Cyberark Software Ltd (CYBR) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CyberArk Software third quarter 2015 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Erica Smith with CyberArk. Please go ahead, ma'am.

Thank you, Keith. Good afternoon. Thank you for joining us today to review CyberArk's third quarter 2015 financial results. I recently joined CyberArk as Vice President of Investor Relations. I'm excited to be onboard, and I'm looking forward to working with all of you.

With me today on the call are Udi Mokady, Chief Executive Officer, and Josh Siegel, Chief Financial Officer. After preliminary 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 fourth quarter and 2015 fiscal year.

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 US Securities and Exchange Commission and those referenced in today's press release. CyberArk expressly disclaims any application or undertaking to release publicly any updates or revisions to forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our third quarter 2015 earnings press release, which can be found at www.cyberark.com in the Investor Relations section.

Also, please note that a Webcast of today's call will be available on our Website in the Investor Relations section.

With that, I'd like to turn the call over to our Chief Executive Officer Udi Mokady.

Thanks, Erica, and welcome to CyberArk. Good afternoon, everyone. Thank you for joining our call today. Q3 2015 was another exceptional quarter, highlighted by record total revenue of $40.1 million, a 43% increase over Q3 2014.

Our license revenue increased nearly 50% year over year to $24.8 million. And we reported strong non-GAAP net income of $9.2 million, resulting in non-GAAP net income per diluted share of $0.26.

Solid execution coupled with positive market trends for privileged account security, drove our results again this quarter. First off, I'm proud of our teams. Our demand generation and sales efforts are producing results, while the R&D, services, and M&A teams are delivering innovative solutions and strengthening our platform.

We continue to see a strong tailwind for our business. Attackers continue to demonstrate their ability to penetrate the perimeter, steal customer data and intellectual property, and disrupt business operations.

At the same time, the pace of technological change is expanding the attack surface, making it easier for the persistent attacker to find a way into the network. Privileged accounts are everywhere, from deep within IT infrastructure to the endpoint. And our outperformance demonstrates that organizations recognize that the keys to the IT kingdom need to be protected.

Our land-and-expand strategy is an important piece of our growth. So, we were pleased to cross the 2,000 customer mark in the quarter. We gained traction in a number of Fortune 500 companies, including a new win with one of the world's most recognized technology brands. This was a great win. And the customer's initial deployment is for enterprise password vault and privileged session manager.

We also closed a large multiproduct deal at a major information security company. Both of these are excellent examples of the greenfield opportunities we see on a regular basis. Neither of them have any previous automated privileged account security solution in place.

We continue to see new customers with initial sales of multiple products. In the first nine months of this year, 25% of new customers purchased three or more products, up from approximately 17% last year. And there's still plenty of opportunities to help these customers extend their privileged account security in the future.

While our new customer acquisition was very strong, our cross-sell engine also performed exceptionally well. Our top 10 deals for the quarter were evenly split between new and existing customers, who expanded existing licenses and purchased additional products.

Of these large deals, we have customers in the finance and healthcare verticals who, in prior periods, had invested more than $1 million in CyberArk solutions come back again in Q3 to make add-on seven-figure purchases.

This underscores the power of our platform and the extensive opportunity that remains after we have signed an initial order. It also is very rewarding to see our growth come not only from our core products, but also more meaningful contribution from our newer offering.

Our satisfied customers are extremely value assets. And we are increasingly leveraging this network for new business. Customers view us as a trusted advisor. And they are highly responsible to other subsidiaries and divisions with separate decision makers.

This quarter, we signed a sizeable deal for enterprise password vault and privileged session manager with a Canadian subsidiary of a major US retailer who has been a customer since 2012. Their biggest concern was external vendors who have access to their network. The company wanted to track, monitor, and restrict vendor activities to the systems they need access to, while centralizing credentials for Windows and UNIX systems.

