 20% compared to the second quarter of last year, including a record quarter for Latin America, and APJ increased by more than 35%.

We also added over 130 new logos in the quarter across all industries, including 2 Fortune 100 companies, bringing us to over 50% of the Fortune 100 and to more than 3,350 total customers.

The business continues to be well diversified, with strong growth in banking and financial services, health care, professional services and global government.

From a product point of view, we also delivered our best quarter ever for Endpoint Privilege Manager, which has proven to be successful in preventing recent crippling Ransomware attacks.

We are confident that the strength of our product offering and innovations continue to position us as the leader in Privileged Account Security.

Protecting Privileged Account remains a top priority in security and our solution is a critical layer to protect our customers' most valuable assets: on-premise, in the cloud and in hybrid environments.

While we are disappointed in our quarterly performance in EMEA, based on the growth of our business in the Americas and the APJ and our pipeline across all geographies, including EMEA, we remain confident in the underlying fundamentals of our business, a healthy demand environment and a significant greenfield opportunity in front of us.

With that, I will turn the call over to Josh.

Josh?

Thanks, Udi.

On a preliminary basis, total revenue is expected to be in the range of $57 million to $57.5 million compared to our guided range of $61 million to $62 million, with a license revenue in the range of $30 million to $30.5 million and maintenance and professional services at $27 million.

Non-GAAP gross margin is expected to be approximately 85% for the second quarter.

We currently expect that second quarter GAAP operating income in the range of $700,000 to $1.1 million and non-GAAP operating income to be in the range of $8.5 million to $8.9 million.

This compares to our guided range for non-GAAP operating income of $10.9 million to $11.7 million.

As a reminder, our non-GAAP results exclude stock-based compensation, amortization related to acquisitions as well as acquisition-related expenses.

We are still evaluating our tax provision for the quarter and so are not yet in a position to provide an updated guidance for earnings per share at this time.

We also expect to generate approximately $29 million in cash flow from operations in the first 6 months of 2017 or approximately $13 million in the second quarter.

We expect to report $283 million in cash, cash equivalents, marketable securities and short-term deposits, which includes the $42 million that we paid for the recent acquisition of Conjur during the quarter.

As a reminder, these second quarter results are preliminary and are subject to change based on the completion of our quarter-end review process.

We will provide our full financial details, guidance for the third quarter and updated guidance for the full year on our quarterly earnings conference call scheduled for August 8.

With that, we'd like to open the call up for questions.

Operator?

(Operator Instructions) And our first question for today comes from the line of Sterling Auty with JPMorgan.

Can you hear me?

Yes.

Let me try to get around the one question rule by asking it in multiple parts, I guess.

So first, in Europe, on the last earnings call, you talked about that the pipeline you saw going into the quarter was very strong.

So did anything fall out of the pipeline?

Was there anything competitive?

Or was it truly just close rates at the end of the quarter that was really the big deal?

And then the second part of my one question would have to be on the Americas.

You talked about Americas, about 20%.

It's still a pretty precipitous slowdown quarter-over-quarter and versus what we've seen last year.

What would you attribute the slowdown in the Americas to?

So first of all, Sterling, yes, we definitely talked about a strong and healthy pipeline in EMEA and we still see that.

And exactly, as you mentioned, it was the deals extending to be very back-end loaded in the quarter or where we were working the deals down to the last days of the quarter, and we're not able to complete them on time.

That is really the picture there, whereas the pipeline is -- was healthy entering the quarter and continues to be.

In the Americas, I -- we talked about investing and expanding our sales staff.

We see a lot of opportunities that are more extended to the second half of the year.

But overall, we were happy with the growth rate in the Americas.

And also, other fundamental achievements there on both new logos and add-on business.

And just out of curiosity.

July 13 we're 13 days post the end of the quarter.

What -- why did it take this long to come out with the preliminary?

I would have expected 7, 8 days.

Was there something either you are working through a contract and one sees it fit into revenue recognition or something else?

Sterling, this is Josh.

We spent the necessary time evaluating exactly what the financial results were and needed to go through a proper close process to ensure that the information that we give you today is as close to accurate information as possible.

This is not something we're used to doing.

And so I think that this was -- we took the time that we needed to make sure that we understood where we stood, where and what happened at least at this point with regard to the financials relative to the guidance that we gave.

