Company Overview: CyberArk Software Ltd. (NASDAQ: CYBR) has its Headquarters in Petach Tikva, Israel and was founded in 1999. The company along with its subsidiaries, is engaged in offering information technology security solutions. The company has more than 6,600 global customers, which include more than 50% of the Fortune 500 and over 35% of the Global 2000 companies. The company provides its products to financial services, energy and utilities, manufacturing, healthcare, retail, telecommunications, and technology industries, along with government agencies.

CYBR Details

Geographical Expansion & Robust Product Adoption Aid CYBR: CyberArk Software Ltd. (NASDAQ: CYBR) is involved in providing services, which safeguard organizational confidential accounts from cyber-attacks and cyber-thefts. The company’s products incorporate Privileged Account Security Solution, CyberArk Shared Technology Platform, and Sensitive Information Management Solution. It has two reportable segments, namely (1) License Revenues (~49% of total 2020 revenues), and (2) Maintenance and Professional Services Revenues (~51% of total 2020 revenues).

The ongoing robust demand for CYBR’s products and services, given the need in the global security market is expected to aid the company’s results, going forward. Further, a massive chunk of worldwide workforce is currently working remotely in an attempt to curb spread of coronavirus. Thus, an increasing number of people logging into employers' networks has been prompting a larger requirement for security. This trend is likely to spur the demand for CyberArk’s products, going forward.

Furthermore, the ever-increasing traction of Endpoint Privilege Manager within customers of all ranges and across various industries remains a potential tailwind. Also, the company remains on track to focus more on strengthening its foothold across small- and medium-sized businesses, given a major chunk of its current customer base belongs to the mid-market.  In 2020, the company recorded ~60%, 31% and 9% of revenues from Americas, the EMEA region and Asia Pacific and Japan, respectively. The company also works with numerous global systems integration partners and quite a few numbers of leading regional security value-added resellers. The company has derived a significant amount of revenues from sales to each of them during 2019 and 2020. This, in turn, is expected to augment the overall process of security and meet consumers’ needs on a timely basis.

The company remains on track to actively transition its business to a recurring revenue model starting from 1QFY21, owing to record level for its SaaS and subscription bookings. The company remains confident to deliver long-term growth, enhances shareholder’s value and increase profitability, given its identity security plan and comprehensive subscription transformation program. Over a period of 2018 to 2020, the company has reported a top-line CAGR of 16.3% with revenue in 2018 and 2020, amounting to $343 million and $464 million, respectively. Recurring revenue CAGR over FY18-FY20 was reported at 35.3%, with 2018 and 2020 recurring revenues amounting to $135 million and $247 million, respectively.

Revenues Trend (Source: Company Reports)

4QFY20 Key Financial Highlight: During the quarter, the company reported non-GAAP earnings of 82 cents per share. Revenues for the quarter came in at $144.52 million, depicting an increase of 11.5% from the prior corresponding period. Notably, 48% of 4QFY20 revenues were recurring in nature, which stood at $70 million, up 41% on pcp. As of 31 December 2020, Annual Recurring Revenues came in at $274 million, up ~43% on a year over year basis. Markedly, the company remains on track to transition its subscription base model, with a fast-growing base of recurring revenues. Non-GAAP gross profit came in at $126.6 million, up 9.5% from the prior corresponding period. Operating expenses during the quarter came in at $87 million, up 18% year over year, owing to higher R&D expenses, S&M expenses, growth in G&A expenses, as well as $6 million further expenses associated with the integration of Idaptive operations.

On a segmental basis, revenues from License stood at $80.8 million, up by 5.6% year over year and accounted for ~55.9% of total revenues in 4QFY20. Recurring license revenues during the quarter accounted for ~22% of total revenues and stood at $17.4 million. On a combined basis, SaaS revenues increased more than 300% from the prior corresponding period and came in at $9 million, whereas subscription-based license revenues came in at $8 million, up from $3 million reported in 4QFY19. Revenues from Maintenance and Professional Services stood at $63.7 million, depicting a rise of 20% on pcp. Within the segment, revenues from professional services and recurring maintenance contracts stood at $11.5 million and $52 million, respectively.

4QFY20 Key Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 36.49% of the total shareholdings, while the top 4 constitutes the maximum holding. Wasatch Global Investors Inc and RBC Global Asset Management (UK) Limited are holding a maximum stake in the company at 8.8% and 5.92%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Key Metrics & Decent Liquidity Position: CYBR is a cash-rich company with a strong balance sheet, which guarantees protection and rewards shareholders from its deep cash balances. The company exited the quarter, with cash, cash equivalents, marketable securities and short-term deposits of $953 million. The company generated $106.8 million of operating cash flow for the twelve months ended 31 December 2020. It had $99.6 million of free cash for the full year. Total deferred revenues at the end of FY20 stood at $243 million, an increase of 27% year over year. Accounts receivables at the end of the quarter came in at $93.1 million, up from $72.9 million recorded at the end of FY19. The available cash can be utilized for investment in growth initiatives, enhancing its security products, and enhancing shareholders’ value.

In FY20, the company’s gross margin stood at 82.2%, higher than the industry median of 76.7%, indicating higher profitability. In the same time span, operating margin of the company stood at 1.3%, higher than the industry median of 0.6%. The current ratio of the company stood at 4.3x during FY20, higher than the industry median of 1.86x, depicting decent liquidity position. In FY20, debt to equity ratio of the company was 0.71x as compared to the 0.78x in FY19.

Growth and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Key Risks: Stiff competition, adverse currency translations and a volatile macroeconomic environment pose a serious threat to the company’s financial position. During 4QFY20, SaaS and subscription bookings generated headwinds of ~$18 million. CYBR’s continued investments in boosting its cloud infrastructure deployments and sales and marketing capabilities have inflated expenditure. This, in turn, may weigh on margin expansion, going forward.

Outlook: For the 1QFY21, the company expects total revenues to be in the range of $106-$112 million.

For 2021, the company predicts revenues to be in the range of $484 million and $496 million, depicting an increase of ~5.6% year over year at the mid-point of FY21 guided range. Non-GAAP earnings per share for FY21 is expected to be in the ambit of 45-64 per cents. The major growth driver of the company revolves around robust demand across Privileged Access Management (PAM). Further, growth in existing customers, steady increase in new business across various industries and new business pipeline are also encouraging.

Outlook (Source: Company Reports)

Valuation Methodology: Price to Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~7.8%. The stock made a 52-week low and high of $88.69 and $169.7, respectively. On the technical analysis front, the stock has a support level of ~$141.89 and a resistance level of ~$157.61. We have valued the stock using the P/S multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its increase in top-line, robust demand across PAM, growth in existing customers, steady increase in new business and new business pipeline. For the purpose, we have taken peers like Check Point Software Technologies Ltd (NASDAQ: CHKP), Fortinet Inc (NASDAQ: FTNT), to name a few. Considering the company’s track record of robust liquidity position, decent 4QFY2O performance, increase in subscription-based license revenues, decent FY21 outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $147.49, up by ~0.71% on 19 April 2021.

CYBR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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