CyberArk Software Ltd (NASDAQ: CYBR) Q4 2021 earnings conference call dated Feb. 10, 2022
Corporate Participants:
Erica Smith — Senior Vice President, Investor Relations & ESG
Udi Mokady — Founder, Chairman and Chief Executive Officer
Josh Siegel — Chief Financial Officer
Analysts:
Saket Kalia — Barclays — Analyst
Jonathan Ho — William Blair — Analyst
Hamza Fodderwala — Morgan Stanley — Analyst
Doug Anmuth — J.P. Morgan — Analyst
Rob Owens — Piper Sandler — Analyst
Unidentified Participant — — Analyst
Brian Essex — Goldman Sachs — Analyst
Tal Liani — Bank of America Merrill Lynch — Analyst
Adam Borg — Stifel — Analyst
Jonathan Ruykhaver — Baird — Analyst
Ittai Kidron — Oppenheimer — Analyst
Fatima Boolani — Citi — Analyst
Joshua Tilton — Wolfe Research — Analyst
Roger Boyd — UBS — Analyst
Imtiaz Koujalgi — Guggenheim — Analyst
Alex Henderson — Needham — Analyst
Presentation:
Operator
Good day, and thank you for standing by. Welcome to CyberArk Fourth Quarter and Full Year 2021 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Erica Smith. Please go ahead.
Erica Smith — Senior Vice President, Investor Relations & ESG
Thank you. Evo. Good morning. Thank you for joining us today to review CyberArk’s Fourth Quarter and Year-End 2021 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 the call up to a question and answer session.
Before we begin, let me remind you that certain statements made on the call today will 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 first quarter and full-year 2022. 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 risks regarding our ability to continue to transition the business to a subscription model, the duration and scope of the COVID-19 pandemic, its related impacts on global economies and our ability to adjust in response to the global and to the COVID-19 pandemic CyberArk expressly disclaims any obligation 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. We also want to remind you that we provide the calculated revenue headwind for additional color on the impact of our subscription bookings mix shift, but it should not be viewed as comparable to or a substitute for reported GAAP revenues or other GAAP measures. A webcast of today’s call is also available on our website in the IR section.
With that, I would 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 this morning. It was a record-breaking year for CyberArk, best characterized by transformation, outperformance and acceleration. Momentum continues to build as we move through 2021 culminating in a record fourth quarter. The most important takeaway from Q4 is that we experienced another step-function increase in demand for our platform with our SaaS solutions driving our performance. We delivered the largest ever sequential increase in ARR off an incredible record Q3. Subscription ARR reached $183 million, and growth accelerated to 146%. Total ARR reached $393 million, and growth accelerated to 44%. Again, in the fourth quarter we significantly beat our bookings assumptions resulting in total revenue of $151 million and the 71% booking mix with a $33 million calculated revenue headwind, all above the guidance framework.
While subscription transition masked the underlying growth of the business, if you adjust for mix of bookings, our license line grew by about 40% in the fourth quarter. Geographically, we had another perfect gain, every region outperformed our guidance framework. From every angle it was stellar quarter. Operation, we outperformed against our strategic imperatives to drive growth, execute our subscription transition, continued to deliver on innovation and profitably scale our operations. I will frame today’s discussion around these pillars starting with growth. We are one of the best, we are in one of the best positions, if not the best position to drive long-term sustainable growth. The strong secular tailwinds in digital transformation, cloud migration and attacker innovation gathered more steam in the fourth quarter and continue to push Identity Security to the center of every customer discussion.
As we all know, 2021 kicked off under the dark cloud of SolarWinds, and we ended the year with the Log4j vulnerability with countless attacks in between. Most recently, Cisco published an advisory on the state-sponsored Advanced Persistent Threat or APT. In this attack and others throughout the year, stolen credentials were the common denominator leveraged in the attack chain. The threat landscape is the most aggressive that I have ever received, with our foundation in PAM, we are in the best position of any vendor to address if they have any security challenge.
Our results demonstrate that enterprises agree, while post-breach activity is a small part of our business, we have been pulled into engagements in the wake of these attacks as the second call behind remediation first, because of our trusted advisor status and cybersecurity experts. Beyond secular tailwinds we made the right strategic moves at the right time, supercharging the acceleration of our business. We formally rolled out our transformation program early in 2021 creating Centers of Excellence in PAM, Access and DevSecOps, unifying our experience under one umbrella, and customer strips under one umbrella and driving the business towards a recurring revenue. Each quarter in 2021 was significantly better than the previous with our execution kicking in and giving us higher year on Q4 often incredible third quarter, as I mentioned.
Importantly, productivity is back well above 2019 levels. This combined with the increased sales capacity creates a strong foundation for growth in the quarters ahead. SaaS reached yet another record with particular strength in Privilege Cloud, as with Privilege Manager and CyberArk Identity. The growth in our Privileged Access Solutions outstripped industry estimates in 2021. On the Access and DevSecOps strong with the increased focused as specialized resources significantly improved our competitive position. From a bookings perspective Access more than doubled in 2021, and we have a key competitive enterprise base for Secrets Manager. We will talk about innovation in a bit, but Secure Web Sessions and Dynamic Privileged Access are game-changers, moving us further ahead of competition.
