VRNS - Earnings call transcript Q2 2019

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Operator

Greetings. Welcome to the Varonis Systems, Inc.

Second 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. Instructions] [Operator

you this over recorded. Arestia, to Investor Mr. that turn will Director is Relations. conference the your Arestia, conference note I being now of Please begin. may host James

James Arestia

review Good operator. for today Thank Thank Varonis’ you afternoon. joining you us to

Second Officer me the and Officer. are Results. Chief call and Guy With Executive Faitelson, Operating Chief Officer, Financial Melamed, Quarter today XXXX on Yaki Chief Financial

the call After to question-and-answer preliminary open remarks, we session. up will a

business may projections XX, make and be statements results During that this our federal including would ending XXXX. forward-looking to laws for call of under statements December we fiscal year quarter considered related operating our securities third future

materially develop contained and cause and our forward-looking could product model our anticipated large that including trends expand competitive environment, Actual ability from innovative support solutions; direct to to in time, with set security to quarterly retain and results general as in a sales a the those growth may to service increased risks large competition; personnel and and differ ability changes expenditure with addressable and in in cyber industry subscription-based transactions on sales transition and economic results our able and such the changes, with efforts transactions, be data forth distribution increased not introductions closing in competitive engineers; and market; risk perpetual high-quality sales materially operations; conditions, associated from ability attract of including including may consistently close factors to our those statements. actual cycle ability sales statements. risks new including provide our and channels; factors, the differ from for to basis; Important build employees, reseller pricing our deliver products; licenses associated such or we associated to international risks offerings,

the in reports under Commission. press Statements, these release section Securities factors fully Exchange the the and and today with that risk factors other we our issued addressed earnings filed in more important captioned are These and Forward-Looking described are

We reflect our of subsequent only as as not of encourage These should be today all SEC our filings. representing as upon date. relied to any our investors statements views read views and

Varonis or to or revisions any publicly expressly any herein. release disclaims statements any application undertaking made updates to forward-looking

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

note please Yaki in available I'd section. webcast call today's like that, Chief Faitelson. our a Relations turn Yaki? Executive be Officer, of to Also, call that will on the the website to over With our Investor

Yaki Faitelson

we transition on and faster we success Jamie, Thanks, you am excited are ever everyone. afternoon, to imagined. good and today company. to than subscription is could having It the with a our update I proceeding better have

license I pleased QX, of that from subscription. XX% report For revenues our to were am

XX%. and XX%, complete far raising for Today, stronger business we put we When much quarter the greater a the predictability. transition, full year XX%, XX% continue from a raise building of this such we we us are to timeline the to we we ahead mix, guidance again obviously guidance to expectations traditional a shorten the our and to with our to schedule. visibility year of XX% that exceeded This mix raised XXXX so said are ago, a

changes in a EMEA also are we a of We pleased the very result had QX. quarter made solid that as

knew we estimated license very in are the platform. as revenue XX%. business In was we overall the healthy, QX subscription the our of In we North Most is and we potential subscription normalized that above both growth unleashing way the for in fact, could; full America and reported mix. EMEA short, with percentage were line is growing importantly, the subscription

but I’ll more our on touch about results. shortly, let’s quickly business growth talk

total quarter subscription revenues just revenues the QX were subscription second transition, were quarter the we our $XX.X perpetual to revenues million. generated model. our million. confirming Second of while new customer revenues than license were $XX.X In $XX.X consume revenues, perpetual platform license under demand million, more the

mix Maintenance quarter. QX, impacted line clearly revenues been perpetual Consistent mix provided, of the We XX% guidance with license end the were have $XX.X high we with the estimate approximately license above well our larger subscription QX $XX guidance. million, our on our that and reported been revenues this revenues million. revenues services our had the of subscription reported would in

Let’s talk more customers and growth about the platform. some our who are seeing, and are model from we that the benefiting of of transition, the subscription key drivers examples

Data continues all and across data to increasingly stores, in the on-prem creating an environment. complex cloud, explode both hybrid

never a the are solutions high-profile regulations, With has of we the number for seen, been face important. breaches pending more priority data-centric compliance of In current and have CISOs.

