VRNS - Earnings call transcript Q1 2019

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Operator

Greetings, and welcome to the Varonis First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to your host Jamie Arestia, Director of Investor Relations. you. Thank

begin. may You

Jamie Arestia

Executive Good remarks, Varonis’ you Results. First call call Operating question-and-answer Faitelson, on operator. Financial a Melamed, today and to will Officer With joining open to the Chief Chief Yaki are review Quarter After today and afternoon. you, Guy for Chief preliminary Thank Officer. us me Officer; we Thank session. XXXX the Financial up

large and statements and would under in competitive and Actual may engineers; attract we to employees, conditions, transition close including to results statements industry trends and and to of representing statements. results able licenses factors data and to Statements, issued differ contained international section cycle release be provide time, including in sales make Commission. reports security projections offerings, considered in with such earnings sales or risks in that statements fully service and and today SEC reseller all such product perpetual more only the increased from Exchange and our the filings. important future under XXXX. our press our ability filed forward-looking the changes, may to be risks ending economic forth risk be as expressly risks we forward-looking Varonis and changes described associated today support as personnel as securities competition; During results investors this pricing competitive expand call other efforts that XX, including increased with environment, factors Forward-Looking basis; not of and disclaims and new subsequent expenditure our differ from sales build Securities operations; or model and federal associated views that application our statements release updates not on the in closing introductions general these market; related may including any retain the fiscal subscription-based undertaking of direct products; to a our should ability to for we and solutions; materially associated addressed to with a our relied These laws any encourage cause develop consistently large ability with those in to of for factors, ability business upon innovative transactions channels; deliver cyber quarterly are views December are set any including transactions, could risk as our reflect Important publicly date. made to growth factors operating or the second high-quality our in those our from actual captioned year and sales statements. any anticipated to distribution read These our revisions We herein. forward-looking quarter materially addressable our

which Yaki? that financial With can in release, section. measures over a at be reconciliation available quarter financial A Investor the turn our the that, call Faitelson. I’d Also, to website our section. call webcast Executive note on Relations in today’s Chief Investor available be Relations Yaki Officer, please like will of to the be the on call. in conference found is most this non-GAAP Additionally, also earnings XXXX first directly GAAP comparable our discussed will measures for www.varonis.com, press

Yaki Faitelson

for was Varonis. Thanks, and good afternoon, a everyone. success Jamie, QX

or license full from licenses of company, know, our quarter with XX% subscriptions. selling outperformed $X across it of we first revenues significantly you our coming million was expectations, the and As subscription

results. and but customers, so from very talk the about our it shortly, we with has positive. salesforce from far. Feedback partners early pleased While channel in We’ll what is our process, the transition with our are been more seeing very from we let’s are start

total quarter perpetual QX were were license million. were license services and $XX on maintenance revenues revenues million. our $XX and perpetual million, revenues $XX while subscriptions First

this in reported by very revenues a reported discuss quarter long-term reinforced detail further high the our for mix was had this would the quarter that this impacted few the above subscription subscription Guy nicely change value line approximately relative we minutes. Our greater for business. been the to of range. right small, revenues our initial estimate see are were will cost Varonis. $XX The have the in and customers expectations, revenues, for clearly in QX been license the that million, short-term this greater end strong as in guidance but adoption of we with our creating mix one our subscription first We the

particularly and begin America are adoption team methodology. embrace pleased the to in this North saw new sales with We sales fully the

guidance adoption by quarter in results the that slower, of Our contemplated our sales would our in expectations. Europe subscription the the however teams be even lagged

distractions Some to focus change, and this took because resistance of the unnecessary of was selling. which caused of

of in a and made we EMEA changes, have its model see in embracing couple advantages. already in quarter second the improvement and We this

better perpetual with model organizations, expansion the for typically with the To the a licenses off require time. over higher the customers takes that, by demand purchased only customers for to unleash number to more linear, While time protect first leaving that priority. our exactly licenses The to potential. what subscription was to provides platform moving room quickly convey quarter which pilot, protection as customer and will in will the want more one into model. we way transition, our is Consistent I model subscription the possible our see we of top and move which our be while and is driven quarter bat, are as not their than subscription

the large, an to of data wouldn’t could were medical patients When their practice, on to damage acquiring because the everyone HIPAA model, and able files our me servers. the serious we open exposed give wanted, originally were for offered of sell they concerned The additional independent also acquired in examples. company. products in their be They Suite they embraced subscription medical and reputation. they XX% support A six half plus everyone. Varonis, some with was were newly A showed the well insider with products breach to locations Box, Risk total. over in you locked Let detect DatAlert resulted we model, the million customer were dozens subscription Assessment to enough, win threats. the down and for them PII process their of have it in group fines wasn’t turned to able a their and a and