Optimizing our go-to-market machine, paved the way for our record new business quarter with more than 375 new logos added during the quarter, a material increase in new business deal sizes. A few new ways to highlight as part of its digital transformation, a large broadcaster bought our Identity Security platform because of its foundation in PAM including Privilege Cloud, Endpoint Privilege Manager, Secrets Manager, Remote Access and Cloud Entitlements Manager. A travel and transportation company that had outgrown the competitive PAM offering is moving to pivotal stuff because of our scalability and fast time to value. This customer is one among many turning to CyberArk to meet today’s rigorous cyber insurance requirements and trying to expect to pickup in 2022. The crippling effects of Ransomware contributed to our record year for EPM and also the strong growth in PAM, our 2 largest deals in the quarter were expansion from PAM into EPM. We signed our largest ever EPM deal with a European manufacturing company and a major deal into a large U.S. bank. In fact, EPM was in 8 of our top 10 deals in the quarter.
With our subscription model revenue and SaaS taking off, the velocity of our business is picking up steam with customers adding on both more users and more products faster. As examples, expanding from PAM into Identity, a regional investment bank that has been a sidebar customer since 2012 and required the efficiency of workforce identity for all its users, and it also to Secure Web Sessions. As part of a broad PAM program, an existing insurance customer needed a single pane of glass for managing all human and non-human identities and expanded from core Privileged Access into Secrets Management. Traditionally, our customers have leveraged PAM as a jumping-off point for their identity security programs as our platform management is gaining moment we are excited to see newer EPM and Cyber Identity customers expand its impact. In Q4, a global food manufacturing company and CyberArk Identity Customer expanded their CyberArk program with Privilege Cloud, Remote Vendor Access and EPM.
Strengthening our partner program was another focus area in 2021. We are deepening our relationships across our vast global system integrators and advisories, managed security service providers, cloud marketplace and C3 partners. On the cloud marketplace side, our business with AWS continued to gain traction in the fourth quarter and our pipeline quadrupled. Marketplaces are a productive, efficient, highly scalable, complementary new route to market for CyberArk.
Moving to subscription transition. Our transformation is well on its way, and as we mentioned, we outperformed again in the fourth quarter. Our SaaS products continues to lead the way and we are already seeing the flywheel effect. We are confident this will result in higher lifetime value. We now have more than 890 customers with over $100,000 in annual recurring revenue. Given our success in 2021, we are accelerating the transition exits and expect to reach about 85% of bookings from subscription in the second quarter of 2022 or in just 6 quarters which is well ahead of our initial timeline outlined in February of 2021. Innovation is a core pillar of our growth strategy and in 2021 we introduced Secure Web Sessions and Dynamic Privileged Access. The pace of demand for Secure Web Sessions is incredibly strong. In the first few weeks after G8, we have key vendors and strong pipeline heading into 2022. Secure Web Sessions harnesses the power of both IDaaS and PAM providing PAM security and controls with a frictionless user experience. It is an elegant solution and no other vendor in the market can provide this level of operational efficiency and security in a single platform.
We also won early Dynamic Privilege Access or DPA customers in Q4. DPA uniquely positions CyberArk as the only vendor who secures both standing and Dynamic Privileges regardless of environment combining the cloud to hybrid to self-hosted. We are hearing from customers that the combination of DPA and Secure Web Sessions changes the competitive landscape for Identity Security.
I will wrap up my discussion with some comments on profitability. Our investments in 2021 delivered exceptional returns. With our strong execution, the inflection in the demand environment and our incredibly favorable competitive position across PAM, Access and DevSecOps, we plan to invest in growth and innovation in 2022. Our investments demonstrate the confidence in our unprecedented opportunity as Identity-accentuated security models are now intertwined. Our approach to investment hasn’t changed. We invest in step with the demand. Our focus on impactful spending and given our track record, our confidence in our ability to deliver long-term profitable growth. Our priorities heading into 2022 include; complete our subscription transition by the second quarter, invest in our global sales organization, including our partner ecosystem to drive growth, protect our ARR by investing in customer success, support and services and invest in research and development to enhance our Identity Security platform and drive innovation. With our turbo-charged performance in the fourth quarter, we are in an incredible position to execute against our massive opportunity.
I will now turn the call over to Josh, who will discuss our financial results in more detail and provide you our outlook for the first quarter and full year 2022. Over to you, Josh.
Josh Siegel — Chief Financial Officer
Thanks. Udi. We’d like to remind you that we posted slides to the website that will be helpful as we walk through our results. So as Udi mentioned, we had a record fourth quarter capping off an incredible year of acceleration, outperformance in transformation. In terms of the headline P&L, we generated record total revenue above the high-end of the range of $151.3 million in the fourth quarter with a 71% mix of subscription bookings. That is ahead of our guidance framework of the 68% mix. We are thrilled to again see both revenue and mix outperformance really a great demonstration of the strength in our bookings.
Before digging deeper into the P&L revenue, I want to highlight our annual recurring revenue, which illustrates the step-function change in the demand environment for the fourth quarter. We experienced our largest ever sequential increase adding $44 million to the subscription ARR in the fourth quarter alone. The subscription portion of our annual recurring revenue reached $183 million, representing over 46% of the total and year-over-year growth accelerating to 146%. Just one year ago, the subscription portion was only $74 million or 27% of total. Our total ARR was $393 million, that is an acceleration to 44% year-on-year versus 38% year growth that we showed in the third quarter of 2021. The maintenance portion was $210 million at December 31, and reflects our strong renewal rates. The acceleration in our ARR is driven by the strong demand environment, transformation of our business and great execution of our go-to-market engine, all of which sets us up very well for 2022 and beyond. In addition, we are pleased with our increased visibility from the strong execution of our transition. We ended 2021 with remaining performance obligation of $516 million, that is 42% growth from year-end 2020.