discussions infractions for in starting GDPR customers companies’ platform. our can financial compliance consequences of Security full and we many fines value up We for the are have see which opportunities that to thoughtful with open results real and reputations. for concerns demonstrate

to DatAnswers against a also better investment on to With They was regulations. able pinpoint the for with went to added for information to data Windows eight. as Edge GDPR large and maintain has licenses under breaches, four GDPR. Europe access Patterns purchased example, since well from current better company For compliance our relied requests in customer customer subscription and offering, safeguard Varonis who XXXX subject as SharePoint,

Act, into where their California GDPR Another environment who and response customer, a with risk, they sought capabilities. Consumer data blind. sensitive Without were work access, and non-profit to detection had reduce the their visibility major and organization, HIPAA, threat Privacy boost resided in and compliance toward

to initial support and buy them They allowed will DatAdvantage Data in Classification Automation risk, to and and reduce our subscription Engine and, licenses will breaches, also five data detect this of Engine with CCPA their GDPR throughout environment. use sensitive regulated as to model DatAlert identify course, deal.

years Assessment found files provider three up over access under healthcare nightmare organization, spent Varonis. the a user data. a and clean global every XXX,XXX Risk example Data entire folders A recommended large trying down potential partner final X,XXX This open in and sensitive groups trusted A lock to sensitive is HIPAA. that to had regional

With up weeks. could attackers global how access our Varonis opened that Automation Engine, Edge, clean of eyes a tunneling, within we data. dangers DNS we With stealthy showed the way their exfiltrate sensitive to very

six protection, business and subscription them and data instantly model realize in premium allowed benefits purchase concerns. Our licenses detection, compliance threat three to almost

can buy over words, time. expansion platform large have, initial the and leading deployments subscription Through the to to In who the more subscription both initially quicker, model, number continue and is upsell realize existing other deployments. much with licenses value we we of customers the of can broader of

group. This and attention and in over is customer quarter XXX of is with year. approximately this time, to in first We Almost have can X-XXX and added adds added we this focus in versus all of us and happen the our larger the that strategy last line initial XXX saw customer half new this our with the commitments time who expand the on make customers year delta customers quarter. in

we to come remain from remember Additionally, revenues that whom existing our of with customers, our it half underpenetrated. is important

greater in analytics. more We are to focus we right and efficiencies much our becoming see the efficient significant spending and these expect translate as more coverage. in strategic customers on from our leverage This with to model, time, complete customers These time security will them curve over protection, subscription awareness have and sales and full data compliance the transition. the we up have provide value moved greater force as we the around customers our larger a adoption of can

secular the serve We come. confident have and that as technology changes see and for a approach, proven that we we tailwind years trends to and industry a are should

our subscription which we can discipline, execution. As are study The how results and quarter rapidly we to demonstrate case we to focus have well be top said, this subscription in moving to as companies that and successfully possible. as underway, move a requires want priority, is

customers Our doing are salesforce this and sales who channel are would to ever. happy, and embracing our transition than leadership, better and and thank like I partners

allow same the is to transition we will potential time, of reach as scarce, more target, addressable the At sales believe the and platform. asset unlocking we $X quickly the efficiently billion are ours, market our the and us our is truly

stronger a a strong and half look second of to XXXX. stockholders, value for forward greater building we with are We long-term company

me the call let over Guy? that, to With turn Guy.

Guy Melamed

Thanks, Yaki. Good afternoon, everyone.

This quarter’s to compared XX% of revenues ago, total revenues and maintenance XX% license revenues, highlights representing a subscription compared include year license a perpetual XX% of ago. X% revenues year and subscription representing from to total

dollar period breakeven adoption with maintain even higher continuation significantly a of the increased to license of a subscription, amount the trends. and three continue We year

The platform for while bottom this. the our our The unleashing potential line delivering greater value long-term is transition is stockholders. of

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

our XX%, of with nearly so included $XX perpetual second Second $XX.X revenues. customers revenues subscription subscription revenues quarter only quarter validate of sense to for and which move and continued transition, In much Varonis. full again the were revenues. license for million, makes license Guidance we why was the million outperformance, subscription our exceeded the this

saw basis. QX price This which perpetual year break in and our factor you, revenues we maintenance. yields QX results. normalized including remind XX% list subscription even between set on price period, which and was X.X license our subscription growth list, is To that breakeven to a the XX% three-year XX% period, Using of three-year equals first a a

four new to happy the Subscription more via licenses five subscription. and than buy And in and initial remains adoption under customers average QX, we existing upsells to with as old model. saw for deal, both customers existing perpetual opposed purchase on and licenses three between new to like two strong customers continuing the