DatAdvantage With GDPR for accelerating are SharePoint Both buy licenses Engine; the initial more they and value business where customers control, the capabilities, them. with environment, more Classification our the and and sought process and in our and security, same customers OpEx in believe Online; and and define is our examples for examples, this data professional great permissions can model, can where shares they classify file protect themselves NetApp, who full for benefit accountability impressed subscription advanced plan offerings to The case to would from The subscription of data our in customer new additional our to major their These validate compliance are studies we customers sale. is it and At the road, ability Windows, unleash the can In customers’ a our business both our and data a on protection process and to using for stores. leverage was model, for the additional to and sizable of now remediation with play in visibility three licenses of their none. Data budget. to data customer two greater are the Varonis’ their Another quarter protection, to time, monitor are protect purchased platform OneDrive, many our be purchased enhancing on licenses to platforms. critical or a deriving likely sensitive Patterns to and these security second more of products owners. by technology alerting down large monitor will sophistication we and both value hybrid strategies, their positioned data role data. league have protect other sports that customer perpetual for

to other accelerated investigation and capabilities our to our top learning, platform threats to on metadata allow positives of Specifically, time technology the forensic miss that – connection – and false comprehensive machine and with detect framework data resolution. few very

and investigate and Our customers threats, Advanced detect conclusively insider external Persistent threats, attackers, malware.

new enables financial example, For of to a of fraud. one discovery investigation that Qbot, malware of our strain led a variant

on Our our particularly focused efforts larger are customers.

with play, subscriptions. new demand. The is platform by We underpenetrated existing customer can data and to The and that make have pending the them these sense on-prem, curve others, and larger They adoption rapidly hybrid regulations. and critical more them so can realize more pilot we to among elevating up a the within that buy has show, the and with, for the protection cloud which on results value customers, first of buy. that products compliance we can they base from proved want quarter the that ourselves economics and in deliver more we do through world, in the help moved remain and an

I is perpetual, first we to, this moving where in something expect we priority. and needed not this top quarters. to as and our committed flight we quarter convert next the can discipline over said, transition possible be are continue the focused. move in There is As This subscription the half to to is as were from we deals quickly making few in that dynamic

in the cycling the subscription more our extremely business. for the well the and more underlying first in me Guy. Regardless, over first are We also that Guy? The momentum and to results. growth past. flywheel of move let the stronger benefit is expect in turn With underway, saw we the the this the outsized short, from compounding momentum and In of to with to QX rapidly quarter subscription XXXX continue that, call Europe transition, are transition we the we model, revenue half XXXX. gains through our we pleased

Guy Melamed

today. everyone. subscription. first on full I’ll then what our for told I’ll provide details QX year through more recapping quarter begin trends guidance, transition an by last today would XXXX adoption transition want that’s quarter you on afternoon and to by unfold, we Good before we Yaki. followed second full quarter, our discuss announced we and they to Thanks, as open go our When we update of results, the I the Q&A.

the expected periods quarters. for discuss subscription if perpetual, the mix, of impact business future than I’ll breakeven and revenues is in Specifically, versus higher ARR the our expected on metrics, potential impact selling subscription

revenues X% year-over-year. For million, $XX.X QX, were increase total an of

were We million the why for move our validates to First This strong to quarter which adoption number, customers the customers. included expectations, and makes for for our $XX.X which Varonis. exceeded during both much subscription of quarter revenues. $X subscription existing revenues new pleased sense million, were over license so see license subscription far and

compared price in purchased our who pleased subscription the to products three-year with price a existing line in break first at from of number our we with even To customers, a half which including were list maintenance, you, second which exceeded of is customers the of list, subscription set licenses equals expectations. perpetual XXXX. to again remind the also purchases purchased New XX% We subscription pilot year perpetual, ran higher XX% period.

for three happy quarter, is years. subscription number and the to customers sales overall new was we’re a period This existing both payback with. This

been go payback through several deals. you, are can three quarters, nine sales remain it believe around these under levels cycles XX quotes for be the We we to larger months To have improve next for period can but expect closer perpetual to pricing. and that months remind our to as introduced the

the of quarter to Turning results, first from to expected the than mix back due XXXX, much license decreased our of higher XX% revenues subscription.

just will and As XX% guidance, estimate subscription been impacting underlying we to during but discussed, subscription in business, quarter the the over XX% mentioned, the QX approximately other license trends Incorporating the had mix that revenues end $X.X as our to beginning the our faster increase of $XX.X range. total math high million our revenues. guidance compared the to the with guidance, line Yaki services increasing by greater the that In period revenue of XXXX, have quarter the the a the we subscription of the compared period would as for understand in payback reported mentioned, Maintenance the revenues guidance at experience, the to the transition we above same revenues a I business. license stronger revenues near-term and We the mix were subscription, XX% headwind nicely last year. first higher-than-expected our been year. first significant Yaki were words, X% of our reduced million, to compared XX%

XX%. at over defined million are was not period, quarter, active million maintenance of rate annualized end $XXX renewal service. year, the Our at of license value was contracts end as Annualized recurring of that of to each first the as professional to XX%. or last deals revenues to all revenues ARR, perpetual the related recurring compared $XXX.X revenues and excludes ARR representing renewable, the growth related such again

first would results like greater discuss and our points I financial the I operational quarter two revenue. related to Before to in subscription make detail, housekeeping

line. to recognized financial that and is break in appears out line part first ratably licenses everyone maintenance Maintenance is The related in will as to now our perpetual subscription appear maintenance Services the remind Subscription the in item on revenues that and we statement,

and the example slide maintenance in for revenues which subscription to the investor subscription added recognize presentation an of providing have way deal. we we Second, associated our a