Moving to revenue. Subscription revenue that includes SaaS and self-hosted subscription reached $47.6 million and represented 31% of total revenue in the fourths quarter. That’s increasing a 124%. Consistent with our transition progress, perpetual license revenue declined to $38.7 million. Our maintenance and professional services revenue was $65.1 million with $55.3 million coming from recurring maintenance and $9.8 million in professional services revenue. Recurring revenue defined as our total subscription plus our maintenance related to perpetual license revenue reached $102.9 million or 68% of total revenue growing 48% year-on-year. We continue to have a SaaS revenue transition with nearly 50% of our total bookings coming from SaaS. With our mix reaching 71% in the fourth quarter, we have made great progress transforming CyberArk into a subscription company.
Economically, the headwind created by the mix was approximately $33 million in the fourth quarter when we compare like-for-like to the mix in the fourth quarter 2020. Normalizing for the mix shift, growth in the license portion of the business our SaaS self-hosted subscription and perpetual would have grown about 40% and demonstrates the underlying growth in the business. Taking the calculated revenue into consideration, total revenue growth would have accelerated to 28% year-on-year. New business also accelerated in the quarter. We signed more than 375 new customers and that’s a record. New business average deal sizes also increased by just over 20% in the fourth quarter, driven by strong demand for SaaS in particular.
Geographically, the business is well diversified. The Americas generated $86.2 million in revenue, representing 57% of total revenue, the Americas again had the strongest percentage of SaaS bookings during the quarter. EMEA at $49.3 million in revenue or 33% of total revenue with SaaS bookings more than doubling over the last year. APJ generated $15.8 million in revenue or 10% of total revenue with SaaS and subscription now over 50% of bookings for that quarter. If we look across the geographies, Adjusted for the calculated revenue headwind created by the mix, each region would have grown by over 25% in license revenue with our license line growing over 25% in EMEA, about 45% in Americas and over 60% in APJ. normalizing for the revenue headwind, our license line grew over 30% in each region on a full year basis.
All line items of the P&L will now be discussed on a non-GAAP basis. Please see the full GAAP to non-GAAP reconciliation in the tables of our press release. Our fourth quarter gross profit was $130.1 million or an 86% gross margin, that’s compared with 88% gross margin in the fourth quarter last year, primarily the result of the increase in our SaaS business in 2021. We continue to make investments to drive innovation and growth resulting in operating expenses of $113.8 million, a 31% increase year-on-year and operating income of $16.3 million in the quarter significantly beating the high-end of our guidance, it is important to remember that our operating income is lowered by $2.2 million from foreign exchange and approximately $33 million calculated revenue headwind. Isolating for the calculated revenue headwind, our operating margin would have been approximately 26% and adjusting for the FX impact the margin would have increased by another 2 points to 28% in the fourth quarter of 2021.
Net income was $11.8 million or $0.28 per diluted share for the fourth quarter. For the full year, revenue was over $500 million and that’s a great milestone for CyberArk reaching $502.9 million with a 66% subscription bookings mix for the year. This resulted in a $74 million calculated headwind for the full year, and taking the economic impact from the headwind into consideration, the year-on-year comparison would be over 35% license revenue growth and 24% total revenue growth.
To underscore how great a year 2021 was for CyberArk, I wanted to reflect on the guidance we set in February 2021. The top of our revenue range was $496 million and that assumed a 55% mix and a $39 million headwind. We generated revenue above the range and our mix reached 66% or 11 percentage points above our framework, which resulted in a total calculated revenue headwind in 2021 of $74 million. The bookings underlying our results materially beat the assumptions in our guidance. As Udi mentioned, it was a step-up function increase in demand for our solutions with momentum building both in our bookings and in our pipeline as we move through the year.
Moving to the full-year P&L. Operating expenses increased by 31% as we invested to deliver against a strong demand. Operating income was $23.9 million and our EPS was $0.33 per diluted share for the full year. We continue to attract and retain top talent, a testament to our culture and our success in the market adding 450 new employees in 2021, the highest number in a single year. We ended December with over 2,100 employees worldwide, with 942 employees in sales and marketing. For the full year 2021, free cash flow was $65.8 million or 13% free cash flow margin. This cash flow contributed to our strong balance sheet and we now ended the quarter with $1.2 billion in cash and investments.
Turning to our guidance. Our guidance for the first quarter of 2022 and the full year reflects the robust industry tailwinds, our record pipeline build, incredible execution and the acceleration in our bookings. And so for the first quarter of 2022, we expect total revenue of $125 million to $133 million. We expect a non-GAAP operating loss of about $16 million to $9 million for the first quarter. We expect our EPS to range from a non-GAAP net loss of $0.42 to $0.25 per basic and diluted share. The guidance assumes a jump up to about 79% of subscription bookings mix and a calculated revenue and profitability headwind of approximately $13 million for the first quarter of 2022. So if you isolate. So if you isolate our license lines of SaaS, self-hosted, subscription and perpetual, the normalized growth rate taking into account the calculated revenue headwind for the first quarter would be over 50% year-on-year for just the license portion. Similarly, for the total revenue, the growth rate will be at 26% at the midpoint of the range taking the headwind into account. Our guidance also assumes 40.3 million basic and diluted shares and about $2 million in taxes. Looking at the full year 2022, we expect total revenue in the range of $582 million to $598 million. The mix assumption underlying our guidance for the full year is 85% from subscription bookings and our revenue headwind is approximately $53 million.