In another deal, because of our longstanding relationship with a large industrial conglomerate, we were able to sell into its software division. This division purchased five of our six products. And we believe the company's positive experience with CyberArk contributed to the closing and breadth of this new initial engagement.

We also continue to diversify our business across geographies and verticals. During the first nine months of the year, we more than doubled our bookings in four industry sectors, healthcare, manufacturing, professional services, and media.

We had another strong quarter in industries with large deployments of point of sale systems, including retail and hospitality.

And another example of the horizontal nature of our business, we closed multiproduct sales at two different global steel producers, a market that may not come to mind when you think of technology and the need for cybersecurity, yet they too recognize the importance of securing privileged accounts.

CyberArk's momentum in the government sector continues to build as well. We had a record quarter closing deals with federal and state agencies as well as with local municipalities. We made particularly strong progress in the US federal market, signing 10 new customers across the legislative and executive branches.

While we did see a meaningful benefit from the government fiscal year in spending, the OPM breach and the 30-day Sprint initiative have increased awareness for the privileged account problem. This along with our investment and common criteria certification and expanding our government presence are helping us build a stronger pipeline.

We see a long runway of opportunity ahead of us as the government market increasingly focuses on the importance of privilege as part of their cybersecurity strategy.

We were thrilled with our increased traction in large organizations and institutions. But, our mid-tier business is also growing nicely. Our brand awareness and marketing campaigns continue to show results. We are now receiving inbound interest from companies of all sizes. This is a dramatic change from where we were a few short years ago, when the majority of our new business was generated by outbound sales efforts to large-scale enterprises.

Our consistent focus on innovation over the past several years has been and continues to be a key tenet of our growth strategy. We hear from our customers that our success is in part because we offer the most comprehensive set of capabilities they need to scope their privilege account risk, protect access to privileged credentials, secure privileged sessions, and continuously monitor privileged behavior.

They must also reduce the risk of privilege-based attacks on the endpoint, protecting business as well as IT users from advanced attacks targeting privileged credentials. Through both internal development and acquisitions, we have expanded and strengthened our platform to help our customers solve a greater portion of their cybersecurity challenges, extending our market-leading privileged account security solution across the cyberattack cycle.

Our recently announced acquisition of Viewfinity is a great example of this. First, this acquisition advances our objective of adding technology that provides either proactive controls or the ability to detect lateral movement and in-progress attacks operating inside the network.

Second, Viewfinity is the logical extension of our platform and our business. We are now well positioned to reduce the risk of damage from privileged exploits on the endpoint, the earliest stage of the attack cycle.

After announcing and closing the transaction in October, I am pleased to report that the integration is going well. 100% of the employment offers we extended to Viewfinity employees were accepted. Remember that CyberArk's go-to-market team is experienced selling these privilege and application control solutions. The integrated sales teams got to work right after the deal was finalized and have already closed business, while our engineering groups are working well together.

CyberArk is the recognized leader in privileged account security, which is increasingly becoming a key component of organizations' cybersecurity program, which is creating a significant opportunity. We have been executing on the central tenets of our growth strategy, effectively leveraging investments in sales, marketing, and R&D, while carrying out our M&A strategy. Our future is bright.

I will now turn the call over to Josh.

Thanks, Udi. I will start with a more detailed overview of our third quarter, and then I will discuss our fourth quarter and full-year 2015 outlook.

This was another strong quarter for CyberArk, as we outperformed across all the key operating metrics. Starting with the top line, we generated a record revenue of $40.1 million, up 43% year over year on a difficult compare.

License revenue was $24.8 million, increasing 49% over the prior-year period and representing 62% of total revenue. License revenue continues to drive our total revenue growth. And we see the growth coming from strong execution by our sales teams and continued market momentum for our comprehensive privileged account security solution.

Maintenance and professional services revenue was $15.2 million, increasing 34% over the prior-year period and representing 38% of revenue. This growth reflects the strength of our license revenue as well as our strong renewal rate.