Turning results. back our to

business North as XXXX, revenues In of to revenues the million, comp noted. issues revenues. to Looking million the we America part the XX% to faced due as we where increased XX%, first XX% quarter XX% grew or representing subscription total of well geographically, challenging the revenues, in decreased in transition at $XX.X total XX% EMEA, $XX.X of Yaki

we quarter. Europe in comp the pipeline I would you like demand remind and the region again While strong, in is that customer healthy second to the difficult a face in is

in do our of in we with region. that sales subscription However, team improvement see adoption the

X% $X.X total of Rest World Lastly, were of or revenues revenues. million, our

year was up contribution XX%, maintenance existing quarter, QX in For revenues first the XXXX. from XX% license and customer first

and the customers, quarter, ended QX we During X,XXX customers. added XXX with new we approximately

EMEA. the new customers number by nicely of due adoption saw we lower in of subscription the the While plus grow total overall and the number customers XK distractions North is model new of in the to America, caused

purchased our as product had XXXX. XX% our As of of more from of purchased up March QX same of families, more XX% XX, XX% customers with the customers or XXXX, year. in or two product compared families last of XX% date three

that to investments ASC first $X.X losses out exchange quarter they with the the foreign to was the for Moving of revaluation otherwise slightly the of not million it. exclude due point in of to like true of We are to compensation. margin adopted of gross teams of total going $XXX,XXX profit million. first financial related $XX.X a for quarter given a of compared which was lower be quarter our to Gross lease unless in that million in forward, liabilities the a XXXX. the were XXX, in and transition, $X XXXX. exchange quarter to the the in related This stock-based totaled lower foreign income result foreign I’ll excluded first of I’d statement, revenues in expenses million are as of total Operating compensation accounting losses supporting reflect expense XX.X% first results and non-GAAP first Company. payroll tax currencies, the XXXX discussing stated, of XX.X%, stock-based representing do as performance Also leasing the quarter $XX.X standard, or associated exclude new gains expense

loss XX.X% result, or operating same a As last negative of XX.X% margin operating first period compared $XX.X to an of was year. or an the margin million, our in million of negative operating quarter, for $X.X loss the operating an

and move we is revenues our the move and during subscription on philosophy continue putting we our become. improving relatively to to our stronger transition. the the believe reported aware, will As pressure margins are The to changed. healthy, is our this our We downward not the cost while operating expect basis you do can positive does which term but we throughout has the impact profitability transition, margins, show position long quicker commitment through the transition, faster fixed,

gains. quarter, to to income the primarily income, of foreign financial in primarily we first to had due During XXXX, quarter exchange the $XXX,XXX financial of $XXX,XXX, compared due interest income of

and gains know, losses As you exchange can foreign fluctuate.

rates. consider does movements guidance gains other losses and and associated expense income with as not exchange foreign to estimate impact we currency any financial Our in foreign don’t potential or

of $X.XX million share, basic for was per net XX.X loss diluted and $X.XX the compared the diluted first share loss $XX.X $X.X net XXXX. million outstanding or quarter Our a per to loss and or and of for QX This a quarter of based basic XX.X basic diluted for shares XXXX, is of on first million and QX and million XXXX XXXX respectively.

marketable an subscription with customer Turning not deferred revenues and we yet deposits. short for approximately balance cash in with to $XXX do term contracts sheet cash balance ended multi-year component and associated recognized revenues the been One discuss has automatic have and which the the not as equivalents, quarter been not reminder – invoiced. include sheet, we securities the renewal million the

million, first generated flow We of to first XX% with ended $XX.X For operating the quarter, increase quarter XXXX. operating X,XXX million flow of XXXX. quarter $XX.X of cash from cash the a we employees, the compared in the quarter of

Moving to guidance.

subscription we adoption, percentage our subscription meaningfully we revenues. having success expectation the Given for with are now are as a license of mix increasing

year quarter of second be we expect from the guidance and up For XX%. XXXX, our full now this previous the XX%, to

$XX XXXX, For the of expect year-over-year midpoint. million of flat revenues second $XX.X growth quarter million, to the at representing total we

XX.X a loss to $X.XX. range and non-GAAP $X.X $X.X and expect diluted diluted and outstanding. between million basic operating non-GAAP We of and shares the million This million range and to to $XXX,XXX share provision of basic loss our in tax per assumes $X.XX $XXX,XXX

expectations. mix like I year and the remind factoring full full heavy, is are this QX everyone for into our year new estimate still As that we CapEx mix, for our subscription to subscription XXXX would

guidance, the next continue subscription and estimate subscription to we to our to the operating million few currently for given This $X.X quarters. At with we addition, adoption breakeven that the are that million though while revenues of amount. our our $X.X profit is payback period expect we we incremental headwind XX% discussed every assumes we will $X see for the reported expense same revenues. even million relatively non-GAAP adoption impact of time, on see incremental currently are and generate base math customer a fixed, versus is In trends I the consistent we our still aggressively trends guidance managing by metrics, we same expenses, top gathering

pleased we diluted to excitement year-over-year of $X.XX In and $X.X in million of provision XX.X now of full range expect exceeded at $X.XX. to per the the the and million, a with of our We subscription operating the full greatly XXXX, X% of assumes $XX.X $XXX of shares approximately basic and growth loss partners. non-GAAP million share As expectations, adoption we to our net range result, $X.X our and representing the in This revenues midpoint. were to buy-in our in customers, the diluted sales for expect be outstanding. total range $XXX results million and non-GAAP force and basic year year tax $XX of our QX of million to now summary, million a million loss the