And now moving down the P&L. For the full year, we expect non-GAAP operating loss to be between $34 million in $20 million. We expect our non-GAAP net loss per basic and diluted share to be in the range of $0.98 to $0.64. And for the full year, we expect about 40.7 million basic and diluted shares at about $10 million in taxes. For the full year, the increase in our expenses are related to 4 major areas, increasing investments in our cloud infrastructure to support our record SaaS bookings in 2021, which will lower our gross margin for the full year to between about 80% and 81%, changes in exchange rates are increasing our expenses by about $7 million over 2021 in particular for R&D and G&A. We are continuing to make critical investments in R&D, including our SaaS and self-hosted solutions.
And lastly, the investments in sales and marketing. We have deep conviction in the opportunity and our incredibly strong competitive position. More importantly, our productivity levels continue to increase, our win rates are strong and our pipeline is at record levels, which supports productively stepping up our investments to help ensure we capture the opportunity and sustain our strong growth in 2022 and beyond.
At our Investor Day in March of 2021, we discussed the trajectory of the transition, which we expected to take 8 to 10 quarters and ARR to grow about 30% through the transition. Given our success in ’21, we now expect to hit our original transition target of about an 85% mix from subscription bookings already in the second quarter of this year or only 6 quarters from when the transition kicked up in the first quarter last year. As we have consistently pulled in the subscription timeline, it impacts both the growth and profitability curves of the transition. The rebound in revenue is already starting in 2022 with 17% growth and about 32% growth in the license lines expected at the midpoint of the guidance range.
As with any transition, a faster timeline has an impact on the bottom line creating a deeper, near-term bottom in margins, while the shape of the transition in terms of revenue growth and operating margin is relatively consistent, the slope of the curves we talked about in March last year are steeper with the faster transition now. Given the acceleration in our business, we expect annual recurring revenue to be between $530 million and $536 million at December 31, 2022 or 36% growth year-on-year at the midpoint. As we look into 2022, we do expect the maintenance portion of ARR to begin to decline while this will drag the total growth rate, we expect rapid growth in the subscription portion. With our strong performance in 2021, we are on our way to meet $1 billion ARR target, which we now believe we can achieve already by June of 2025.
In terms of free cash flow, we anticipate that that will be in line with our non-GAAP net income margin over a 12-month period. We also expect capital expenditures to be in the range of $15 million and $16 million which represents just about through under 3% of revenue at the midpoint. The fourth quarter was a standout quarter to round off an amazing year at CyberArk. The business is firing on all cylinders. As we look ahead, we expect to hit our subscription transition target goal much faster than we originally anticipated. Our sustainable growth drivers, paired with outstanding execution from our team put us in a great position to deliver long-term growth and profitability.
I will now turn the call over to the operator for Q&A. Operator?
Questions and Answers:
Operator
[Operator Instructions] And your first question is from Saket Kalia with Barclays Capital.
Saket Kalia — Barclays — Analyst
Okay, great. Hey guys, thanks for taking my question here. Great to see the ARR acceleration.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you, Saket.
Saket Kalia — Barclays — Analyst
May if I can just a 2-part question that’s kind of related for both of you. Udi, again on the ARR acceleration just starting high level, what do you think is driving the demand, it sounds different. So I’m just kind of curious how you position that. And then Josh, for you, the guide for next year assumes nice growth in net new, you touched on some of this in your prepared remarks, but can you just kind of lay out a little bit more about sort of what gives you the confidence in guiding to that healthy net new ARR. Sorry, there is a lot there, but all that makes sense?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Absolutely. So I’ll kick it off. We really executed, I would say executed to fire all cylinders against a strong and growing demand environment. What we’re seeing is that companies are recognizing the importance of PAM and Identity Security is that layer in the platform you need in an assumed breach environment, in this heightened threat environment whether either back to a lot of these, but Log4j or SolarWinds and others, you have to assume breach, and we target assumed Identity, what are the impact is going to go out and how will it properly the impact, and also identify the landing point. And so our decisions are aware of the importance of this layer which projects as mentioned in that the center, and of course expanding to Identity Security controls and they partner with the market leader in the space that can support their cosmetics hybrid environment and continuously to invest in innovation, I would say that we’re in one of the most best competitive positions we’ve ever have been. It is very clear, if you look at the growth of the business in ’21 that in light of industry reports, analyst reports that we’re taking market share, so going after this demand and and executing against it, and always innovating, so that the customer see that we have their back for the long run.
Josh Siegel — Chief Financial Officer
And Saket, I’ll add to the follow-up of your question, based off of also what Udi just talked about in terms of the demand environment, I can look under the hood and we talk about record, again record pipeline growth during last year. So we look at our pipeline levels and our win rates. We also looked at the execution that were going, that we’re coming out of Q4 with, that we’re going into this year with and our productivity levels from our go-to-market teams in the last quarter and really over the last several quarters. And I think the third point is that we talked about the hiring this year, we have built capacity to be able to meet that accelerating demand environment. And so we really are confident about how we look at 2022.