$XX.X to services make revenues comments to I last compared like were increasing Maintenance line. same the services year. and few about maintenance and would period million, XX% a the

included related in statement. subscription subscription maintenance everyone, in to remind financial to our is line First, the

subscription at associated increases, license once rates renewal licenses expect less to level. Second, high perpetual with exceeded mix and revenue. them expect again these as on we perpetual we maintenance stay revenues Maintenance our XX%,

of professional the low component percentage included small services single-digit in been Lastly, is historically as a a revenue. that maintenance total has

and to we smaller partners more services greater take going forward, this professional licenses expect on services our become channel We even offer work. provide that as component automation as

revenues, ARR, perpetual the to license recurring contracts licenses key companies, maintenance performance Annualized is related a in period. defined of at as subscription for or end plus the value reported effect term-based the active indicator of subscription annualized

to model. as compared last ARR time subscription As a $XXX.X million, we representing This increase $XXX.X million of of the was XXXX, transition based same XX%. license the strength year, XX, the growth reflects at of to June business

representing Turning that for XX% region back total revenues million subscription geographically, mix. $XX was XX.X% mix revenues to of business or results, to of to at total reported $XX.X revenue. million, our revenue. increased our with the in decreased X% looking XX% North EMEA, the In But America line

embraced fully World now Our in sales have EMEA noticeable. is across impact revenues. total business and Rest teams $X.X model revenues of of and million, transition, the were world the the X% or

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

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

our up XXXX. from families, As of of purchased June two or XX% at year. compared customers time XXXX, XX% XXth, purchased more last of our product families of XX% customers product QX XX% three same more or with had in the

of Moving which to of income from results exchange and for expense. like dollars. to in out point $XXX,XXX compensation unless stated, and QX I’d non-U.S. are revaluation otherwise related expense I’ll differences of stock-based excluded losses $XXX,XXX Also FX to $XX.X denominated exclude discussing the going related forward, million liabilities foreign that in tax be the assets statement, payroll non-GAAP

Gross $XX million. Operating million $XX expenses in to second was representing the a the gross quarter second the compared of quarter of margin second totaled quarter in XX.X%, XXXX. for profit XX.X%

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

subscription and with other The healthy transition move results, a operating impacts have and to we the this short profitability side to remain come profile. margin but out of believe of been committed our term we will

of quarter income. income in of the $XXX,XXX to of interest had compared XXXX, income financial both due During the $XXX,XXX, financial quarter, primarily we second to

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

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

with quarter short the ended we million marketable sheet, balance $XXX.X equivalents, and in the securities to Turning cash, cash term-deposits.

and generated impact compared from $X.X transition, a second X,XXX six short-term we see million We $XX.X flow amounts cash operating we of the with XXXX. the months in XXXX. flow a quarter flows. In therefore are collecting million, the months six For on of of to first the ACV this on cash first X% ended XXXX, operating quarter employees, cash increase of of

before growth The mentioned normalized from demonstrates is Before to year in found rapidly and the we few this I a of Slide to and slides guidance, we mix presentation the into in above I originally are that expected, visibility new would revenues have website Slide turn have note investor showing business. at additional IR revenues provide our XX, a of added QX. XX more illustrated our for strength and out would our to subscription XXXX. section revenues high our the license guidance. first half of X revenues end subscription we X XX% mix stronger and real building comfortably how that mix been represent and illustrates that I of sustainable perpetual approximately of business. license maintenance this Slides QX revenues the for of show The total in growth subscriptions XX% substantial QX the

to Moving guidance.

of seeing Given the with are for a expectation subscription adoption, as we increasing are license our impressive results percentage again, significantly mix revenues. we subscription

the For $XX.X approximately to the expect million subscription in revenues. third we XX% quarter, or mix be

a be substantial license the XX% our million. mix now previous $XX subscription is XX%. year, expect revenues we from the This For to of a increase as percentage or full guidance of approximately

third the of $XX.X we quarter million For revenues total $XX of million. expect XXXX, to