While be to that transition, of quarter this we confidence targets in we year. able to our still execute against are the us the this early stages this understand gives

growing would a take be with that, we become generating while software to greater expect value our questions. customers, a happy for Operator? to we stockholders. platform forward, With our for subscription Moving company based

Operator

Please comes with first proceed question. Hedberg line question RBC with your of the from [Operator Instructions] Capital. Our Matt

Dan Bergstrom

Hey, Bergstrom To questions. Hedberg. Matt tracks than it’s with Thanks a expected. to off better much subscription got for start nice transition taking for Dan our the

anything surprised if the was adoption? given or initial different strong your you assumptions than Just curious

Yaki Faitelson

QX, thing be That the is when the discipline exactly quarter understood things. expect, there started Hi, several Yes. to with that just very know beginning first to what but we understood it. we well we the we to we at very starting – is didn’t need

Remember, are enter dollars are year So a very perpetual of we are entering – hundred we with million of multi really need converting the we the to we make that lot and deals. pipeline. sure discipline

And also that curve We assumptions regarding the all the their right the it that platform was fast timing. also right. understood of very adoption

it’s not OpEx. – of of a budgets still of our customers the lot have them any many inside more compliance – – becoming data and But So buckets CISO more for earmarked. and overall, we under budget budget Varonis protection,

that the strong So the discipline, high a the a we everything well recurring revenue have – business. be very of and in can we worked fully budget timing and platform, the level confidence very

Dan Bergstrom

subscription a then additions those elaborate you model. mentioned thanks. following some new there customer softer in some And you a Great, changes Europe bit? Could with on

Yaki Faitelson

Yes.

Europe But just managers to over of well to was change. adopted that on and a some Overall, of are we we was to and resistance we expectation. and QX and subscription saw we’re sure over but in something expectation. Europe. Without had everybody needed terms the We make everything going that to both on mix So quarter our a anticipated, it very a below great was direction was beyond communicate. would differently X% change reps in fairly be so pleased couple to in pace understand some doubt, that’s the right with we

Dan Bergstrom

Great Yaki. job. Thanks,

Operator

question line proceed next DiFucci John with Please of the your Jefferies. from with Our question. comes

Joseph Gallo

for this hear growth have mix. step trying last is for the subscription little as in saw guys, we’re Thanks license of John. calculate in seeing the range your line would what to question. Joe roughly the far to on reconciling the to as quarter. that then business equivalent of momentum? we we line the think the and with you’re growth thanks approximately that It But year, shy license for a when as results XX% was commentary compared what about quarter. into Is correct was business with end last the further, taking Hey high And XX% revenue overall the exceeded great for

Guy Melamed

asking providing we same to you? and have some same metrics Hi, investors a the and analysts we’re supporting that provide and didn’t lot for a of information finished were data of some the have of When now. we QX that are the but how now, lot the we

look price that license that at throughout we very factor and we with we XXXX that the factor subscription that of feel to we use have north very XX%, here. how with being good been feel and would that into XX% that that do X.X our we when first XX%. we of see perpetual good when the three-year price breakeven, QX that that we maintenance look at and And breakeven year at purchase, numbers, when So X.X

Joseph Gallo

Great. That’s it, and just touched you very XX% year. on helpful. moving And XQ this why was guidance the be on, you by then of subscription license quarter, but would impacted the but briefly reported quarter for XX% next

So just wondering next the lower a is in the we why appears percentage the for expect holding to ask momentum year. And reason you now quarter be business steady.

of wondering just raise would I’m have lower the year. estimates subscription to again whether percentage quarter optically for So the then and next

Guy Melamed

No problem.

very of. number So XX days a you’ve number ago, And all, first we very, is asked we’re we proud of XX% have definitely not a thought if us would of.

to still the means essence, in year year the basically transition. XX% off where With really as from can. said, of rip the of the And smallest to we is XX% a QX move quarter. ahead bandaid our aiming for guidance quickly the So that we’re as

QX being to The way quarter, flight a just we’re to QX kind I XX%, is see cycle heavy. like prepared at breakdown CapEx QX that in the being months And nine deals in slightly of of between with higher. terms have still this We we’re and trying remarks, we from a three is looking in sales the said months. convert

very with baking So we’re some kind of we’re overall the how that quickly what uplift happy with caution, with but moving in we this transition. and are

Joseph Gallo

for the Thanks Great. color.

Guy Melamed

you. Thank

Operator

Saket Our next the question proceed comes line Barclays. Kalia with with of from your Please question.