Looking at the business geographically, in the third quarter, we saw a broad-based strength across all geographies, particularly from the Americas and Asia-Pacific. Revenue in the Americas increased 43% year over year to $26.1 million and was 65% of total revenue. EMEA grew by 32% to approximately $11 million, which is about 27% of total revenue. And Asia-Pacific more than doubled to $3 million, or approximately 8% of total revenue.

Turning to the margins, I will review our results on a GAAP basis and, where applicable, on a non-GAAP basis. Non-GAAP numbers exclude share-based compensation, acquisition, and secondary related expenses, amortization of intangibles related to acquisitions, and the tax effects related to these non-GAAP adjustments. Please note that a full GAAP to non-GAAP reconciliation can be found in the tables of our press release that went out today.

Our third quarter gross profit was $34.5 million, or an 86% gross margin, compared to 87% gross margin in the same period last year. During the third quarter, we continued to add headcount across the organization, which was the largest contributor to the increase in our operating expenses.

For the third quarter, R&D grew 54% year over year to $5.6 million. Sales and marketing increased 51% year over year to $16.7 million. And G&A increased 90% to $3.9 million as a result of the increased advisory services related to operating as a public company, ongoing employee-related expenses, and acquisition-related costs.

In total, operating expenses for the third quarter of 2015 were $26.2 million, or a 57% increase over the third quarter last year.

Given the significant market opportunity and our strong execution, we plan to continue investing to drive growth and long-term scale. However, we will also remain focused on realizing solid returns on these investments.

Our GAAP operating income was $8.3 million, up from $7.7 million in the third quarter of last year. Our non-GAAP operating income was $11.1 million, resulting in a 28% margin compared to $8.4 million and the 30% non-GAAP operating margin in the prior-year period.

Non-GAAP operating income for the third quarter this year excludes $2.8 million of share-based compensation, amortization of intangibles, and acquisition-related expenses. That's compared with last year's total non-GAAP adjustment of $686,000.

We are pleased with our ability to expand our bottom line, which is not only the result of outperforming of license revenue, but also efficiencies in our business, including larger and more mature direct and indirect sales teams, delivering strong results, investments in sales and channel enablement contributing to faster onboarding and productivity, and heightened market awareness of our solutions and an increased need for privileged account security. This has resulted in sales cycles more focused on the scale of the deployment rather than educating the prospect.

We generated net income on a GAAP basis of $6.8 million for the third quarter, up from $3.3 million for the third quarter last year. GAAP net income per diluted share was $0.19, up from $0.11 in the third quarter last year.

On a non-GAAP basis, our net income was $9.2 million, up from $5.9 million last year. Non-GAAP net income per diluted share was $0.26 for this quarter, up from $0.20 per diluted share for the third quarter last year. These numbers are based on a 35.8 million and 29.5 million weighted average diluted shares, respectively.

Turning to our balance sheet, we ended the quarter with $249.7 million in cash, cash equivalents, and short-term deposits. In the first nine months of 2015, we generated $40.3 million in cash flow from operations. That's compared to $13.4 million in the first nine months of last year. We ended the third quarter with 581 employees, including the approximately 20 employees that joined us from the acquisition of Cybertinel, compared with 415 at September 30th, 2014.

Now, moving to the guidance for the fourth quarter and full year 2015, as a reminder, our guidance does not consider any potential impact to financial and other income and expenses associated with foreign exchange gains or losses, as we do not try to estimate future movements in foreign currency rates.

Our guidance for the remainder of the year does include the acquisition of Viewfinity, though it is not expected to have a material impact to our fourth quarter and full-year 2015 non-GAAP financial results.

So, for the fourth quarter of 2015, we expect total revenue of $43 million to $44 million. We expect non-GAAP operating income to range between $8.9 million to $9.7 million and non-GAAP net income per diluted share of $0.18 to $0.20. This assumes 36.2 million weighted average diluted shares.