Saket Kalia — Barclays — Analyst
Makes sense. Thanks guys.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
Your next question is from Jonathan Ho with William Blair.
Jonathan Ho — William Blair — Analyst
Hi, good morning. And let me echo my congratulations on a very strong quarter as well. I guess, one thing I wanted to understand a little bit better is, where do you see this opportunity to incrementally invest on the sales and marketing side, are there any particular geographies or verticals or these new marketplaces. Can you just really help us understand, just given the strong backdrop where you can have the most impact? Thank you.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah, right now we’re seeing demand increase both in enterprise and in our commercial business and we’re going across those 2, I would say, as I mentioned and globally. So the global opportunity across the organization. Of course, the partners are right in step with us, they are Investing and everything has to do with increasing our work with the channel partners around the world. And then of course, everything that we’re doing around securing the ARR around customer success and walking our customers through this the cycle. We’re very excited to see the platform in play and some of the examples I gave of customers really moving across products, taking more usage also going across products and of course we have the speed goals that are unique motion for us for both Access and DevSecOps, and that’s another part of our investment, so in all of the above, and we’re confident that like we saw in ’21, and we see great turns on that.
Operator
Your next question is from Hamza Fodderwala with Morgan Stanley.
Hamza Fodderwala — Morgan Stanley — Analyst
Hey, guys, Thanks for taking my question. I want to follow up on a question in line with what Saket asked. So Josh, for you, Udi obviously did a great job highlighting a lot the growth drivers for 2022. If I look at your ARR guide, and I assume maintenance, the less consumers it stays flat, you’re guiding for about a 30% growth in net new subs ARR, after what was a really strong acceleration in ’21. So I’m curious how much of that is attributed to the demand inflection that you’ve spoken. So clearly about in the back half of last year versus if faster transition. And to put it bluntly, do you feel like you’ve given yourself enough wiggle room to really outperform like you did last year.
Josh Siegel — Chief Financial Officer
Yeah, thanks. And I think you got it right, it was important that you talked about the maintenance piece of the ARR as well because we do actually and I called it out in my prepared remarks that we can, we will probably start to see the decline even in on the maintenance ARR but then the super growth rate on the subscription piece of the ARR. And the covenants again, and it’s really coming from, first of all, the faster transition and also the SaaS heavy side of the transition and we’re seeing Privilege Cloud really being a big piece of that and not just, but we’re also seeing Privilege Card also going even further up market and we talked a little bit about our average deal sizes going up as well, especially for new logos and it’s really tied to Privilege Cloud success also further up market and the value that our customers in the enterprise are seeing in the subscription packages for the self-hosted as well. So I think that we feel confident about the ARR growth; about over-achieving, we put out the number in our guidance that we feel comfortable given the information we have in front of us. We had great execution in 2021, but for now the guide is the guide to absolutely be the demand environment is there for us to invest in.
Operator
Your next question is from Sterling Auty with J.P. Morgan.
Doug Anmuth — J.P. Morgan — Analyst
Hey, this is Doug on for Sterling. Thank you for taking my questions. So in regards to the growth in subscription revenue, can you talk about how much of that is coming from new versus existing customers.
Josh Siegel — Chief Financial Officer
Yeah. If we look at the, if you look at our ARR incremental, we’re seeing about a third of it coming from new customers and the balance coming from existing customers.
Doug Anmuth — J.P. Morgan — Analyst
Okay, great. Thank you.
Josh Siegel — Chief Financial Officer
Thanks, Doug.
Operator
Your next question is from Rob Owens with Piper Sandler.
Rob Owens — Piper Sandler — Analyst
Great. Good morning, guys, thanks for taking my question. Want to double-click a little bit around the DevSecOps portfolio to understand, is a lot of that coming from new customers, is it an add-on, is it being added into deals. So is it the actual tip of the spear with new customer acquisition, in some cases, are you seeing it more as part of a suite as customers are looking at this more holistically?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Absolutely, Rob. Yeah, I would say tips of the spear are much — our new tips of the spear are much more EPM and CyberArk Identity as new landing places for us and strategically and that was our plan. There is the Secrets Management and the DevSecOps portfolio is much more of an add-on business to existing customers and to expand from the humans to machine identities, and the speedboat really supports that emotion with an overlay theme to cater to those, and of course customers want that full platform that covers both the human and machine, and it’s still a lot — that’s primarily the case and it’s part of the CyberArk blueprint on how we guided customers to go deep in Identity Security.
Rob Owens — Piper Sandler — Analyst
Thank you.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
Your next question is from Gregg Moskowitz with Mizuho.
Unidentified Participant — — Analyst
Yes, hi, this is Mike on on for Greg, thanks for taking the question. I was just wondering, have you made any changes to your sales incentives in 2022 to increase the emphasis of SaaS vis-a-vis perpetual licenses or perhaps even term licenses?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah. We made, I would say, the major transitions we’re in 2021, but I would say, then we further ratcheted it up in 2022 and we recently had our global kickoff and it’s very clear that that we are incentivizing our team to sell SaaS and subscription. And so I would say, and further ratchet up on some of the things we’ve put in motion in 2021 already.
Unidentified Participant — — Analyst
Great, thanks.
Operator
Your next question is from Brian Essex with Goldman Sachs.