Saket Kalia

subscription. first my a here. taking you just Maybe for bit in thanks more little on guys, Hi taking Yaki questions for

some different more different little you’ve a subscription doing had maybe which the I to of full are adoption about really ones some a that maybe you and quarter really successful bundles qualitatively, bundles pricing, others? think are of effort. just you more subscription bit the of drive talked a those than that what now last using Can recap full of quarter tools

Yaki Faitelson

are Office bundles, We think have customers, some of we together DLS, classification, they popular with services protection configuration, off many buy of and of them definitely Edge, new a related for engine, really preferred and them ones just the to bat. automation can security that and bundles other more directory work but the more a right lot XXX

In worked well according to terms licenses, deals flight, and the subscription okay we also in of terms we executed of consume we because so in sometimes of sales, converting move we but all the actual apples-to-apples bundles number the want platform we have the all overall the way really the and up plan how that customers and it to that positioning the way are the to to plan. many

Saket Kalia

think Got But question, flight my it. for this last follow-up sequential more to on is for I on it related Maybe But year. QX, higher sort much on of and you QX looks it, healthier QX got expected. touched But Guy, to XX% that beginning at the the little slightly QX I just the a a the the that any touched perpetual. the ask and or in maybe very you slightly us differently. CapEx for being the year, Obviously being like why specifically? I heavy the you ticking through deals what still subscription think the you as of down we XX%, XX% that on down would any think cadence expect QX QX then shed sequentially, in than a than color Guy of off faster of licenses start percentage at mix

Guy Melamed

Saket. Absolutely,

how think we the all, so I and terms of for that We year of detailed and XX%. look half. smallest process fact QX we’ve And a thought with that still can. is have the put quarter talking terms, about fact put as we’re absolute are much really out transition first And really in number a we at this into the in a And so is and that selling it the customers. was trying XX% only to the at So year, that quickly meaningful just seeing evolution, new But just hard second, historically this. over the existing to worked as much and the last the otherwise. looking and QX to thought the still XX% of I you when percentage dollar proves reached wouldn’t point look we was from move when

We’re not portion. the maintenance converting

XX% new quarter do transition transition. how has deals. historically because cautious, is We we we’re and of good just feel year. QX lowest the very from quickly about the been But – that the just being very can So that

Saket Kalia

Thanks, guys. helpful. Very

Yaki Faitelson

Thank you.

Guy Melamed

Thank you.

Operator

with proceed Our next Alex Needham with question Please comes Company. & from your line Henderson of question. the

Alex Henderson

I year and was could deals hoping the still perpetual percentages started. in you the a we talk in virtually in that of therefore deal that a think flight? pipeline predominantly that fewer that with declines Or course came you year everything year. a pipeline? that to you are how and talk Do to of be moved percentage? about through the rapidly deals as you assume year mix course And are will Can fewer it those subscription the transaction. you’ll no of perpetual gradually thanks. perpetual over are the that changes flights and the that’s little bit I with the meaningful being exit the of related into the pipeline the perpetual deals over Great, flight year, the that

Yaki Faitelson

Yes.

Alex, in very and can platform what and First, be we subscription business we’re now based in what strong a giving talk see we really is what that this we of a is the is is can guidance at important subscription business. terms But confidence. and the guidance one percentage about

We have pipeline. massive

critical harm is extremely to business to the pipeline, any are customers. subscription. to start this top So massive want the we do getting said through as and to stakeholders, Having converting ways we disciplined the and we are a and harm which this move that, are in to don’t priority

So throughout we But the move to out. a will as pipeline and the play exactly yes, tell of pipeline, the lot year, more how be subscription. more you of it

a as more have lot a see, you reached we of time. we As provide days, will insight XX

the benchmarked companies, flying And And with I you a is really transition. moving colors. of so overall is forward guys have far think the transition heavily that a big

we will will careful. over continue lot customers, it strong. anticipated, we a are decade to want felt and well But of strong that be perpetual, massive make that very it’s far, again, so to just pipeline, And we we a

Alex Henderson

Okay. Well, question. address really didn’t we that

subscription different would traditional to significantly front usually automation included we as customer. a you’ve seeing bit that Let in therefore data closed you’re include because little installations, me our you engine that to install getting time based and look have a time other try on. the the model If as add them the and you’re that faster faster as is alert, well to that that I value talk at opposed angle. you about an the whether up and deals for value as sold Can automation more the your assume

Yaki Faitelson

information put specifically, when engine, access engine, and acceleration remediation, automation this but and will the just we yes, tremendous both of terms In perpetual the subscription. automation there’s in

Guy Melamed

XX larger add months. just And we cycle, the see of nine for cycle and three deals to to still sales the Alex, up that sales the months being to in terms

with haven’t We selling in any sales seen cycle change subscriptions. the

Alex Henderson

But reduced. does time yet installation the

Guy Melamed

No. subscription, selling same it’s so on We were basically time process. the

a time the period. just We’re same selling licenses, different for

Alex Henderson

thanks. Okay,

Guy Melamed

you. Thank

Operator

Shaul comes of next question. with line from question Oppenheimer. the with Eyal Please your Our proceed

