CyberArk Software Ltd. (CYBR) Q4 2020 Earnings Call Transcript

CyberArk Software Ltd. (NASDAQ: CYBR) Q4 2020 earnings call dated Feb. 11, 2021

Corporate Participants:

Erica Smith — Vice President of Investor Relations

Udi Mokady — Founder, Chairman and Chief Executive Officer

Josh Siegel — Chief Financial Officer

Analysts:

Saket Kalia — Barclays — Analyst

Sterling Auty — J.P. Morgan — Analyst

Jonathan Ho — William Blair — Analyst

Fatima Boolani — UBS — Analyst

Brian Essex — Goldman Sachs — Analyst

Rob Owens — Piper Sandler — Analyst

Andrew Nowinski — D.A. Davidson — Analyst

Hamza Fodderwala — Morgan Stanley — Analyst

Gregg Moskowitz — Mizuho — Analyst

Joshua Tilton — Berenberg Bank — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the CyberArk Fourth Quarter and Year End 2020 Earnings Conference Call. [Operator Instructions]. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Erica Smith, Vice President of Investor Relations. Thank you. Please go ahead.

Erica Smith — Vice President of Investor Relations

Thank you, Erica. Good morning. Thank you for joining us today to review CyberArk’s fourth quarter and year end 2020 financial results. With me on the call today are Udi Mokady, Chairman and Chief Executive Officer; and Josh Siegel, Chief Financial Officer. After prepared remarks, we will open up the call up 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 reflects management’s best judgment based on currently available information and refers specifically to the discussion of our expectations and beliefs regarding our projected results of operations for the first quarter and for the full year of 2021. 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 that are posted to CyberArk’s website, as well as the risks regarding and our ability to begin actively transitioning the business to a subscription model in 2021 as well as the duration and scope of the COVID-19 pandemic, its related impact on global economies and our ability to adjust in response to the COVID-19 pandemic.

CyberArk expressly disclaims any obligation [Phonetic] or undertaking to release publicly any updates or revisions to any forward-looking statements made today. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations to the most directly comparable GAAP financial measures are also available in today’s press release as well as in an updated investor presentation that outlines the financial discussion in today’s call.

This information can be found at www.cyberark.com in the Quarterly Results section under Investor Relations. Also a webcast of today’s call will be available on our website. With that, I’d like to turn the call over to our Chairman and Chief Executive Officer, Udi Mokady. Udi?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thanks, Erica, and thanks everyone for joining the call today. We hope you and your families are safe and healthy. We want to spend some time today discussing our record results for the quarter, outlining the market dynamics and tailwinds. And lastly, detailing the formal launch of our subscription transition just a few weeks ago, and how it aligns to our 2021 objectives.

We have a lot of information to cover as we kick off 2021. So we will be also hosting a virtual investor event on March 10th, where we can provide more detail on our growth strategy, innovation and on our subscription transition. 2020 was not what any of us expected, but, I’m incredibly proud of what CyberArk accomplished as a team. Because of our focus and agility, we are a much stronger Company today.

We executed against our strategic imperatives from early in the year to drive cross-sell and up-sell, strengthen our channel program, build new ways of targeting prospects and enhance our customer success organization. We also responded to COVID-19 and successfully adjusted our entire operation and processes to work from home, including not missing a beat for remote deployments, support and the full range of customer engagements.

We quickly responded to the more abrupt change in customers buying preferences of our products toward SaaS and subscription. Early in the year, we acquired Idaptive, positioning us to deliver our identity security strategy. And, in every quarter of 2020, we created record new pipeline across our solutions.

When coupled with our strong execution, in Q4, we delivered our best quarter ever. Total revenue reached an all time high over $145 million in the fourth quarter with record SaaS and subscription bookings, which also created increasing headwinds to our recognized revenue. In addition, we generated non-GAAP operating income of $40 million, well ahead of our guidance. For the full year, revenue reached $464 million.

This included over $50 million of recurring license revenue, which grew faster than 200% in 2020 compared with $16 million in 2019. Our non-GAAP operating income for the year was $91 million. It is important to remember that even with the record quarter, during our transition to a recurring revenue model, the headline P&L is a lagging indicator and understates the stronger momentum that we are experiencing — we experienced in the business as we exited the year.

Annual recurring revenue or ARR better demonstrates this success. ARR reached $274 million at year-end with growth accelerating to 43%. In any event, you will hear from Josh later that when we adjust for the mix shift, our sales grew about 25% in the fourth quarter. The four main takeaways from our record results. First, we experienced broad-based demand across PAM including on premise and cloud, Endpoint Privilege Manager and DevSecOps or Application Access Manager.

Second, the pace and level of engagement with existing customer — existing customers is at an all time high with room to accelerate. Identity security is increasingly recognized not only as foundational to comprehensive security strategies, but also as a business enabler of digital transformation and cloud.

Third, we saw a healthy increase in new business signing about 280 marquee logos across industries. We also have a record new business pipeline where we are seeing an acceleration of progress through the pipeline ahead into 2021. And lastly, we are formally beginning our subscription transition with strong momentum, with a large, rapidly growing base of recurring revenue and importantly after a record fourth quarter.