And then as soon as we felt comfortable with that, we're disclosing it to you now.

And our next question comes from the line of Gabriela Borges with Goldman Sachs.

Udi, I'd love to get your perspective.

The company has been operating in Europe now for several years and you've got a pretty -- typically, you've had a pretty steady cadence of business there.

So I'd love to get your thoughts, what do you think is different this time?

Why are the deals taking longer to close?

And is there anything that you can foresee in the back half that can maybe change some of the patterns that you're seeing that are driving slower business momentum today?

Thank you, Gabriela.

I think in this quarter, we had the deals needed to make our numbers and we're tracking them all the way to the end of the quarter.

I think what we saw that there were more deals that were put into -- especially the larger ones, were putting through scrutiny, more scrutiny than we anticipated.

There could be a variety of reasons there.

Some of it, again, as larger deals are being -- are going through more scrutiny.

Sometimes, it's the chasing of signatures.

Sometimes, it's a matter of the customer really wanting to settle on the exact scope of their deployment.

And obviously, I am disappointed and view some of it in the execution itself and there's, of course, room for improvement on the productivity in the -- of the staff itself.

Like you indicated, for me, I personally was investing a lot of my time for many years in building up the European market.

I believe that we have a first-mover advantage there and a very large customer base to build off of.

And so overall, it's a healthy opportunity, it's a market that requires more education, but we're seeing the drivers get there.

And our next question comes from the line of Karl Keirstead with Deutsche Bank.

Udi, do you mind just taking a step back and helping us understand the go-to-market in Europe, what the mix is between CyberArk's direct sales reps versus the channel?

And I guess, the spirit in which I ask that is that when EMEA fell a little bit short in Q1, you attribute it primarily to the channel.

And I haven't heard you mention the channel in your explanation on this call.

It sounds like it's a little bit more direct.

So if you could help us understand the go-to-market mix?

And if my observation is correct, that it was more channel-focused in Q1, less so in 2Q?

Sure.

Sure, absolutely.

So definitely our model in EMEA is to be as close to 100% channel as we can.

There are some prime deals that are taken direct, but mostly, we work with channel and the exception is Israel, where we work there directly.

So it does mean that in terms of controlling full sales cycles, we -- and just like any company that works through channels, you have less control over the full sales cycle.

But it's not -- that's not specific to the second quarter.

In Q1, we indicated that some of the improvements that we're putting in place, more as long-term improvements than they weren't necessarily reactionary, were to -- we're investing in or moving our regional director to head the EMEA channels in order to drive a more risk-driven approach versus compliance.

And of course, that's work-in-progress.

We are going to spend time, and given the shortfall to scrutinize further how can we do better on the execution side, and definitely, it will involve better control of the sales cycles and deals that involve the channel -- and the deals with the channel.

Got it.

And if I could ask a quick follow-up, Udi.

Was there any more granularity on the country or verticals that might have been a little bit weaker than others?

Yes.

So not on a vertical, but definitely, if we attribute those deals that I've mentioned that were tracking through the end of the quarter and to the last phase of the quarters, and didn't happen, I can point to primarily the U.K. and Northern Europe.

And our next question comes from the line of Melissa Gorham [Franchi] with Morgan Stanley.

Udi, I'm just wondering if you could point maybe some more details around the plans that you have in place to address the execution challenges.

I know you talked a little bit about new channel leadership, but can you talk about where you are in that process?

And the timing of when you think that starts -- that's going to start to see some improvement?

Yes.

The things we talked about in Q1 are in place.

And I think, again, we talked more about continuous improvement elements that we want to put in place to leverage lessons from better performing, and so that's in play.

The channel leader has been put in position.

Also, the marketing efforts that we talked about with our new Chief Marketing Officer, but those are really enticed to work on a long term.

With regards to this phenomenon that we saw with extended sales cycles into the last weeks and days of the quarter and how -- on how those have played out, we're really going to put more scrutiny in coming weeks and we'll come up with more information in August.

And our next question comes from the line of Saket Kalia with Barclays Capital.

Maybe just first, just a quick clarification for you, Udi.

On the slipped deals here in Europe, can you just talk about whether they were mostly new logos?

Or was there some element of add-on business as well?

Yes, Saket, it's a great question.

We, of course, looked at it and it's a combination.

But the common denominator is that they were large.