Shaul Eyal

you you’ve resistance respect. of think that you’ve a in able the back dynamics, if quickly or color to to taking good overturn I Thank the west the change. year. different as afternoon, a you in more you should little to Hi, last Europe place situation us seen had as And what But year. was know you quarter can of third last provide in think Do bit this you. you that in similar mentioned, be with coast, done the do that gentlemen. Similar currently is

Guy Melamed

Shaul. Hi,

of give same was we transition impact adoption to slower basically, And did wrote some could as provide a color But as we Europe. we we expected we in what the the pilot. baked the me it incentives guidance. globally, on into did let plan our kind when when and the So Europe the was of

rolled on money. significant and make amounts year of a we the ACV year paid on when XX% the year from we we it’s paid reps another in two, So XX%. a paid auto still paid on But one. renewal on definitely on third this then auto commission can TCV and where on year renewal we And out, we pilot perspective,

discounts. together year in of XX% we one it kind to we’re sell where of sell were had, XX% all this penalized if get with and a And of other more two. that the year we of it kind we in rep subscription hefty money discount if the introducing that concept they have of changes terms Some payment make system, we the where and a in a right grading they pay – they

lot of teams European of with the of kind understand All with resulted had is the kind distractions if of positive a in a that Europe the the that rest. of, the opportunity. and But caused now in eye better Unfortunately conversations off thing ball. the We the teams. lot taking commotion

think in how believe motivating well Europe and QX. absolutely in factor. subscription be North better I a And teams we doing they’re will are – seeing sales that they’ve adoption America that’s

Yaki Faitelson

fast. to overall QX solve Remember, teams customers big transition is aggressively, undertaking. right are but Europe. do the growth, in a the do very And direction and it’s strong. To in XX% last The year the Shaul, this problems how yes, very we know we’re great, to are it demand transition good, was

to do will disciplined to make make and and everybody just want that top between. amend this move you to didn’t You as – onboard to everybody need and in sure We lockstep. this onboard flywheeling to we to priority very what execute as to early, is that understood subscription be, The that to sure ready just we this priority. be very and be is the and fast a need possible need top is everybody executing

subscription going. committed and is we are to this are where We

Shaul Eyal

Yaki. Guy currently is shifting number in if updated six of prepared any a of subscriptions, of to question, of Thank mistaken. mentioned that customers? numbers but you. per customer products average subscriptions, number brought or if I long number color I’m thoughts higher such that and number, it’s not been you’ve you sort you some believe them This products I think, both, examples But of one have adopted And do on I a even for remarks, you great even a aggregate, duration, know I think second my of your a up a customers

Guy Melamed

list I’ll break of unleash together. price including year at to the When color potential. some price we and priced also intention three Absolutely, in when that the you perpetual the kind maintenance. to for on – was moving list whole first And XX% subscription built give tied the we was the Shaul. year it to subscription, even, of I’ll XX% of

saw initially with is perpetual new mimic the between able were what to much where to we during between customers that we three purchase selling So new five sell what the licenses. under customers initial the to very licenses, pilot. We usually was saw we to to two license, four

which there, period be improvement nice to break very shorter. the kind So even of brings basically

On the that also the with selling continue well flip even to very work more them. But customers, our was side, in to slightly licenses break that the really, very pilot, upsell well that worked existing higher. period

way, very – kind with mix three happy both the the break by number. So is year of which that a we’re the of even,

Shaul Eyal

for you color. that Thank Understood.

Guy Melamed

Thank you.

Yaki Faitelson

Thanks.

Operator

with Melissa Our with Please next your question from Stanley. of the Franchi proceed question. comes line Morgan

Melissa Franchi

of the in to that in pipe due subscription. Yaki, came subscription the for the or you subscription Thanks original wasn’t come transition. do new was about How XX% And in my thinking just like to license. congrats the XX% question does that net taking feel offering. going Great. business license on perpetual that and completely

Yaki Faitelson

– converted. in the will in to to regulation was and lot want of us to – adoption behind features important licenses overall sure it was lot that They very other converted, platform. whole Leadership that security it unbelievable the bat and analytics go really – years they then for with North with And off executed. it the that job. it that team the more several make the the A perpetual Melissa. curve and behave want that passed want of new Hi, consume is right they cloud American that we did A consume perpetual are to we every [indiscernible] that understand vast to thing working. we customers to

demand. that within didn’t with lot very execute that and like we on I to tell pipeline subscription. XX%, of this it you that So market of customer a adoption was clearly strategic lot we ability to our where the and we fit the we but beginning that we the we can well lot automation that quarter, a is think a confidence of can’t curve, the really of can something do have the saw assist compare possible, our very

Melissa Franchi

the point. lot they’re channel sales least your you raised engagement on channel Okay, how they come the of great. to subscription, onboard, about U.S. coming a subscription in here the engagement fully a businesses selling about know subscription force talked talk I at And some at points, trust you or at of then most fully Can channel this are the in that

Yaki Faitelson

for Channel subscription a lobby we of the very from sense. of way bigger to than the much And it hybrid this And business. recurring are this works the catering world a well lot makes revenues subscription, new because is that [indiscernible] channel your much, partner.