Our Q4 non-GAAP operating margin guidance reflects the full run rate of the headcount increases we made in the third quarter. And we expect to continue hiring into the fourth quarter across all departments to drive our revenue growth into 2016.

For the full year of 2015, we are raising our guidance and now expect total revenue in the range of $152.3 million to $153.3 million, or growth of approximately 48% at the midpoint. We are also raising our non-GAAP operating income guidance to be in the range of $37.3 million to $38.1 million. That represents a 25% operating margin for the year. And we are raising our guidance for the non-GAAP net income per diluted share to the range of $0.80 to $0.82. This assumes a 35.5 million weighted average diluted shares.

Our guidance reflects the strength we are seeing in our business as well as our ability to leverage the return on the investments we are making to drive growth and scale in the Company. We believe we are making the right investments in the business to drive long-term returns for our Company, our customers, and our shareholders.

Before I turn the call over to the operating for question-and-answers session, I wanted this opportunity to thank the team at [ICI] led by [Stacy Martinson] for all their support and guidance in building our IR program. I would also like to formally welcome Erica Smith, who joined us as VP Investor Relations just a few weeks ago and will now be managing Investor Relations going forward.

We will now open the call up for questions. Operator?

(Operator Instructions). Karl Keirstead, Deutsche Bank Research.

Hey, guys, it's [Tas] on behalf of Karl. Thanks for taking my question. I have two questions, one for Udi and one for Josh. Udi, if you look at the last few quarters, security has been doing very well. All the companies are basically beating their numbers and raising their numbers. But, this quarter seems a bit mixed. Some guys are pretty low, some guys not so low.

And I guess one of the -- one of your peers in the security space commented last night that the demand environment seems to be a bit softer. And the urgency in buying seems to be a bit [failing]. Obviously, your numbers don't reflect that. But, any comment on the demand in the security space and any change in customer buying would be helpful.

Right. Hi, Tas. First of all, I can only speak for us. And I'm very pleased with our results and a record quarter. No, I would say that we're not seeing a change in the demand environment. We have to note here -- and I always say in every call we're a proactive security measure and are therefore not in the need to respond as an emergency measure.

Companies turn to us to really make a significant impact on their posture as a layer on the inside that can really make a difference. And so, from that perspective, we're seeing very similar demand drivers, as we talked about before. And with our results, we can see that we had continued momentum into this quarter.

Got it. Thanks. And then one for Josh. Josh, if I look at the deferred revenue this quarter, that's accelerated quite a bit from the previous quarters. Even if I adjust for the $4.8 million you had in Q3 of 2014, it's still an acceleration compared to Q1 and Q2 of this year. What'd driving that? Are you -- is it more licenses being deferred, or is it just better attach rate and renewal of your maintenance that's driving that acceleration in the deferred revenues?

Yes, so, again, actually, I think, if we look at the Q3 deferred revenue, it went up by a few million dollars, I think about $3 million. If we look at it from the beginning of the year, it went up much more dramatically.

We -- our deferred revenue is mostly the support maintenance contracts, which are obviously going up as we do more and more license business and get the attach rate of the support and maintenance contracts. However, similar to I would say Q2, where we started to see a bigger jump in the deferred revenue, our -- the license piece has typically been between 5% and 25% of the deferred. And it's -- in the last two quarters, it's been higher. It's been at the higher level of 25%.

So, the increase is coming from the support and maintenance contracts as our license revenues grows, but there's also -- we're getting more visibility into some licenses that are getting deferred for one reason or another.

Got it. Thank you.

Thank you.

Saket Kalia, Barclays.

Hey, guys. Thanks for taking my questions here. And welcome, Erica.

Thank you. Appreciate it.

Hey, Udi, just -- you had some nice stats on some of the multiproduct deals. I think you said year to date 25% of deals -- and correct me if I'm wrong -- had three or more products. In the past, we've said that EPZ and CSM were really that one-two punch in most deals. What was that more popular third product now starting to become?