And so we're talking large new deals and actually quite diverse also on verticals, but large new deals or large add-on business to existing customers that were really extending to the last days.

Got it.

Got it.

And as for my follow-up, I mean, with -- I think a lot of people expected maybe 2017, maybe more the second half of 2017, to be a stronger -- or at least, especially for Europe, to be the stronger time for security spending as we kind of get into the beginning of '18, with GDPR.

Can you just maybe talk a little bit about whether you think that was a contributor?

Or maybe just, generally, why you feel like Europe is still lagging the U.S. in terms of adopting privileged account management as fast?

Yes, so I think, we continuously talked about the fact that in European countries, we've seen more compliance-driven approaches and less risk-driven transactions like we see in the healthy market in the Americas, where it's understood that an attacker that makes it to the network is going to steal credentials in order to progress the attack, and therefore, a defense perspective, puts Privileged Account Security in the center.

We find that we have to educate more on that.

But if I step back and look at macro, I do think that us and others will benefit from the fact that GDPR will force companies to better prepare and either be forced to disclose and, therefore, drive others to adopt or really preemptively secure themselves.

And we're investing in that.

And all of these things are things that we're investing with long term in mind, with many of our channels that we're working with.

They are educating about the centrality of Privileged Account Security, and so I wouldn't put a negative macro on Europe in general.

But across historically, it's been adopting slower than the Americas.

And again, in this scenario, it's really very much the large deals that caused the shortfall.

(Operator Instructions) Our next question comes from the line of Fatima Boolani with UBS.

Udi, just to your comments in the prepared remarks during the extended sales cycle was in greater scrutiny, I'm wondering if you can help delineate between some intrinsic challenges that you have had vis-a-vis sales management processes and extrinsic challenges on the customer side.

If you can help us sort of proportion which had the bigger impact?

And really, the objective of my question is to understand if you require more direct touch sales rep investment in the European region, considering you are going 100% channel there and you have lower control on the sales process.

So just something to help delineate between what impacted more, was it intrinsically sales enablement issues?

Or just more customer issues?

Yes.

Thanks, Fatima.

I think between the 2, I would talk about more how the customer was going through the procurement cycle in their processes.

But obviously, as a company that always strives for continuous improvement, we are going to take a look at our own execution because, again, things that we can do to not find ourselves stretched to the last couple of days of the quarter on these major deals.

And -- but I agree with you, it's part of -- I think, the upside in CyberArk is that this is a very critical layer of security that integrates with the systems that the customer has and, therefore, it's not a plug and play by the channel.

And in major deals, we do need to be involved to walk the customers through it.

I mentioned earlier that in some cases, it was the customer looking again at the scope of the deal, for example.

And so working with the channel, we have to stay involved.

Those are, of course, areas where we can also improve due to increase our control.

If I can sneak a quick one in for Josh.

Josh, as you think about the guidance methodology for the remainder of the year, and I appreciate you can provide that in a couple of weeks here, but how does this sort of change the way you look at the large deal input into the forecast?

And if you can remind us historically how that methodology has been at, that would be really helpful contact.

Yes.

So yes, as you said, we were now still currently evaluating and we'll come back in August with Q3 guidance and full year guidance.

And obviously, to follow on with what Udi said, in addition to looking at the execution side of the house and understanding which piece comes from execution and which piece comes from really just on the market customer side of elongating of the pipeline deals, I will have to reevaluate some of my assumptions in terms of understanding the deal timing and deal flow.

The good news is that the pipeline is growing, and so we're able to track all the opportunities.

But you are right, I will have to be -- take or adjust my view in terms of getting the comfort level for the -- for deal closure within a particular period.

I mean, until now, for, I think, the last 11 quarters since we've IPO-ed, we've been very successful in being able to look at our pipeline, evaluate all the transactions, large -- small and large each quarter and be able to meet or beat -- meet or beat our forecast or guidance.

And I would remind you and the people in this call that actually every quarter in the last 11 quarters, we've had several large deals; our over-100k deals have been growing consistently.

And we also -- it's very common to have 7-figure deals on a quarterly basis.

So this isn't new information.

This isn't new territory for us.

But we are seeing a bit of a shift, where we -- I need to look at it carefully.

And our next question comes from the line of Shaul Eyal with Oppenheimer & Co.

They may have left their phone, we can move on.