So just works works for customers. our everybody, for

for it probably shareholders. channel force. believe works well And the also work partner First and we for our can that what works and foremost, sales very

whole just So stakeholder. chain for the full works the of

Melissa Franchi

Thank much. it. very you Got

Yaki Faitelson

you. Thank

Operator

Stifel. Gur with question. next with line Please comes Our the of question your Talpaz from proceed

Gur Talpaz

sales. my and taking say that this notion sticker being for the XX questions. subscription? last quarter you portion sort with that least to a what with thank it mentioned Great, in to of issue you now migration seen days, shock fair an you’ve last within Does license has at the been good Yaki, of of ameliorated so the

Yaki Faitelson

okay, can they years. but I right plan and the say I also and for Yes, want – more, this from is understand off next can well, say, now can This without it is they a what Customers get very they Varonis the three works. bat doubt. how

we to it’s multi-year on the planning. big use and the better platform, they We fleet very said, future and lot more much of a works curve sitting do have the and adoption OpEx well. budget and automation model want as they And a that

Gur Talpaz

going there fully when both and for for, ripping the and what obviously like of Guy. than the And early, a subscription? looking question foresee you A would know off is band decision period aid migration faster but of you a you be you of that. kind I anticipated. make kind happening it’s Is

Yaki Faitelson

both is but discipline, the is cater for us, This going. to and is of are we for know but need for management customer to But a happiness recipe statement, very subscription and subscription we that commitment not this everybody. is we We’re customer. our for our where we our – are for

this what we are So do. to is going

tell irresponsible. We very, are very, when not sell very be it’s to going are something you and But come not perpetual, now to to going we focused.

some think can every look here, do. at what working, just what XX at you us XX about we We is to give look So, give more the time, results, talk level of the how confidence, the sitting and happens in what last days, need days. we’ll color we

have as subscription We we of we’ll have a of days, these our the bring and done supply really terms right a lot more discipline things XX how just more in introduced see different give of build visibility the and and lot – ability of to as and decisions a color we place up. execute. you the Every

Gur Talpaz

Great. Thanks, Yaki.

Operator

Our proceed next Wedbush. with your line question with question. Please Ives the from of comes Dan

Dan Ives

thanks. Yes,

through this sales bad. I You’re transition? good of the your conversations throughout customers what surprised and as mean, you, question, So last with XX both my maybe days. terms in went you

Yaki Faitelson

customers we time have completely it, it with do is these customer led, strategic – about, doing ability CapEx EBC main business earmark not always – It’s Also value our all predictable. like you of call much to that, becoming are still we said with thing the ago most these budget a and and funds and are for still we to becoming just sense on budget. the on what once – but is the as QBR how I that lot and plan, makes most spend more you for them we customers a customers there know it’s it’s the discretionary big years two

more it there plan. already, there to the and the customer market a us. is also supply need the need is We make like demand, else stuff The to of sure very be anything than lot But I about related executing is what me is the surprised mid-February the how overall we good, lot market that the to move. a to discipline, reaction everybody are this speed they, but the is are think that very and disciplined the was we of be it. learned, would overall that’s very

Dan Ives

Yes.

then, just Okay. maybe a And follow-up.

coming I the find six transition are back come of the it new that transition? starting was and of like think that most because but now kind to into maybe ago deals there’s now just that are the deals terms need in deals what customers pipeline, you did cold are you? to asked, that months of I we’re guess

Yaki Faitelson

to, buy, is XXX the automation us. but Not licenses – think have definitely head the actual the they needed huge engine, we I curve, overall OpEx can transition. wanted From more for more adoption and and budget customers which can definitely that that just that

sell can security customers we So the side. in on more and come

very security the customers cyber the of and can on and use and to the alerting OpEx and is buy So positive. compliance really the lot and they understand infrastructure a and effective cover data they a then and platform all remediation subscription all look reporting

Dan Ives

Great.

Solid transition. quarter in this Thanks.

Yaki Faitelson

you. Thank

Operator

your question Suppiger next question. with Erik comes with proceed JMP. Our Please from

Erik Suppiger

the deferred question. the How $XX kind contribution sequentially. revenue bit think a billings taking of in talk we can in the we Can you factor $XX about, little for deferred thanks million from Yes, what from to million could declined your of billings revenue?

Guy Melamed

XXXX. the of at QX, all, in right is XXXX to the is terms of it way So deferred, the first that I versus Remember year. look QX think QX, of largest the quarter

you XXXX, compare slightly close you was be QX look deferred would the ACV to portion. only QX, at when there, skewed. And includes it that XXXX, QX, obviously And to so QX if the So XX%.

breaks a deferred and Deck the the we deferred in part So not it’s that the three we of a amount. Investor part fact slide kind down that and – year we renewed, of years three have have two the auto the recognition year – our with sell only portion. and can the, deferred, of The

that been third the that hasn’t is The part year, of maintenance first only part recognized.

terms terms the So it’s actually very – deferred. good in growth of in of

Erik Suppiger

difference has more scale the Or using terms initial the consumption a Okay. back, that initial size, has they has, have a some license? than perpetual Then given of have customers that made a purchase flexibility secondly, model difference? customers the a the in – based made with deal would