Brian Essex — Goldman Sachs — Analyst
Hi, good morning, and thank you for taking the question. Maybe just one for Udi, and maybe more of a longer-term strategic type of a question. But if we think about the growing number of enterprise class companies with cloud native architecture, I’m thinking more like a Zoom or Airbnb. I know it’s early stages, but maybe you can hit on three areas in particular. Curious to see how you’re seeing those types of customers invest in Privilege Cloud or Privilege Access differently than those more traditional hybrid models, how do their Privilege Access strategy and attach evolve over time and how different is your go-to-market for those deals as you know is you’re establishing CyberArk to compete in those markets?
Udi Mokady — Founder, Chairman and Chief Executive Officer
No, absolutely. I think one of the important strategic initiatives for us to cater to all types of enterprises, and we’re actually seeing a growing success born in the cloud type entities because gives us so much optionality they can consume Privilege Cloud as a service, they can consume our VPN as a landing point for Least Privilege on the Endpoint and also our new innovations around like DPA, Dynamic Privileged Access allows them to manage workloads in adjusting time environment. And so I would say with some of them the landing and the beginning part would may be different from a hybrid environment that may look at more traditional core assets to start with first defending active directory, defending critical servers, but. But the opportunity is very large. They typically have a large number of users validated or brought in the cloud a large number of users both from a Privilege user definition in of course from a workforce definition and a large number of machine identities that we can help solve with our Secrets Management.
Brian Essex — Goldman Sachs — Analyst
Great, very helpful. Thank you.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
Your next question is from Tal Liani with Bank of America.
Tal Liani — Bank of America Merrill Lynch — Analyst
Hi guys. I have 2 questions. First is, can you talk about seasonality, I see the fourth quarter last year was also strong. And I’m wondering if there is any new seasonality that we need to consider that fourth quarter is becoming so strong? And then second, was there any change in the channel or anything that could — demand is being created somehow, you spoke about very strong demand. I’m trying to understand if the demand just happen or you helped it through sales, channel relationship or anything that could explain this demand? And then I have a question on margins.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Great. I’ll kick off maybe with your second question on channel and hand it over to Josh to talk about seasonality. I think as I started, first off, the biggest change is the demand environment and the centrality and the importance of Privileged Access Management and Identity Security as we have been investing in and taking a a leadership position, and what’s making money for our channels and in many of our large bars out there, we will be in their top 5, top 10 vendors and they’re giving it more attention in advisory building practices around CyberArk and new motions around, if you talk about, some new motions around MSSP and and what I mentioned with the AWS marketplace. So I would say the ongoing investments and the growing priority within the customer and within the channel helped us really execute on the strong pipeline that we built. And yes, some new channel motions introduced as well.
Josh Siegel — Chief Financial Officer
And on seasonality, Tal, no, I think we’re still very much an enterprise security software vendor and this is kind of the nature of the beast. And we’re seeing I think strong fourth quarters as we have for a while and we don’t necessarily anticipate a change at this point. And I think it’s pretty much that.
Tal Liani — Bank of America Merrill Lynch — Analyst
Got it. So Josh, just on margins. So you are going through an investment phase now in cloud infrastructure, what’s the outlook. I’m not looking for specific numbers beyond, but what’s the outlook. Is this going to be multiple years of elevated investments, or is it more of an initial investment followed by margin improvement as your volume goes up? I’m trying to understand to what extent you need to invest over the next few years?
Josh Siegel — Chief Financial Officer
Yeah, I think this is we’re continuing to invest really into 2022 the same way that we’ve been looking at it over the last, since you’ve been following us, since the public offering, which is investing with the growth and the demand of the market and investing ahead of it to ensure that not only are we going to be able to meet the current year’s growth, but when we look at — we’re always looking at kind of for multiple years and we want to set ourselves up for going into the following year to be able to meet the new capacity and the new growth for the following year as well. So I don’t think anything’s really changed. There isn’t a specific incremental investment for 2022, that isn’t more, because we’re seeing a bigger demand and we’re scaling the company and at this point that’s what I would say looking forward as well.
Tal Liani — Bank of America Merrill Lynch — Analyst
Okay, thanks.
Operator
Your next question is from Adam Borg with Stifel.
Adam Borg — Stifel — Analyst
Great. And thanks so much for taking the question. Maybe for Udi on Endpoint Privilege Manager, it was great to hear the success in some of the deals you called out earlier, maybe just remind us kind of where we stand now in terms of the mix of ARR and what kind of uplift that provide relative to traditional PAM deal?
Udi Mokady — Founder, Chairman and Chief Executive Officer
I’m sorry, can you repeat the last part of the question.
Adam Borg — Stifel — Analyst
Yeah, absolutely. What kind of an uplift does EPM provide relative to, if you just started with core PAM or Privilege Cloud, what doe the EPM uplift look like?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah, so first of all in terms of the outlook for EPM, it basically can be when we’re looking at on a SaaS perspective — Erica, do you have that number?
Erica Smith — Senior Vice President, Investor Relations & ESG
Sure. Yeah, again, I he started off with what EPM was as a percent of the ARR, which is about 22% and so right north of 20%.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Well north of 20% now the EPM portion of the ARR.
Adam Borg — Stifel — Analyst
Great. And maybe just, yeah, no worries. And then any color on if a standard CorPAS or a Privilege Cloud deal of the dollar, what kind of uplift EPM is relative to that?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Probably about, I would call it, about half of that an additional 50% on top of CorPAS.