First of all, I take it. So, yes, we said that more than 25% of new customers bought three or more products for the first nine months. So, the -- we're continuing that trend. EPZ, CSM, and the third punch, as I commented last time, is very often PTA, is our privileged threat analytics.

At this point, I would also say that AIM, our solution for application credentials, kind of the taking this not to human users, but to credentials in applications, has been also along with that third punch, very often as an add-on product, but also to, as I said here, to new customers.

Got it. Got it. And then for my follow up for you, Josh, you talked about the need to balance investments with return. And I know that we aren't talking about next year yet. But, I guess, philosophically, do you feel like you need to invest in sales at the same pace that maybe we've done here in 2015 in order to continue outgrowing the market?

We definitely -- as you said, we're not going to talk specifically about 2016, but we are investing for growth. And we're investing for growth even this year for 2016 and 2017. And we do believe that, with the greenfield opportunity ahead of us and the opportunity that we expect that will continue to bring -- to increase our sales and marketing and as well as our R&D on product development and innovation, and of course, on the -- supporting it on the G&A side. So, we see it across all fronts, current investing. And we expect that that will continue.

Got it. Very helpful. That's it for me. Thanks.

Thanks, Saket.

Shaul Eyal, Oppenheimer & Co.

Thank you. Hi, good afternoon, guys. Erica, also welcome onboard from me. Congrats. Good set of results. Udi, I want to go back to the first question on the macro front. And Josh could also assist as well. So, I think geographic mix, absolutely clean, stellar. Have you seen any change that could support one geography being a little lighter or a different being a bit stronger?

Hey, Shaul. I would say that we've seen growth across all geographies, as Josh noted, and as part of our very diversified business. As I've said before, the Americas market is further ahead in the move from a compliance approach to strategic comprehensive investments in this new layer across the IT infrastructure. So, I would say it's not a change. It's been a constant, but we're pleased that all regions have showed growth. Asia's showed great growth. And actually, if you look at the European business, it's shown growth over last year. And it is in line kind of with what we expected for Q3.

Yes, hi, Shaul. I might add, if we look at -- kind of if we drill down into the numbers, the piece of the pie that EMEA was for the third quarter was just about -- maybe 2% lower than it was in third quarter of Q4. This year, it was 27% in Q4 -- in Q3, I'm sorry. Last year, it was about 29%. But -- and also, interestingly enough, if we look at the growth rate of EMEA on 2015 on 2014, compared to 2014 on 2013 for the third quarter, we actually had a nice increase on that growth rate.

Got it. And I think also, it comes on the heels of a very strong quarter back last year I think 2014 if I'm not mistaken, Josh.

That's correct.

Yes. Udi, another one for you. So, couple of weeks ago, we all heard about the gigantic Dell-EMC transaction. As we all know, Dell acquired Quest some years back. Quest is a competitor. Correct me if I'm wrong.

Did you guys see -- I imagine this is something that you might have in mind, maybe a near-term opportunity to go after some Quest accounts, displace them as they start integration and [have] those integration of those giant companies into account, [usually] not heading in the right direction. So, is that an opportunity for you guys?

Yes, so, I think we've seen in the past that, as these companies exchange hands, it creates disruptions, which is an opportunity for us. We've seen it with other competitors that have exchanged hands. And we view this as another one. I could say that we're also seeing resumes floating out there in the market on the employee base as well.

And of course, with -- we're going to look at how the -- how things settled there. But, with regards to the Quest accounts and the Dell-Quest, we have high win rates against them already. And to this question, yes, we expect additional disruption.

Thank you. I might come back later on.

Great. Thanks, Shaul.

Jonathan Ho, William Blair & Co.

Hey, guys. Congratulations on the strong quarter. Just wanted to start out with maybe a continuation of the competitive question. Now that we've seen sort of the CA-Xceedium combination start to play out in the marketplace, are you guys seeing some opportunity to actually take share there in the short run just based on disruption from that acquisition?