Guy Melamed

license. questions one purchase licenses of in perpetual then talked bought under customers the they the initial that really that potential under model the new usually fact in So, the unleashing in the more I the subscription previous about bought what

on licenses, a we So perpetual it three close four was where breakeven year between that three that on which to it subscription basically between to see five shortens two was to the to, used period. license

QX. look upsell that this It’s were side, a and those at together the three year Many licenses the number. good a we our we of at flip and On years three that buy the over happy licenses to which the of very mix to model very at taking through period, through in the that with. see and more us that slightly happy continue the bought breakeven as our well. seeing existing When two the – unleash for they’re breakeven side, which and period puts upsell was we’re advantage model the customers existing of very customers during pilot potential on happy we

Erik Suppiger

good. you. Thank Okay. Very

Guy Melamed

Thank you.

Operator

Our next the line of from question Ruykhaver with Baird. comes Jonathan

Jonathan Ruykhaver

that, the could a don’t My have what Varonis in products do to catalyst deliver on it will functionality and buy, that of and Yes. be that X.X within functionality I’m full some wondering particular that understanding Version Data three ASPs, is if they enhanced dashboards Security higher dashboard? the you true? could that of need the talk to that about is within Platform, customers

Yaki Faitelson

X.X the far related and direct to for and was GDPR. terms and exceeding our of monumental well XXX. milestones lot dashboard that so There services in of us expectations. enhancement very everything for Office is dashboard the a infrastructure Version the overall to working it’s also But

believe So once potential. it’s GI of, you Edge so it working on we – very have and on this retained well, obviously, is that that top platform has we had well tremendous

Jonathan Ruykhaver

relevant attach Do XXX dashboard? you SharePoint to data data for higher classification, OneDrive, XXX a Office that advantage which are see rate all around Office

Yaki Faitelson

Yes.

a strong rate. very see so, finally think we that attach I

Jonathan Ruykhaver

quickly how you And installed happen anticipate X.X? to Would base that would rather upgrade quickly? good. Version the Okay,

Yaki Faitelson

Yes.

I give be But, that’s have, by overall, the but – I starting give yes. think going another and days upgrades I are of more confident the actual talk XX me about and in have a will to evidence do to able It’s us will we more we it. physical well, version.

far our is exceeding working great, expectations. So

just even So much monumental for value. so as customers us it’s a I and said, milestone

Jonathan Ruykhaver

That’s Thank good hear. to you.

Operator

Our Rishi Please of question. Jaluria Davidson. next D. A. question with from comes line proceed the with your

Rishi Jaluria

with license, questions guys, Hey is thanks really a me for housekeeping let I we with maintenance details. professional No, from Does no that, then it a statement? considered nothing perspective, subscription ARR, taking that’s be just fair And all my this disclosures that and start track appreciate and and guess that the other services. subscription maintenance like buckets and that, recurring, would correct. on recurring

Guy Melamed

Yes.

Rishi Jaluria

going rates then, to Directionally how growth two forward? Okay. to so grower. the we think Great. ARR last been And thirties is about ARR low quarters mid then should

Guy Melamed

this looking is the we’re quarter is, and we’re with know, first So providing investors transition it you the we as said, to we metric this happy part analyst. and of the ARR at with would as and as share

higher about to subscription, through Yaki we can And in progression. quickly the number Looking that as obviously, more our move as kind of desire transition, the very doing will we so. be. ARR Obviously we’re the at this sell is can talks and committed that

So increased in to QX, with subscription grow year but the number expect throughout the mix. we we we’re, happy very to have number the continue as that

you exact as numbers look and and will and the progressed hard expect, we’ll right now. So give continue they an it’s for guidance me we to But at grow. as to we hopefully,

Rishi Jaluria

which should elements, be or on there that Thanks. certain can color then and meaningfully line, we the yet, will helpful. I Just that there’s along decelerate item to with included you give grew And services maintenance year-over conversion line understand it’s negative? we helpful. expect on a meaningfully still really as professional That’s the it. well. quarter. But Got the not -year just turn perpetual know just but which I at is direction any even this point

Guy Melamed

question. a That’s great

we the the of subscription item Now impacted. license the breaking the in that financial of maintenance maintenance higher are that the is and line out the item subscription the the both perpetual should of subscription. obviously, including and we and statements that higher the we’re sell mix, maintenance subscription line The be

for go item line would quickly on we and to side be definitely expect it how I the can perpetual that effected. we that And pace depends there. maintenance transition on So the

Rishi Jaluria

you Got Thank It. That’s helpful. so much.

Guy Melamed

Thank you.

Operator

would management the we for and the back question-and-answer of gentlemen, remarks. Ladies call to I reached session, closing like to the have and turn end

Yaki Faitelson

and I for partners would support. like for joining customers forward you thank soon again. to continued us you looking to today, all speaking our Thank we their of are with

Operator

teleconference. concludes This today’s

disconnect now for lines this time. your you your may You at Thank participation.

Varonis Systems (VRNS) 29 Apr 192019 Q1 Earnings call transcript