PAM remains a top priority. But we did see macro uncertainty drive customers to buy for immediate need in 2020. Digging into the fourth quarter, we saw this actually lead to even faster velocity in some of our add-on business, including these following great examples. A European retailer began implementing a privileged access management program based on our blueprint methodology in Q2. This customer quickly added on another $750,000 of Core PAS licenses in the fourth quarter and is still in phase one of its program.

Like many organizations, this U.S. consumer manufacturing customer is shifting left, embracing DevSecOps to move faster and grow its business. They were leveraging Conjur to secure secrets and drive their mission critical digital transformation program forward. In the fourth quarter, they enhanced the security posture buying privileged access management and significantly broadening their Conjur deployment.

A financial services customer, APJ was rolling out a multi-cloud strategy with Azure and Google Cloud and wanted a scalable, enterprise class, secrets management solution. This existing CyberArk customer for PAM was using a competitive DevSecOps solution. But in the fourth quarter, decided to move to CyberArk to secure secrets across all applications because of our increased security and visibility enterprise-wide. On the new business front, a number of key wins include a top 50 retailer, a regional European airline, an Asia Pacific cloud services company and two major car manufacturers.

We ended the year with about 6,600 customers, up from about 5,300 last year. We are proud to be helping secure nearly 40% of the Global 2000 today. Of the 280 new logos, we signed, about 57% of the business included our SaaS or subscription solutions, up from about 23% in 2019. Two examples are, a top ten energy provider in Europe with a cloud first strategy, selected CyberArk as their trusted partner to help secure critical infrastructure. They will be consolidating tools and standardizing on CyberArk for privilege endpoint security, enabling the team to have increased visibility and control with our SaaS solutions.

In a competitive win, a major car manufacturer picked Idaptive for its cloud-based single sign on and MFA. We also won a leading U.S. restaurant chain with Idaptive, which we believe will provide us with a new landing point for our sales team. Our identity security strategy with PAM as the foundation is at the center of the major industry tailwinds of digital transformation, cloud migration, hacker innovation and compliance.

The SolarWinds breach is clearly hacker innovation. Supply chain attacks are far from new, but this attack was unprecedented in its scope. While SolarWinds was not a driver of our results in the fourth quarter, it was a wakeup call for organizations, an important reminder, that privilege exploitation is at the center of every major attack.

There has been significant — a significant uptick in interest in our identity security offerings. The response to this attack has clearly been a flight to trust. Companies are now adopting an assumed breach mentality and are turning to trusted security partners who not only have comprehensive solutions, but also deep experience remediating post breach situations. We expect this event to be a tailwind for our business over the long term.

Moving on to the transition. We officially kicked off our subscription program in early January and based on feedback from partners, customers and employees, we are confident that the timing is right. Customers and partners want the benefit of a subscription model. And we have the mature SaaS portfolio, the differentiated subscription offering that will contribute to our success.

Some of the main components of our program include, incentivizing our sales team to grow ARR by selling subscription and SaaS, introducing new on-prem PAM packages to pull purchases towards our subscription offering. These offerings are feature rich with our Alero remote access, with SaaS functionality including adaptive multi-factor authentication, single sign on and loosely connected devices or LCD functionality. Focusing the entire organization around faster time to value and adoption with our customer success team and established customer care lifecycle and rolling out a Company-wide enabling program to all of our employees to deliver a best-in-class transition.

As we look into 2021, our priorities are growth, innovation, the subscription transition and scaling within the large identity security market. To drive growth, the team is organized around three pillars: Access, DevSecOps and PAM which together form our identity security portfolio. We believe this optimized structure will provide the right level of attention and resources, and our Access and DevSecOps speedboats, while also driving growth of our core PAM business.

In addition, in 2021, we will extend our reach by strengthening our partner program across VARs, advisories and MSPs. Fueling our innovation engine is critical to staying a step ahead of attackers and also strengthening our leadership position in the market. In 2021, we are stepping up our R&D investments to build our SaaS identity security platform and at the same time continue to enhance our solutions.

We believe delivering new functionality and solving complex security challenges will also be key to completing the virtuous cycle of success in our subscription model. We are well on our way to transforming CyberArk into a high-growing recurring revenue company with significant contribution from our SaaS solutions. We continue to expect the transition to take eight to ten quarters beginning from the first quarter of 2021. This year, we are laser focused on increasing our subscription mix, growing ARR and protecting our base of customers.

We believe we will reduce friction in the sales process, increase cross sell activity and build enduring relationships with our customers by delivering deeper value and stronger security. Ultimately, the tighter relationships forged by subscription sales will generate higher lifetime customer value. We are in a growing market and our solutions are aligned to the broader industry. We are making the right investments in our go-to-market and innovation engines to drive growth, but are also focused on profitability and returning the Company to the Rule of 40 after we exit the subscription transition.

We are heading into 2021 off a record quarter with strong momentum, and I’m excited about the year ahead. I will now turn the call over to Josh, who will discuss our record results in more detail, our subscription transition and outlook for the first quarter and the full year.

Off to you, Josh.