Our next question comes from the line of Jonathan Ho with William Blair.

I just wanted to understand a little bit more from the spending perspective.

Do you feel like you'll need to increase spending to correct these issues?

Or I mean, should we be thinking about a more conservative stance around margins for the rest of the year?

Well, obviously, as we looked at giving spending outlook for the rest of the year, we'll talk about that in August when we give our Q3 guidance and full year -- and we'll give full year guidance as well on the operating income.

So you'll able to see that.

But I think, overall, at least through Q2 results, we continue to invest.

We feel like we have the right people or the right number of resources on the ground to meet our targets.

We don't believe that, that was connected.

And we are very excited about the pipeline that we have in front of us, the market opportunity that we have in front of us.

And so we'll have to evaluate as we come with our guidance as well in August, more looking at the right mix against those expense -- against the opportunity, against the revenue guidance that we give.

But overall, I think certainly through Q2, we're in the right place.

And our next question comes from the line of Rob Owens with KeyBanc.

Just a brief one, I guess.

In your conversations with customers postmortem, any implications for the Ransomware outbreaks?

It seemingly had a larger impact over in Europe than they did here in the U.S. And just some delays around potential customer purchasing, as they're getting their arms around that.

Thanks, Rob.

That's a great question.

I would say that we wouldn't put it as the unifying factor across all of them.

But in some cases, the additional scrutiny, it's a double-edged sword in the sense that we have a solution that has been tested against all -- against WannaCry and [anvetia] and 600,000 samples with Endpoint Privilege Managers, so it's an opportunity for us.

But you are right that there are some customers that were taking their time to figure out what are they buying and what are they looking at.

It's -- again, it's a portion.

Therefore, we didn't put it up as a major reason.

But you can put that and the U.K. elections as noise within the last closing weeks of June.

I appreciate the candid comments.

And then, I guess, along the lines with GDPR, we keep reading about how everyone's behind.

Is there any sense that, that could be causing pause or something that would be elongated relative to the ability to close these deals just as we move into next year as a lot of companies are trying to get their arms around that?

Thank you.

I think that many vendors have been marketing on GDPR drivers.

And maybe similar to other things like PCI back in the day, maybe over-marketing in that sense.

And the market is beginning to see through that noise.

In our case, our strategy is to really work with the Big 4 and advisory firms and channel partners to recommend CyberArk.

There's no GDPR -- one GDPR solution, but to recommend CyberArk as a pillar there.

In some cases, I have heard that the over-marketing on GDPR leads the companies to want to take a slower look there.

And our next question comes from the line of Tal Liani with Bank of America.

My question is a bit more strategic than just the tactical quarter.

If you look at the last few quarters, there has been deceleration in the business.

It's not -- every quarter, we can blame something else or explain it to something else, but we do see the trend line.

And the question is 2 things.

Number one, it's a high level.

Why is it happening for such a market that is so lightly penetrated?

And why don't we see just continued growth, given the environment -- spending environment, the need for cybersecurity solutions as well as your position in the market.

I'm trying to understand if there's something we missed.

It's catching me by surprise, this kind of deceleration at such an early stage of the market.

And the second thing is, and maybe just a follow-up, kind of I'll put it together because it's related.

You've done just very few acquisitions.

If I looked -- you've done one now and before that, very small ones, a few ones.

Is this the time, in your view, to maybe expand somewhere and expand the horizon if the core market is somewhat decelerating and slowing, do you have to expand the role of the solution?

So absolutely.

So Tal, from our perspective, we're sitting on a tremendous opportunity.

We are marketing and selling a new layer of security.

We're not a next generation in front of an existing security layer.

And let me pause and I'll say, we are disappointed with these results and we were tracking deals that would have led us, had they closed on time, we would have been having a different conversation today and continuously proving out this market.

But we are very forthcoming here that we are disappointed and we want to fix the quarterly cadence.

But we had the deals to make the number and to totally -- and to show and continue to prove out this greenfield opportunity.

When we sell, we educate and sell.

But that's also the opportunity.

As the market leader that's well accepted and -- as the market leader out there, and with the global presence and the channel presence, it's definitely for us to execute on and we view it as a strong long-term opportunity.

All the acquisitions we made and everything we've done were never from a defensive, "oh, we don't have enough opportunities." It's actually the opportunity is out there, let's continue to be the one that can capitalize on it.