Yes, it's still fairly new, but yes, we've seen opportunities where existing -- either CA or Xceedium customers were questioning whether this is their time to look for a strategic solution. We have been able to replace them before this disruption. And we've seen signs that this is continuing and perhaps accelerating.

And then [for] kind of market, you talked about sort of vertical market expansion and the ability to see sort of maybe verticals that are considered just a lower priority solution in the past start to consider -- [for company], I just meant more -- I just want to understand, are you guys making specific efforts to target these verticals? Are they just sort of falling in your lap? And maybe what's the opportunity longer term to sort of expand awareness of the solution over time?

Jonathan, I think I pointed out to the steel manufacturer example just as an anecdotal example that it's really cross vertical. In terms of the marketing effort, we really go after -- it's the same solution and the same software to be sold towards all markets. And we really are going after all types. And the beauty here is that they all have privileged accounts. And they all have an ever-growing IT infrastructure. And they all need privileged account security.

And in the last couple of years, we see that continued shift that it's not just about financial services. It's really going cross vertical as we talked about healthcare as growing. And it's reaching basically all types of companies.

Great. Thank you.

Thank you.

Andrew Nowinskii, Piper Jaffray.

Good afternoon. Nice quarter. So, just two quick questions. First, I believe FireEye's Mandiant has been a strong partner of CyberArk and is one of the few bright spots in FireEye's results last night with their strong billings growth. Just wondering if you've seen any sort of -- your pipeline of deals through Mandiant and starting to accelerate.

We've noted in the past that it's kind more of upside when we have some deals float through Mandiant. I think from a field relationship, we've increased. And we -- because we have a business development team that is working closer with technology partners, I wouldn't say that it accelerated. But, it remains a healthy relationship.

Okay. Great. And then can you just give us any estimates in terms of what your total sales capacity is at this point relative to where you were a year ago maybe based on just sales reps that are fully productive at this point?

We don't break out the account -- our account executives on a quarter-by-quarter basis. But, I can tell you that our sales and marketing team overall has grown at about 40% on a year-on-year basis compared to a year ago in headcount. And that sales and marketing, probably roughly just under a third are kind of quota carriers, and the rest are overlays and marketing.

So, we basically are ramping up across all levels of sales and marketing. I think it would be equally amongst the quota carriers. The -- Udi's talked a lot about in the past our customer success teams that are going after upsells and as well as channel managers and investing in the channel development, which all flow into our sales team.

I got it. Thanks.

Thank you.

Gray Powell, Wells Fargo Securities.

Great. Thank you. Thank you very much. Just a couple of quick ones on my side. This year, you've been talking a lot more about privileged account management becoming more of a broader enterprise security purchase versus a compliance-driven purchase. Can you help us think through that dynamic? And I'm not sure if you can give hard numbers, but roughly speaking, what percentage of employees would an enterprise cover with your product that maybe 18 months ago versus what are they covering today?

So, in high level, I would say that, when it's compliance driven, since the privileged accounts exist throughout every flavor of the IT infrastructure, right, Windows, UNIX, desktops, databases, the Cloud infrastructure, when it's compliance driven, we can find that we land in a subset of the IT infrastructure. And we can find a sales cycle that is -- has I would say a lower pace.

When it's strategic in value and with this strategic approach to the solution, the products are often brought -- taking into account more of a program. We don't necessarily land in all flavors of the IT infrastructure, but they would map out where they want to start off with and where they want to expand, really taking into account the entire solution set. And very often, it's various products, not just the basic function.

So, the strategic buy more than one product because they're not just trying to show that they put some measures of protection but actually a comprehensive protection and also take it across more areas of their IT infrastructure and map out how they're going to expand the program across the entirety.