Josh Siegel — Chief Financial Officer

Thanks, Udi. Before we discuss the details of the quarter, we wanted to remind you that we posted slides to the website this morning, that will be helpful as we walk through our results. As Udi mentioned, we were pleased to beat our guidance for revenue, operating income and earnings per share including record revenue in the fourth quarter of $145 million, that’s up about 11% from $130 million in the fourth quarter of last year.

Our best quarter ever was driven by increasing demand across our solutions and we accomplished this despite the increasing revenue headwind from the subscription transition of $18 million for the fourth quarter and about $45 million for the full year. License revenue in the fourth quarter was $80.8 million compared with $76.5 million in the fourth quarter last year and the recurring portion of the license revenue was $17.4 million and that’s 22% of our total license revenue, that’s more than tripling from $5.7 million or 7% in the fourth quarter last year.

SaaS revenue grew by over 300% year-on-year, reaching $9 million, and subscription or term based license revenue increased to $8 million in the fourth quarter from $3 million in the prior year. Our combined Maintenance and Professional Services revenue was $64 million, increasing 20% over the prior year period. The breakdown of this line is approximately $52 million from recurring maintenance contracts and $11.5 million in professional services revenue.

As Udi mentioned, we are on track with kicking off our subscription transition formally in the first quarter. With the known transition effect of increasing revenue recognized ratably, we will emphasize total recurring revenue, the percentage mix of bookings from SaaS and subscription and annual recurring revenue or ARR as the key metrics to provide visibility into the health of our business.

Looking back in the fourth quarter. Total recurring revenue grew to $70 million or 48% of total revenue. That grew 41% from the $50 million of recurring revenue, which was only 38% of total revenue in the fourth quarter last year. Our recurring revenue growth is being driven by the record bookings for subscription based licenses throughout 2020 as well as our continued strong maintenance renewal rates for our software.

As a reminder, total return in revenue includes SaaS, subscription and the recurring maintenance revenue associated with our perpetual license contracts. The mix of new SaaS and subscription bookings as a percent of total license bookings is an indicator of the pace and success of the transition. In total, SaaS and subscription bookings represented about 35% of our new license bookings increasing from the 10% in the fourth quarter of 2019.

Our strong execution at year-end, including robust, perpetual license sales as customers move forward with their mission critical identity security programs added to our top line while we still remained on track with our mix expectations related to our transition timeline goals. The headwind created by the mix of bookings was about $18 million, that’s in line with what we discussed in November, demonstrating yet another record quarter for our SaaS and subscription business.

Taking the headwind into consideration, our revenue in the fourth quarter for the comparable mix of bookings would have grown by about 25%. For the full year of 2020, the significant shift in our new license bookings towards more recurring and ratable business effectively lowered our reported revenue by approximately $45 million.

The metric we are also excited about is our AAR growth as it indicates the path towards becoming a high growth subscription business. At December 31, our AAR was $274 million with growth accelerating to 43% year-on-year from $192 million at year-end 2019.

Now, I’ll provide some further color on the business. The level of engagement with our 6,600 customers continues to be an all-time high and we saw about 74% of license revenue coming from add-on business during the fourth quarter. We are pleased as well with the momentum in our new business, with improved close rates and strong pipeline growth in the fourth quarter. We also continue to see an increasing percentage of new customers land with our SaaS Access Manager solution.

Our expectation is that our new SaaS customers will start smaller, recognize faster time to value and quickly expand their overall CyberArk program following the blueprint methodology. In terms of solution areas, our Application or DevSecOps solution had a record quarter representing about 68% of license revenue with more customers securing their digital transformation programs with CyberArk.

Endpoint Privilege Manager was about 6% of license revenue and that’s with about 90% of the EPM bookings being SaaS. The business remain well diversified across geographies for the quarter. Americas revenue in the quarter was $82 million representing 57% of total revenue. I would also note that the Americas again had the strongest percentage of SaaS and subscription bookings during the quarter which naturally impacts the recognized revenue.

EMEA revenue was $50 million or 35% of total revenue in the fourth quarter. APJ generated $12 million in revenue, representing 8% of total revenue for the fourth quarter. As I move through the P&L, all line items will be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release and posted to our website. Our fourth quarter gross profit was $127 million or 88% gross margin.

As we demonstrated throughout the pandemic, we believe it is in the best long-term interest of our business and our shareholders to continue to make strategic, but disciplined investments to drive long-term growth. R&D expense grew by 28% year-on-year to $23 million to enhance our solutions. Sales and marketing increased 16% to $54 million to expand the reach of our global sales team with the increase, a bit offset by the reduced travel spending.

G&A expense grew single digits to about $10 million. In total, operating expenses for the fourth quarter increased 18% to $87 million and that includes about $6 million of incremental expenses associated with the Idaptive operations. Our operating income was significantly ahead of our guidance of $40 million or 28% operating margin. As a reminder, the approximately $18 million revenue headwind had a corresponding impact on our operating income. Net income was $33 million or $0.82 per diluted share for the fourth quarter also beating our guidance.