So we made 3. The first 2, Cybertinel and Viewfinity are the ones that make up our Endpoint Privilege Manager that I talked about earlier that had a record quarter that extended CyberArk Privileged Account Security to the endpoint, where attacks begin.

And of course, the acquisition of Conjur was super strategic for us that we announced in May that, again, under the space of Privileged Account Security, extended us to managing the very complex and vulnerable DevOps life cycle, and we're integrating that right now and building a great pipeline for this.

But this was all under market -- on expanding our reach and the type of assets that we can secure as a Privileged Account Security vendor.

It's true, when you look at this opportunity, you need to look at it as a new layer of security, and I'm very confident that we -- we have a strong long-term opportunity here.

And our next question comes from the line of Gregg Moskowitz with Cowen and Company.

Udi, you recently hired a new CMO as you alluded to earlier.

What will she bring to this role?

And what might we see differently out of CyberArk with respect to marketing going forward?

Yes, absolutely.

We hired Marianne Budnik and -- who started the beginning of May.

The premise written there is really scale and repeatable processes.

I think in the past, marketing initiatives were about the brand building of CyberArk and the introduction of this new layer.

I think, with the phase that we're in right now, is while we continue to educate, but also build a scalable and repeatable lead generation and field marketing and do that in a global basis.

She definitely sees Europe as the #1 place to spend time, but also, a challenge and an opportunity.

As we speak, and I really have to switch gears for this because we're on the back of our Americas customer event, which was a record attendance.

We doubled the attendance from last year.

We had over 1,000 participants with really top enterprises and including prospects with -- very well attended.

So it's all about capitalizing on where we are right now and scaling as we continue to lead this market.

And our next question comes from the line of Shaul Eyal with Oppenheimer.

Apologies for some background noise here.

Was some of the slippage and delays you guys have been seeing in Europe was primarily pricing driven?

Or just additional causes?

And also, you guys operate in a competitive environment, which is well defined.

Any changes that you have seen?

Thanks, Shaul.

No, actually, we have not seen a change in the competitive environment.

I would say that with the acquisition of Conjur, we even made a bolder statement out there to the market that we're extending our leadership with the new frontiers.

We're hearing that feedback from customers and from the -- from customer channels and from the industry analysts.

The -- and so I would say that in the major deals that I talked about are the large deals, approvals have to do with pricing, but it wasn't a let's continue to negotiate the pricing, but more how customers were running their internal approval processes and going through more scrutiny.

And obviously, in smaller deals and in less strategic deals, we sometimes face pricing competition.

But really, nothing new there, and our team is a very successful in selling the value.

And our next question comes from the line of Andrew Nowinski with Piper Jaffray.

It's actually Jim Fish on for Andy Nowinski.

Udi, based on your comments actually on Tal's question about having a different conversation today, maybe I'm just reading into this a little too much, but can you quantify how large of an opportunity that didn't close, as it sounds as if you had closed it, you may have had to possibly pre-announce?

Or am I just reading that wrong?

Yes, I would say that had we closed the deals that were visible to us at the end of the quarter, we would have met and even exceeded the guidance.

And -- but it's a combination of large deals that would have taken us there.

Got it.

And then just as a quick follow-up, one conversation that kind of comes up around CyberArk is sort of the lack of visibility, given the lower recurring revenue stream.

Have you guys had any further discussions around getting into more subscription over the traditional license that you guys primarily use today?

Hi, this is Josh.

Well, today, we have our Endpoint Privilege Manager, which is sold as a service and on-premise.

And we saw already last year, it's starting about half of it being consumed as a service, which provides some recurring, although it was still a small piece of the business.

Udi mentioned that this quarter was a very strong quarter for that product.

And in fact, for this specific quarter, more than half of the business was SaaS consumed.

So we are starting to see a bit of a tick there.

Udi talked about the Conjur acquisition.

That product, as we roll it out, will be sold in a subscription form.

So that will start to build some subscription basis as well.

In terms of our core products, today, we do offer it, one requested as subscription.

We're finding that it's still a very -- it's still just a couple of percent of customers who choose to consume it that way.

But it is available to customers to purchase it as subscription, but we still find that overwhelming majority and not even majority, but the really, most of them choose to consume it still in the perpetual and paying the annual maintenance fee.