Great. Thanks. And then one more if I may. It seems that one of the less appreciated aspects of your story is the free cash flow profile. I go back to 2012 and 2013, the cash flow as a percentage of revenue was call it 28%, 29%. Obviously, just in 2014, they have the IPO. This year's tracking north of 30%. Understand you're making growth investments. Just try to think of a reasonable way to think about your free cash flow profile over the next few years as the Company matures.

Yes, so, we -- you need to first of all look at the cash flow kind of on an annual basis and not on a quarterly or over a periodic basis because we will be lumpy from quarter to quarter at this scale.

But, I think you're looking at it the right way when you kind of go historically and see where we're falling out. The way -- what drives our cash flow are obviously the income line and the income margin. And then on top of that is the deferred revenue, which is resulting from the support contracts that are being paid for upfront.

So, if you think about our support contracts being on average about 20% rates per year, we should be able to -- you can do the calculation that way on top of our net income line.

Got it. Okay. Thank you very much.

Thank you.

Erik Suppiger, JMP Securities.

Yes, congrats on a solid quarter.

Thank you.

First off, accounts receivable picked up. What was the situation with linearity in the quarter?

Linearity was pretty standard. And it picked up -- it was DSO from mid-40s to mid-50s I think. I think we've been running very nice DSOs. And we see that kind of the average range of DSOs or the appropriate range for our DSOs is to really be kind of the 55 to 65 days. And I think we've just -- and where we kind of hit that smack in the middle. So -- .

-- Okay. Is there any reason you wouldn't see a similar seasonal uptick that you had last year in Q4 in the December quarter this year?

Well, in terms of what we think that we'll see is we always have seen a kind of a seasonal uptick in the fourth quarter, which is kind of -- is some of the basis for our very strong guidance that we're giving for the fourth quarter, selling sequential growth. And actually hitting that guidance would be additional record revenue quarter for the Company. So, we do anticipate some boost from -- in the quarter budget for us.

Well, your guidance is for about 10% sequential growth, which is what you've done for the last couple quarters. Any reason why we wouldn't see upside to that?

Well, again, the way we do our guidance, we look at it very carefully from a bottom-up perspective. Our pipeline is really healthy. We're actually quite pleased to be able to come through and raise guidance this quarter for the fourth quarter pretty dramatically compared to the implied guidance for the fourth quarter from last -- from where we gave it in -- back in August. And we're going to work as hard as we can to produce the best results.

But, at this time, we feel real comfortable about being able to provide the guidance that we have, being able to end on a 49% year-on-year growth rate generating 25% non-GAAP operating margins. And we feel that that puts us in pretty good company today.

Sure. Very fair. And last question, in North America, you had some very good momentum. Was there more momentum in the larger enterprise or the midsized enterprise or any way you can parse that for us?

Yes, my point earlier was this is the market that is the most strategic in the privileged account security programs. But, like I said, we're pleased with the growth across all geographies. We're still a big chunk -- or the majority of our customers are enterprises. And I think we're very pleased to see that it's very multi-vertical and without -- with having some inbounds and increasing inbounds coming in from mid-tier type of organizations.

Another thing to note about North America, as I highlighted, was US federal. This is something that I've been asked a lot about in the calls. We've been investing in it. We've invested in common criteria. It's something that we really invested for the long run. But, we're very pleased to see a Q3 record in federal sales.

Very good. Thank you.

Thank you.

(Operator Instructions). Catharine Trebnick, Dougherty & Co.

Thank you for taking my question. Nice quarter. Udi, can we touch on the Cybertinel acquisition and where you are on the integration of this?

Sure.

And the reason I'm asking, I'm looking to see if some of this product will -- or the technology will be integrated into your privileged access management platform. Thank you.

So, hi, Catharine. I would say, with regard to the Cybertinel, it's actually -- we acquired them for their deep understanding of how attackers work and their ability to really help us add the detection and protection of primarily the detection against the credential test arena. But, the way we're looking at it is it's going to be additive across the product portfolio. And beyond that, stay tuned. It's in the future.

All right. Thank you very much.

Thank you.