Now, let me summarize our results for the full year 2020. Total revenue for the year reached $464 million with $226 million in license revenue, $197 million from recurring maintenance contracts and $41 million in professional services revenue. Total recurring revenue accounted for 53% or $247 million, that’s growing 41% from $176 million and equaling only 40% of total revenue for all of 2019. You can see the details of our revenue breakdown in the PowerPoint presentation on our website.

Our gross margin for the full year was 86% compared with 88% in 2019 as we continue to invest in our cloud platform. Looking at the full year, R&D represented 17% of total revenue, up from 14% last year, driven by the acquisition of Idaptive, increasing investments in our cloud and on-premise’s offering as well as our identity security platform. Sales and marketing represented 41% of total revenue, that’s up from 37% last year and G&A represented 8% of total revenue, in line with 8% in 2019.

Our operating income was $91 million or 20% operating margin and in total, Idaptive lowered our annual operating margin by about 2%. As a reminder, the approximate $45 million headwind also had a corresponding impact on our operating income. Normalizing for the headwind impact on the P&L, our operating margin would have been approximately 26% for the full year. Over 70% of our operating expenses are related to headcount. We ended the fourth quarter with 1,689 employees worldwide. We ended the year with about 772 employees in sales and marketing, it grew about 18% year-on-year.

Our net income for the year was $81 million with our earnings per diluted share of $2.05. We generated $100 million in free cash flow for the year or 22% margin for 2020. This cash flow contributed to our strong balance sheet and we ended the year with $1.2 billion in cash and investments.

We also ended the year with $243 million in total deferred revenue, that’s up 27% from $190 million at the year end 2019. Our SaaS deferred, it grew by over 400% again this quarter, reaching $46 million compared to $9 million at December 31, 2019. Turning to our guidance. As a reminder, our guidance does not consider any potential impact to financial, other income and expenses associated with foreign exchange gains or losses as we do not try to estimate future movements in foreign currency rates.

So for the first quarter of 2021, we expect total revenue of $106 million to $112 million. We expect a non-GAAP operating loss of about $2.5 million to non-GAAP operating income of $2.5 million for the first quarter. We expect our EPS to range from non-GAAP net loss of $0.03 per basic and diluted share to net income of $0.07 per diluted share.

Our guidance also assumes 39.2 million weighted average basic and diluted shares and 40.7 million weighted average diluted shares, and we are assuming a tax rate of approximately 23% for the first quarter. This guidance assumes about 47% of new license bookings from SaaS and subscription, which results in a revenue and profitability headwind of about $10 million for the first quarter of 2021. We are also initiating our guidance for the full year of 2021, which reflects the strength of our pipeline, our overall opportunity and an assumption for the mix of our bookings. We expect total revenue in the range of $484 million to $496 million which assumes approximately 55% in new license bookings from SaaS and subscription, resulting in a revenue headwind to our guidance of approximately $39 million for the year.

We expect non-GAAP operating income to be in the range of $20 million to $30 million. We expect our non-GAAP net income per diluted share to be in the range of $0.45 to $0.64. For the full year, we expect our 40 — expect about 40.8 million weighted average diluted shares and an effective tax rate of approximately 23%.

For the full year, the increase in our expenses are related to four major areas. Our increasing investments in cloud infrastructure is impacting our gross margin for the full year. We expect it to now be between 80% and 82%. Changes in exchange rates are increasing our expenses by about $10 million over 2020, in particular will hit R&D and G&A. As Udi mentioned, 2021 is a year of R&D investment across our offerings and our identity security platform.

Lastly, we are investing in sales and marketing. Our record results in the fourth quarter and record pipeline throughout 2020 give us continued confidence in our market opportunity. It is critical that we invest today to drive long-term growth and get back to the rule 40 after we exit the transition. As additional color, our guidance assumes that we resumed travel at a lower level in the third quarter and at a more normalized rate in the fourth quarter.

In terms of free cash flow, we anticipate that will be in line with our non-GAAP net income margin over a 12-month period. We also expect our annual capex to be in the range of $8 million to $10 million, representing just under 2% of revenue at the midpoint. We had a record fourth quarter and are thrilled with our momentum as we entered 2021. We are confident that our strategy to begin actively transitioning to a recurring revenue model will make growth more durable and profitable, which will drive value for CyberArk, our customers, partners and shareholders. We want to wish you and your families health and safety. I will now turn the call over to the operator for Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Saket Kalia with Barclays.

Saket Kalia — Barclays — Analyst

Hey, Josh. Thanks for taking my questions here. How are you?

Josh Siegel — Chief Financial Officer

We’re great. Good to hear you.

Saket Kalia — Barclays — Analyst

Good to hear from you guys too. Udi, maybe just for you, just digging right into the subscription transition, understanding it is still very early here, what are you sort of seeing from customers in terms of preference for term licenses versus SaaS and how do you think about that mix sort of over time, if you will. Does that makes sense?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Yeah, absolutely. Thanks, Saket. First of all, we’re really seeing a strong reception to our transition across the board, like I said, customers, partners and employees. With regards to the mix, I would say it’s about a 2:1 mix towards preference for SaaS and among new customers and we expect that to continue, really in line with the approach to consume more and more SaaS solutions and they’re very excited about our offerings there.