Adam Borg — Stifel — Analyst
Awesome. Thanks so much.
Operator
Your next question is from Jonathan Ruykhaver with Baird.
Jonathan Ruykhaver — Baird — Analyst
Yeah, hey guys, congrats on the strong performance. Udi, you’ve talked about PAM like controls for Idaptive Secure Web Sessions, particularly, which seems to be doing extremely well. I’m curious if you could just talk broadly how you’re thinking about this Identity Security positioning, strategically, just given the importance of Privilege? And what can we see in terms of the digital security controls for the product portfolio that further differentiate.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah. So these are — thanks Jonathan. The fresh new phase that we’ve rolled out are like I mentioned, Secure Web Sessions and Dynamic Privileged Access you’ll see us, and again Secure Web Sessions is very, very new, but we’re seeing great excitement from customers to be able to defend the regular user. It could be somebody in HR, finance and others but to be able to put controls and protection over their recession that are PAM life, but in a transparent way to the user, even the ability to protect the session, so that’s new and you’ll see us extending that motion of bringing PAM like controls in a transparent way to the regular user. It also will take place and how we continue to advance our continuous authentication making sure that we work in a continuous Zero Trust and continuous verification model. The other I would say long-term and continuous investment we have is everything just in time to give more and more optionality for our customers to the protect standing access, but more and more Just in price scenarios like Dynamic Privileged Access, which is brand new and is a great differentiator for us, and safety. I think that’s going to be why customers select, they know that is coming from the makers on PAM, we’re not coming to you with solutions for your workforce, for your vendors, for your third-parties leveraging the same platform.
Jonathan Ruykhaver — Baird — Analyst
That’s helpful, thanks Udi.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
Your next question is from Ittai Kidron with Oppenheimer.
Ittai Kidron — Oppenheimer — Analyst
Yeah, hey guys, a great quarter. A couple from me, maybe Udi for you on the SaaS side. I want to double-click on that a little bit. Is there any way you can unpack this for us a little bit in the context of how is the adoption between new customers and existing ones? And with respect to new ones, is it bringing to the table new customers that you didn’t have access to before. I’m just kind of trying to understand how this changes the landscape from a customer standpoint? And for you josh, just want to make sure, on your guidance for the year, with inflational around, are there any price increases that you’re implementing? And if so how have they been worked into the guide? Thanks.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah. So I would say that the SaaS solutions definitely open up — have opened up and we’re seeing that proving new opportunities. If you take a look at the new logos, just the record new logos in Q4 about half of them will be what we would call from the commercial market, which is, are still kind on the small type of enterprise, but a new expense by month, and really across verticals. So the ability to be able to consume on Privilege Cloud and EPM SaaS and of course our CyberArk Identity, it opened up opportunities further down market. But then I would say, across enterprise, the fact that they can get quicker time to value is such an important player against this threat environment, it’s just really expanded, it tends to give so much optionality to the customers. So it’s really across the border.
Josh Siegel — Chief Financial Officer
Yes. And then with regard to the prices, Ittai, so basically, we didn’t do across the board because because of inflation increases, but we did absolutely have some price increases across certain products and services, and it is included in terms of the context of our guide as well.
Ittai Kidron — Oppenheimer — Analyst
Very good. Thank you.
Operator
Your next question is from Fatima Boolani with Citi.
Fatima Boolani — Citi — Analyst
Good morning. Thank you for taking my questions. Josh, this one’s for you. Just with respect to free cash flow. So it was nice to see the outperformance this quarter. But if you could help walk us through some of the thought process for calendar ’22 as you reinvest, as you accelerate the timeframe by which you are going to complete your subscription transition as well as some of the drags on maybe the perpetual and maintenance are fading away. Anything you can help us vis-a-vis those factors and how we should be thinking about the shape and the complexion of free cash flow in ’22 that would be really helpful. Thank you.
Josh Siegel — Chief Financial Officer
Yeah. Great. The cash flow, we will definitely see some seasonality in the cash flow, we probably will see it being on the positive side in the beginning of the year and the early quarter as we — and then during the middle of the year, it will go down. And then towards the end of the year we can see again some improvement on the cash flow. So it will be kind of strong in the middle quarters, it will be weaker than towards the end, it could be stronger again.
Fatima Boolani — Citi — Analyst
Thank you.
Josh Siegel — Chief Financial Officer
Thank you.
Operator
Your next question queue is from Joshua Tilton with Wolfe Research.
Joshua Tilton — Wolfe Research — Analyst
Yeah, hi guys, thanks for my question. So historically you guys have hovered in the 800-pound gorilla in the room in the on-premise PAM market. But if we move to the cloud, would you say your win rates suggest you kind of maintain the status. Have you maybe become a 1,000-pound gorilla. Any commentary on kind of the competitive environment and how your position has changed as the PAM market moves to the cloud, would be great.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Yeah, absolutely. That’s one of the most exciting elements for us is that we are the market leader, no matter how you slice it in PAM and then Privilege Cloud, the solution basically has, in fact investments caught up. And then, went beyond what we offer on-prem, so the customers can really get the full solution with the Privilege Cloud and we’re seeing great win rates and the ability for the customer, like I said earlier, to get a quick time to value and expand and expanse. I don’t know what that counts to give it there, but if we were to just slice it and say, hey, how is the leadership from a PAM perspective in SaaS we’re the clear market leader is there just like we showed up on the Gartner Magic Quadrant 3 years in a row. And in this space we’re seeing that the PAM players have been continuously disrupted by PE and strategic hands over the last several years of really didn’t invest in R&D, while CyberArk has continued to invest in R&D and innovation and continue to open up a strong gap. And then we take it into the platform, of course we’re approaching everything as a platform sale and customers can see, well, we’re starting maybe with Privilege Cloud, and also security on the Endpoint and Secrets Management or my workforce and vendors, and so that’s really another great differentiator there for the SaaS function.