Srini Nandury, Summit Research.

Great. This is [Jonathan] for Srini. Great quarter, guys. A couple quick questions. One, just trying to get some more information on the market. What do you see in terms of pricing pressure out there, especially since (inaudible) are gaining traction? Are you seeing it in the market at all?

No, actually, I wouldn't say that these are competitors that we're seeing more. I would say that the competitive landscape is more or less the same and as we discussed in the past. Deals are competitive, and it always has been. And it's healthy that way that customers do look at comparison. I think CyberArk has a very high win rate because we show that we're the most comprehensive solution. And when they look at price, they can also see the value for that comprehensive solution, the continued innovation, and that we take a security-centric approach for a critical problem.

Okay. Great. Then next, I wanted to ask in terms of trends. You talked about that you're getting a lot of inbound versus in the past outbound. And you're now looking more at scale rather than education of a prospect. I guess, can you talk about trends of between new business from new customers versus business from existing customers and seeing how -- where that's headed and where you see the acceleration of that taking place of one versus the other?

Yes, thanks. This is Josh. Yes, we're seeing basically really the growth rate coming from both, both existing customers and from new customers. And they come kind of in different flavors. When we look at the new customers, they're coming in a very large -- larger orders, typically over $100,000. And they're coming with multiple products. And the sales cycle is a bit longer. But, it's a very robust purchase order and delivery. It also come with probably 7% to 10% of professional services.

And when we look at the upsells and the existing customers, we're looking at a lot more transactions coming from them, but at smaller average order sizes, probably a bit less than $100,000. And -- but, at the same time, the sales cycle is shorter. In some cases, it could be from just a few weeks to just a quarter or two.

And we're actually at this point with -- even with our current install base, we feel that we have a big greenfield opportunity because very few of them have really deployed us at a full pace. So, for our current install base, and Udi talked about the 2,000 customers that we crossed over this year, we still feel like there's a big greenfield opportunity to go after there as well as the new customers.

So, we at this time are not necessarily saying -- choosing one avenue or the other. Our account executives are comped and charged to go after both. And we have separate overlay teams that help them do upsells. And we have hunters who -- and national account overlays who help them close the new deals.

And at this point, we're really looking for the license growth. And one of the things that we pointed out this quarter and as well the last several quarters is that our license growth has been growing substantially. And that really shows the health of the business, whether it's coming from existing customers or new customers.

Great. All right. Thanks a lot.

Thank you.

Michael Kim, Imperial Capital.

Hi, good afternoon, guys. Sorry if I missed this earlier. But, can you talk about the sales leverage you're seeing from the channels there, deal -- any commentary around deal registrations and their ability to original deals independently?

Yes, I think we highlighted it in the past earnings that we're seeing a trend where the channels are continuing to contribute more to the business. And to your point, we measure -- internally, we measure a lot the -- not just the fulfilled deals through channels, but actually the registered deals through channels. And we're seeing that continue to increase across all regions.

And I think -- and we're excited to see that also in the Americas. That's a trend that is continuing and in multiple verticals, like we definitely highlight the federal sales that are locked hand in hand with the channel.

And are you seeing a similar trend in the EMEA regions and any particular country markets that you can call out that's starting to see some good acceleration?

Yes, so, I would say that Asia-Pacific and EMEA were traditionally our stronger channel set. And we wanted to bring that to the Americas as part of our strategy. So, I would say that they have been on that -- on the same trajectory. And the acceleration of channel contribution is really very noticeable here in the Americas.

Great. Thank you very much.

At this time, we have no further questions in the queue. I would like to turn the conference back over to Udi Mokady for any additional or closing or remarks.

Thank you. Q3 2015 was a record quarter for CyberArk, driven by strong execution and market opportunity. As always, I thank our customers for placing their trust in CyberArk, and our employees and partners that continue to work hard to create value for our shareholders. So, thank you. Thank you very much, all, for joining us this evening.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.