So I would say that trend should continue at 2:1 mix towards SaaS.

Saket Kalia — Barclays — Analyst

Got it. That’s helpful. Josh, maybe for you, thanks for the guide on mix next year. I think you said it should be roughly a $39 million headwind. And if I remember correctly, I think the headwind here in 2020, I think is about $45 million. So it’s actually a smaller headwind next year. So I guess the question is, how are you thinking about that, maybe given the increased sales focus on selling staff and subscription in 2021?

Josh Siegel — Chief Financial Officer

Yeah. Thanks, Saket. Well, basically, we are seeing a — we had a very big increase this year, with the — with that high headwind and it jumped from I think 10% of our mix being SaaS and subscription to 35% for the year. And now we’re talking about in the guide, it jumping to high 40s in the first quarter, about 47% and a blended of about 55% for the full year.

So I would focus on that mix which then basically is really going to drive the AAR growth, for the year, in 2021 as well. So you know, when we look at the headwind, the headwind obviously will decrease a little bit compared to 2020, because the — we did, almost 2.5 times increase from 10% to 35% compared to the 35% to 55% this year.

So we think we’re very much right on the right track for our $8 million to $10 million quarter transition.

Saket Kalia — Barclays — Analyst

Got it. Very helpful. Thanks guys.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sterling Auty with J.P. Morgan.

Sterling Auty — J.P. Morgan — Analyst

Yeah, thanks. Hi guys. So with the M&A’s move to subscription, I’m wondering if you saw anything like what other companies like Autodesk did where customers realized that subscription might be coming, perpetual might be going away and maybe accelerated the purchase of perpetual in advance of that transition.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Hey, Sterling, Udi here. I would actually say we looked at it carefully, and I think the over performance in Q4 is very much execution on deals that were in the pipe. And so it wasn’t a scramble, this is a — this is your last job, because I think the way — the way we position it again we’ll be able to buy perpetual going forward. But there’ll be incentivized stores, the SaaS and subscription. So it’s really been execution on that, on that strong pipeline we’ve been building.

Sterling Auty — J.P. Morgan — Analyst

All right, great. And then, Josh, one for you. Can you remind us under ASC 606, given the mix of the SaaS and subscription, how the revenue recognition treatment is for those two elements? And what I mean by that is, how much is still being recognized upfront because of certain amount being on premise? And also maybe what is the average duration of the maintenance contracts that you’ve had historically?

Josh Siegel — Chief Financial Officer

Yeah. All right. Thanks, Sterling. So with regard to 606, with regard to our ongoing subscription term based license that we’ve been — that we’ve been selling for the last 12 months, it’s really around — it’s going to be a 50% upfront in 2021 and 50% over the term of the contract. And as we — as we move more and more into customers buying our newer subscription packages, which are going to include SaaS components, integrated into those on — into those subscription, then, it will be moving down from the 50% level, and it depends on, really, how much of the SaaS components they buy in the subscription.

So 50% will be the most that we will recognize on day one, but it could go down into the 40s or into the 30s as they — as they pick up SaaS subscription packages that have more and more SaaS components. With regard to the second, and with regard to duration, we’re about two years on duration — average duration for the maintenance contracts.

Sterling Auty — J.P. Morgan — Analyst

Perfect, thank you.

Operator

Your next question comes from Jonathan Ho with William Blair.

Jonathan Ho — William Blair — Analyst

Hi, good morning and congrats on the strong results. I just wanted to start out with some of your comments that you had on SolarWinds. Can you talk about maybe what you’re seeing from the customers, and what the typical cadence or timing is for a breach like SolarWinds to maybe translate into revenue?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Absolutely, Jonathan. I think as industry veterans, we can both agree that this is one of those pivotal major events, I think every five or ten years, we have an event that shakes the industry and this is — this is one of them. Leveraging the virtual environment actually meeting more and more customers, CISOs and CIOs, and first of all, they all understand that this attack demonstrates that you need an assumed breach mindset of the attacker. We’ll get that initial foothold and how do you protect deeply inside. And that attackers want privilege access, because they want to undermine all of the other controls like the attackers did here, and attacked Tier 0 assets and undermined and went after trying to be a regular identity in the environment.

So I think we’re very much part of that, that second wave. The first response was to run patches and of course those were directly affected look if they had the malware installed, but the second wave, which we believe is the longer tailwind when — what we’re hearing from our, the advisory firm partners and from instant responders is really how do we invest in trust systems in our — in our environment. Let’s make sure that we have the deep controls in our environment to protect our identity in what we call identity security.

So that would be on infrastructure, on cloud infrastructure. And then additional attention now to securing the DevOps and the DevOps pipeline because of how this whole thing happens. So I think we’ll see a longer tail to this, but CyberArk with identity security is really right at the heart of creating that flight to trust.

Jonathan Ho — William Blair — Analyst

Excellent. And then, just in terms of, I guess the R&D investments that you intend to make in 2021, where do you see the most opportunities there? Are there specific product groups that you want to dedicate more funds to or add more features to? I just wanted to get some additional color on where that’s going to head. Thanks.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Absolutely. I think we’ll provide even more color in the Investor Day. But I would say we’re doing the following. First of all, as Josh alluded, we are continuing to support the many on-prem customers, to investing across the board in our existing solutions. We need them happy, successful and like I said, protecting our base. And then the bigger investment is going towards our identity security platform, continue to provide additional capabilities in SaaS delivered identity security.