And I would add that our ever-growing customer base, there's now 3,350 that we really invest in and really nurture, while it's perpetual add on, it's -- especially on the run rate, we have strong visibility and we've talked in the past about the signs of customers coming back.

So that base also gives us a strong visibility there on the add-on side.

And again, I hear it didn't apply to some of the add-on large deals Europe, but of course, we -- the customer base is global.

And our next question comes from the line of Catharine Trebnick with Dougherty & Company.

Udi, any insight on federal with the administration change?

You didn't see a lot of federal spending in Q1 and Q2 across the board.

Perhaps what you did see more, I would say that from what we're hearing, Q3 looks to be a pretty strong federal spend.

Can you give us any color on how federal impacted the Q2 number at all?

(Thanks.) Or didn't?

Catharine, I would say that we saw -- we definitely saw federal both in Q1 and in Q2, and we were pleased in the half and with a healthy growth rate.

And I've indicated in the past that we're investing in this and, of course, the Q3 cycle is also important for us.

And our next question comes from the line of Ken Talanian with Evercore ISI.

First, I just wanted to clarify one thing.

Have you actually closed any of the deals that you had previously expected to close by June 30?

We're working on all the deals.

All of the deals that we referred to are still very much in our pipeline and we're still working to close all of those deals, and we'll be able to talk about how that plays out into our guidance in August.

Okay.

And just as a follow-up, it looks like you brought down operating income guidance by less than what you brought down in total revenue guidance.

Is that mostly a reflection of lower-than-expected commission dollars?

Or is there some other leverage there as well?

Yes.

There's about -- there was a significant component that came from variable compensation.

And then the balance would be just the way we run the business, staying within budget across the organization.

And we did have a bit lower program spend and we were a bit under budget from a hiring point of view.

And our next question comes from the line of Erik Suppiger with JMP Securities.

A couple of clarifications.

First, you talked about a number of deals.

Can you give us a general ballpark in terms of the number of deals?

Was it kind of low double-digit type number of deals?

And then secondly, the cash didn't come down as much as I was anticipating.

Did you have good deferred revenue in the quarter?

Or what happened there?

And then lastly, on the EPM, you've talked about this being a record quarter.

Did you see an acceleration in the EPM business?

Or was it consistent growth with what you've seen in the past few quarters?

Yes.

So on the first question, I would say it's a low double-digit amount of deals that we're talking about.

On the cash flow, Josh?

Yes.

On the cash flow, I will report deferred revenue when we do the full report in August, so I don't want to get ahead of myself.

We're still closing all those pieces of the books.

But yes, we -- it's still very much in line with the type of cash flow generation that we've seen historically on the upper end of it with regard to -- as it relates to our bottom line.

So there was no -- there's no one thing.

I think it will be better served and you'll see the whole picture come August, but we did have a good collection quarter.

And with regards to the question on our Endpoint Privilege Manager, I think it's a combination of full year.

Last year is the full year where we integrated our acquisitions into the offering and have the full staff knowing how to market and sell this.

So I would call it a natural progression as this product has really picked up through our sales force and through our channels.

And of course, it's become more and more the #1 hygiene thing in security, is to not allow administrative privileges on the Endpoint, application control, and of course, it's very relevant to preventing unknown Ransomware.

I will add, Erik, directionally, we did have an increase in deferred revenues as well as we typically do from quarter-to-quarter.

And our next question comes from the line of Srini Nandury from Summit Redstone.

I just wanted to expand on Tal's question a bit.

If Privileged Account management is such an important segment for the business, for the businesses, why are the deals getting so back-end loaded, especially when there's so many high-profile breaches?

And what I keep hearing is this is a partnership.

Perhaps, is it very difficult to implement and make it work?

Is that an issue here?

We're talking about back-end loaded in EMEA, and so -- and obviously, we sell globally.

And I would say in a risk-driven deal, where risk is the primary driver and the Chief Security Officer wants this new layer in place to prevent a network takeover, there are faster cycles as we look into these large deals.

It's a matter of how internal approvals were running.

And from our perspective, it's not an indication of the market or the market opportunity.

And that concludes our question-and-answer session for today.

I would like to turn the floor back over to CyberArk for any closing remarks.

Thank you.

Thank you for joining us today.

We look forward to updating you further on the call on August 8. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program, and you may now disconnect.

Everyone, have a great day.