Josh Siegel — Chief Financial Officer
Udi, I want interject here and make and just call out a correction. We said earlier that the EPM was 20% of total ARR annual, I want to make sure that it was clearly was 20% of subscription ARR was for EPM, so correct that.
Operator
Your next question is from Roger Boyd with UBS.
Roger Boyd — UBS — Analyst
Thanks for taking my questions and congrats on the nice end of the year. Udi, you had mentioned the impact of the tighter cyber insurance market, the tailwind. I’m just wondering to what we’re seeing there higher premiums, lower capacity. Is it possible to talk about maybe what percent of new deals you’re seeing being influenced by cyber insurance conditions, and maybe how you expect that tailwind to hold up in 2022?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Well, thanks for that. I would say it’s still the percentage that we put out there, it’s more anecdotal. But it’s coming up in conversations that as another reason. So I don’t think we’re dependent on those driver and initial performer, its an additional driver that’s added to everything we’ve seen before, so it is our understanding that organizations need it. But now they are already getting asked for different elements of Identity Security and Privilege Access, Secrets Management elements of MSA and protecting the workforce. And the fact that there are clearly asked for as a condition for cyber insurance is I would say are additional tailwind. We do expected it to persist, we think that it’s in margin of the cyber insurance companies and we know that many of them they are finding that all of their subscribers there in some shape of form getting attacked and they want to put meaningful layers in place to make to minimize damage, and Privilege Access, and Identity Security is one of those no-brainer layers.
Roger Boyd — UBS — Analyst
Sure. Thanks a lot.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
Your next question is from Imtiaz with Guggenheim Partners.
Imtiaz Koujalgi — Guggenheim — Analyst
Hey guys, thanks. So I have a question about Idaptive, it’s almost 6 quarters since you acquired the company. Can you give the ARR run rate is for today, then I have a follow up.
Josh Siegel — Chief Financial Officer
Sorry, I didn’t hear the end of that.
Imtiaz Koujalgi — Guggenheim — Analyst
The ARR contribution from Idaptive, your Idaptive product?
Josh Siegel — Chief Financial Officer
Yeah, basically it continues to increase. After the first year, where we saw kind of the migration into CyberArk we’ve now seen two quarters in a row just sequentially increased by, and I think it’s closing in and around the $20 million number.
Imtiaz Koujalgi — Guggenheim — Analyst
Got it, thanks. And then for the ARR growth next year as we complete the transition in the beginning and the middle of next year, can we see this for the ARR growth I guess ramps up in the first half and then slows down because now we are ending the condition and then ARR growth would converge more with revenue growth, how do you feel about the trajectory of ARR growth, I guess first half, second half of next year?
Josh Siegel — Chief Financial Officer
I think you’re asking about whether or not there could be seasonality within the ARR growth. I know, I think we’re not guiding to ARR from quarter-to-quarter, but we continue to anticipate growing the ARR every quarter, but we’re not going to talk about starting for every quarter here.
Operator
Your next question is from Alex Henderson with Needham.
Alex Henderson — Needham — Analyst
Great, thank you very much. So I was hoping you could talk a little bit about the competitive landscape and not in a way that I think most people are thinking about it. So there is a lot of blurring in the swim lanes with people like SailPoint not, and even HashiCorp fitting into your into your space, but my sense is that that actually pays resulted in an increase in demand for your products as they stimulated awareness, but not necessarily impacted their share, and in fact customers will see them come in, here they touch and then realize they need the technology and therefore come to you as opposed to going with the slimmed down initial versions of their products. So we are seeing a stimulation in demand for Privilege Access as a result of the lightweight competitive entry?
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thanks, Alex for that and I love your angle here. I think first and foremost, the increased demand environment and our increased leadership position that is based on merit having patent goes, the better products that address all of the broad used cases and definitely Privilege Access Management and expanding to Identity. I do agree that there has been more publicity to the space from that perspective with announcements of entry that of very early products that we do not see those products in the field and customers have heard of those pre-announcements and I don’t know how much we factor into the awareness, but the awareness is up across the board for any security and that may be probably some contributing factors, but the biggest thing are the demand drivers and all of these years of focusing on the customers and focusing on being a broad platform for Identity is bearing fruit for us in a very strong and better position, the strongest I can remember.
Alex Henderson — Needham — Analyst
Great, thanks.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Thank you.
Operator
And I will now pass the call back over to Udi Mokady for closing remarks.
Udi Mokady — Founder, Chairman and Chief Executive Officer
Great. Thank you very much. 2021 was an incredible year of transformation for CyberArk and I want to thank our customers, partners and our global employees for contributing to this historic year. Thank you very much.
Operator
[Operator Closing Remarks]