So it’s really in our SaaS platform, a lot of things are being integrated onto a single modern SaaS offering that will serve our customers for many years to come.

Jonathan Ho — William Blair — Analyst

Thank you.

Erica Smith — Vice President of Investor Relations

Hi, operator. Can you move to the next question?

Operator

Your next question comes from the line of Fatima Boolani with UBS.

Fatima Boolani — UBS — Analyst

Good morning. Thank you for taking the questions. Udi, maybe I’ll start with you. The SaaS portfolio has obviously extended significantly in the last 12 months to 18 months, especially with the addition of Idaptive. So I’m wondering if you can talk to us about which particular products and/or SKUs within the SaaS portfolio, you expect to drive the bulk of the momentum and activity for 2021? And then I have a follow-up for Josh, please.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Sure. Absolutely. And sorry for that wait there on the call. I think we’re really seeing — I mean if you look at Q4 and this past year, we’re seeing EPM, Endpoint Privilege Manager, and also in the context of the prior question on SolarWinds, it’s become the no-brainer solution for ensuring that endpoints, including servers, which were attacked in this case, are in least privileged mode and they were preventing credential thefts though. So I would say, Endpoint Privilege Manager. Our privileged cloud, for sure, we’re seeing really strong adoption of customers wanting to consume this as a service.

And of course, our Access portfolio, which is, like you said, Idaptive, but includes additional components like Alero, that was born organically. And so this is — this is going to be a big differentiator for us to have such a wide portfolio as we think of the new subscription offerings.

Fatima Boolani — UBS — Analyst

Fair enough. Josh, maybe shifting to you. You did touch on some of the cash flow dynamics we should expect to see in the business, but I’m wondering if we can unpack some of the puts and takes around cash flow and cash flow trajectory, especially over the next eight to ten quarters as you undertake this transition? And also, considering the maintenance revenue trajectory is going to look a lot different now that you are going to be emphasizing recurring subscription and term license. And so wondering if you could just sort of reconcile that and help us with the trajectory of cash flow dynamics in the next eight to ten quarters of transition horizon? And that’s it from me. Thank you.

Josh Siegel — Chief Financial Officer

Great. Thanks, Fatima. So, to start off with, just to remind on the call, what we’re looking at for the year is going to be somewhere around — our non-GAAP net income margin, or it should be similar to the cash flow to the cash flow margin. I think in the near-term, there’ll be some pressure on cash flow as it relates to duration and annual payments on the more — on the increasing mix going to SaaS and subscription business.

So I do think, in the past, we’ve historically been running at higher than our net income margin. And now we’re talking about going closer to our net income margin, and I think that’s where you’re going to see the — that’s where the pressure is coming in to reduce from less maintenance contracts, which are frequently paid all upfront on — what if it’s multiple years — to multiple years a SaaS and subscription contracts, which will be now paid more likely to be paid annually.

But overall, we feel good about the cash flow margin relative to where net income will be. But — and the duration that we’re seeing of our SaaS and maintenance and subscription contracts are fairly similar on average to our maintenance contracts. It’s just that there’ll be a — more of them being paid annually as opposed to upfront.

Fatima Boolani — UBS — Analyst

Very helpful. Thank you, Josh.

Operator

Your next question comes from the line of Brian Essex with Goldman Sachs.

Brian Essex — Goldman Sachs — Analyst

Hi, good morning and thank you for taking the question. I was wondering maybe if I could start with the strength that you saw in the perpetual. I mean, really nice results there. How — and I think you noted that 74% of license revenue was from add-on bookings. How much of that strength was, I guess, customers that may have — may not have pursued a complete end-to-end solution coming back and rightsizing their — rightsizing their solution, given the macro and elevated threat environment that we saw over the past year.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Hi Brian, Udi here. Absolutely, that’s exactly the trend we saw that if throughout the year, those customers were taking, and I would say, the small first bite because of the uncertainty macro, they were expanding as it came towards Q4 and really going for what they really needed. And so we saw that both with new logos that landed throughout the year and had faster add on, and we saw that with add-on business in Q4, consuming more again, both — we saw that both in both sides of perpetual and on the subscription side, but definitely, that’s part of the overachieved on the perpetual side.

Brian Essex — Goldman Sachs — Analyst

Got it. That’s helpful, thanks Udi. And maybe just a follow-up on the transition. Maybe if I could get a better understanding of when sales force incentives went into place and what the trajectory of transition to SaaS and subscription as a percentage of total license bookings you might expect? And I’d imagine it would be back half weighted towards the end of 2021. But just to maybe help understand how those — how that migration may roll forward through the next fiscal year?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Yeah, absolutely. So we — I think the timing of announcing it to the world in November and getting the organization ready, really worked well for us. The entire team had gone through training, leading up to the end of the year. But we kicked off the year with a full kickoff, and that’s when the full incentives and training went into play.

And it’s really exciting to see, I think, how the sales team and the broad team really embraced this transition. So obviously, we have six months to nine months of sales cycles. And so like you said, we believe that the bigger mix shift will occur towards the back half of the year. That’s the way to think about the bigger impact.

We did see, as we move through 2020, a natural increase in pipeline of SaaS and subscription. So it’s already bearing fruit for the first half, but the bigger impact is in the second half.

Brian Essex — Goldman Sachs — Analyst

Got it. That’s very helpful. Thank you very much.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thanks, Brian.

Operator

Your next question comes from Rob Owens with Piper Sandler.

Rob Owens — Piper Sandler — Analyst

Great. Thanks for taking my questions. You mentioned some wins that you had with regard to Idaptive, relative [Phonetic] to restaurant chains, car manufacturer. Just curious — I know it’s still early, but where you’re seeing success, how competitive these deals are? Are these pre-existing customers and why you’re winning in these?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Yeah, absolutely. I think there are probably two dimensions to talk about. One is the existing CyberArk customers that were always saying, if you’d have it, we would buy it from you. And so, that’s a dynamic we would, of course, are seeing the early fruits of and will be bigger into 2021 now that we trained the full team and everyone on the team can sell the full portfolio.

But those customers trust us for Privileged Access Management. And while you’ve expanded, you can actually put security on our workforce, we want to expand with you. The second one is really actually creating that as a landing force and Idaptive came with a commercial team that were expanding. And so, I would say in both mid-market, but also in the enterprise as another way to land new accounts.

Of course, the bigger lever and the bigger flag released [Phonetic] is the existing strong CyberArk customer base, but we’re also seeing some healthy good examples of differentiated selection of Idaptive because of its security foundation and the fact that they can then expand to the full CyberArk portfolio.

Rob Owens — Piper Sandler — Analyst

Great. And then secondarily, while we’ve all circled our calendar for your Analyst Day in March, I’m sure we’ll get a lot of commentary around AAR and the transition. Prior to that, as we set our ’21 models, any guardrails around AAR growth that we should be thinking about?

Josh Siegel — Chief Financial Officer

Yeah. Hi, Rob. It’s Josh. I think that I would probably — we want to think about the mix shift that we talked about, which is going to be towards 55% blended for the year. And if I were to think about AAR, I would kind of use 30% is the right way to look at it, 30% growth.

Rob Owens — Piper Sandler — Analyst

All right. Thank you

Operator

Your next question comes from the line of Andrew Nowinski with D.A. Davidson.

Andrew Nowinski — D.A. Davidson — Analyst

Great, thank you. I just want to start off with any large deals that you may have had in the quarter, anything abnormal in Q4? And were any of those deals, did they perhaps maybe pull-in from Q1 into Q4? Or are they all expected?

Udi Mokady — Founder, Chairman and Chief Executive Officer

Actually a very normal quarter in terms of diversity — and hi, Andrew. A very normal quarter in terms of diversity in deal sizes, geographic mix and all of those. And so no — and no pull ins. This was execution on that expanded pipeline we’ve been talking about in the last couple of quarters, and that led to the overperformance.

Andrew Nowinski — D.A. Davidson — Analyst

Okay. Great. And then I just wanted to maybe touch on competition in the space. There’s certainly some chat around, inside partners looking to sell Thycotic. I’m just wondering if you could comment on any of the competition you’re seeing if that’s changed at all in your space? Thanks.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Yeah. I would say that our leadership in PAM has never been stronger. We recently shared in our internal kickoff the continued strong win rates, the — of course, the leadership in — with the industry analysts. I would say, no big change in that competitive environment. Really, CyberArk continuing through, doing all the right things, innovating, expanding organically and inorganically to that full portfolio.

What you alluded to from the private equity holdings, I think that’s one of the things that our customers and prospects look at. They view this as mission-critical, and they want to partner with a company that’s going to be there for the long run and that consistently invests in innovation. We use the term today as hacker innovation. I really think it’s something to pause and think about. There is hacker innovation. So our industry has to invest in innovation.

Hence, our investment in — which I was asked about earlier, continued investment in 2021. And it’s a differentiator in this market. This is a nice — it’s not a nice to have layer, this is a mission-critical layer. And that’s with regards to the PAM market. Obviously, with our expansion into identity security, we’re now playing in the adjacent opportunity. And of course, we’re early there. But focused on the customers that put a preference on security.

And lastly, DevSecOps is just a huge opportunity where — it’s probably about one additional player out there as we go after the DevSecOps opportunity.

Andrew Nowinski — D.A. Davidson — Analyst

That’s great. Really helpful. Thank you.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from Hamza Fodderwala with Morgan Stanley.

Hamza Fodderwala — Morgan Stanley — Analyst

Hey guys, good morning. Thank you for taking my question. Josh, just one question for you. I want to follow up on your comment around AAR growth, thinking about it, maybe in the 30s to start with. If I look at the AAR growth trajectory this year, right, it’s been accelerating in the 40s now, right? You mentioned, I think around 50% of your bookings were recurring, this year. You’re saying 55% for next year. And you really — like you’re just starting to basically incentivize the sales force towards selling SaaS. So I’m just curious like, do you think that initial outlook is just conservative? Or is there anything else that we should be mindful of?

Josh Siegel — Chief Financial Officer

Yes. Great question. I think the other thing that we need to be mindful of, we anticipate — if we hit our mix shift that we’re talking about of 55% of the new license bookings coming from SaaS and subscription, then, we’re confident for very high AAR growth on the SaaS and subscription side of the business. The one thing that we need to keep in mind, though, is there will be a drag on the AAR growth as it relates to the maintenance, which will be flat.

And depending on what the mix shift is, there could even be a minus drag. So I think that’s the one piece that the model needs to consider is, is the mix shift of — is the mix of the bookings because that’s going to also play into how much does the AAR from the maintenance contracts related to the perpetual goes up.

But I would say that overall, we’re looking at great growth on the SaaS and subscription side of the AAR, much higher than the 30%.

Hamza Fodderwala — Morgan Stanley — Analyst

All right. Okay. Thank you.

Operator

Your next question comes from Gregg Moskowitz with Mizuho.

Gregg Moskowitz — Mizuho — Analyst

All right, thank you very much. Hi guys. I guess just first question for Udi, just from an ecosystem standpoint, where do things stand with respect to the number of certified professionals on CyberArk? And about how fast would you say that’s been growing?

Udi Mokady — Founder, Chairman and Chief Executive Officer

So Greg, I actually don’t have an updated number for you, but we’ve continuously been investing in that ecosystem and made it more and more accessible for our partners. So I think it’s been growing every quarter. And next time around, I’ll make sure to share a number of certified professionals out there.

Gregg Moskowitz — Mizuho — Analyst

Perfect. Thanks for that, Udi. And then just for Josh, what are your expectations of SaaS and subscription adoption by companies that are based in EMEA and Asia Pac? How do you sort of see that evolving from here?

Josh Siegel — Chief Financial Officer

Yeah. Clearly, and I pointed out in our call, Americas has contributed to the largest percentage of the SaaS and subscription business in 2020. But we’ve started already in the back half of 2020, starting to see it come in — in EMEA and in APJ. We’re set up on the SaaS side across all the regions with regard to our data centers to be able to sell all of our SaaS products with local data centers in the regions. And we expect it to pick up into 2021 as we start to, one, really roll out the subscription packages, and the account executives get comfortable there. And two, of course, the incentive plan is the same incentive plan for the EMEA and APJ regions as in the Americas. So they will be — they’re going to be well incented to learn how to sell subscription and SaaS in those regions as well.

Gregg Moskowitz — Mizuho — Analyst

Okay. That’s great. Thank you.

Josh Siegel — Chief Financial Officer

Thanks, Gregg.

Operator

Your next question comes from the line of Joshua Tilton with Berenberg.

Joshua Tilton — Berenberg Bank — Analyst

Hi guys. Thanks for taking my questions. I just wanted to touch on — you mentioned incentivizing your sales force to sell SaaS and subscription. Are you also dis-incentivizing the sales of perpetual? And then also, when you just talk to customers who choose to pick term, what are the reasons for not wanting to go with the cloud offering?

Udi Mokady — Founder, Chairman and Chief Executive Officer

So by the way, great question. And no, we’re not dis-incentivizing the perpetual. We’re incentivizing — so it’s the carrot [Phonetic] technique. We’re incentivizing the SaaS and subscription. I would say it’s still early to have like a lot of examples of customers on the fence. But again, like I said, there’s a 2:1 on — mix towards Saas. The ones who do prefer subscription are organized this way. They still want — are still leaning to having on-prem.

And of course, ones who would push for perpetual, I would say, more on the — in government sectors and APJ like Josh mentioned, I would say those were kind of organized and still used to buying perpetual. But that’s really — we expect that to be a decreasing minority as we go through this.

Joshua Tilton — Berenberg Bank — Analyst

Thanks. That’s helpful. And if I missed this, I apologize. But if you look at the SaaS business from 2020, could you possibly break out how much of that was Idaptive, and maybe give us a sense of what that business is growing at? And then also, did you just see the lower pricing relative to some of your peers maybe play in your favor during this macro environment?

Udi Mokady — Founder, Chairman and Chief Executive Officer

So I wouldn’t say that lower pricing was the dynamic in Idaptive wins. And I think the portfolio in general is really considered the robust security-minded portfolio. But it’s for the security — for the security oriented buyer were really differentiated. And Josh, I don’t know if we can give anything on the mix.

Joshua Tilton — Berenberg Bank — Analyst

All right. Thanks guys. Congrats on the quarter.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. At this time, I will turn the conference back to Udi Mokady.

Udi Mokady — Founder, Chairman and Chief Executive Officer

Thank you. Thank you, Erica. And of course, thank you, Erica Smith and Josh Siegel here. I want to thank our customers, partners and employees for contributing to our record fourth quarter, and supporting our transition to a modern subscription company. I’m confident that as we execute our strategy, we will build an even deeper relationship with our customers and partners. Thanks everyone, for joining today. Thank you.

Operator

[Operator Closing Remarks].