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

like more our to guidance. provide on would I detail updated

basis what We third our are raising effectively prior our for versus the a guidance. guidance full-year in normalized implied quarter on was

we million guidance, incremental $X.X we assumes to will every of headwind we Our factors guidance estimate versus revenues to three-year X.X a expect which X.X. the QX equally subscription generate million breakeven, a Consistent conversion a we this, $X reported our expect QX, see that to for impact with and we still million factor for X.X conversion range between and revenues, margins. $X.X operating and to

expect the to to loss the of $XXX.X the in total in and million loss range range now of for basic $X.XX We of full-year $XX result, net a As our million $XXX.X $XX $X.XX. the XXXX, we non-GAAP share expect million. now million and revenues full-year diluted negative non-GAAP in operating to to range negative per be

provision million tax $X.X million This assumes and diluted outstanding. XX.X a $X.X shares of million and basic to

for Slide the investor XXXX on have We our guidance our remainder summarized XX presentation. of of

excited continuing of and of the the the are by our In guidance. the summary, business QX committed to about We raise feel confident exceeded strength QX greatly we results fully subscription expectations, our are and transition. implied

Operator? take With we’d questions. be happy that, to

Operator

first the DiFucci Jefferies. line John from from question with comes proceed Please your [Operator Instructions] question. of Our

John DiFucci

I Guy and Thank Yaki. a follow-up a have question you. then for for

thank all Guy, you information. for So this

us the is a this given this It's thing helpful. But lot You’ve all, that quarter. one to all doesn't thing sense makes revenue me information. really sense, make of but deferred it one in

what on subscription being would an we higher revenue than for. what with subscription instead better bit a Like than been a for a looking maintenance, deferred price were little annual of I mix we're and looking of it thought than greater would've basis less have

talk can to So of that? sort you

Guy Melamed

Absolutely.

the are forget part component not year in second our revenue. deferred and deferred of our auto third and deals So impacted by revenue our move our that renewal subscription don't, is

been portion the the not only So, licensed portion. hasn't we first-year recognize maintenance that recognized,

And QX when our for the single kind actually So, this of and that's a been digits. down you it's revenue, story went at which look deferred with revenue in at while. look long-term when to QX, kind that deferred compared of is long-term way XXXX in-line it's XXXX, you

impacted very consistent is by it's the So, and transition.

John DiFucci

Okay.

said you here. something that actually So just helped

accounting, an an even from portion of recognizing because those with of there's upfront XXX – deals. ASC you're subscription So license

So not differed, so in just That's the that's very the helpful. that's you, from subscription, that's It's maintenance deferred. actually thank helpful. a that,

And Yaki.

So just last, in it's can Guy, a waiting lot sort this fines and have up it's the discussion often just Yaki, had and certainly this we the I really to we've been it's listen, and a year whether GDPR fines. I but two month, had, to major of hey driving said, one drives some you And British fines. it like don't we lot a chime people bite of One know revenue, early, Marriott. and and being month and too, a talking been the over on meaning lot about comes just know, this BA you've Airways major and so half it for GDPR,

And I'm hey sales is these being levied. happening like come I getting just anything, it really point? that from we're at and soon, detect the back but have that on noticed anything backend fines listen, has inquiries more force you this Anything curious that major your of you can know

Yaki Faitelson

extremely threat predictable that general they platform. project are still we understand old three budgeted John. used consume sales protection well. the data worked are and the and more detection the subscription more early, significantly, cases is and everything customers perceived the becoming in how significantly motion compliance it's working Hi the we And doing just tell well, see and with value can very strategic. can you Like I becoming in It's and but these just that more

and and advanced Act APTs And are breaches terabytes everything have is have unstructured GDPR, you have Everything data. organizations California going now working, Privacy of us tailwind for spend terabytes that that's the working of working you many the We the for really, this us with people as a well we well losing around so and side, Consumer the can extremely you reports. the now the that they curve its in subscription seeing understand, getting us. right see the time C-level more and and integrated business people, on adoption dashboard, more really very GDPR, the timing customers,

really So well. it's very working

John DiFucci

Thanks guys. thanks. Okay,

been keep it’s that ride, certainly So remain this has – interesting just certainly way. we'll an will

So everything. thanks for

Guy Melamed

you. Thank

Operator

Capital. comes question the from of next Matt Hedberg RBC with Our your proceed from question. line Please

Matt Hedberg

lot lot the a subscription quarter. getting thanks. Well obviously And traction there. of better done a Yaki, guys, Hey you're was expecting. were on than revenue we the

to to pure wondering, option and continues also to maintenance look licensed sort of contracts. you maybe get to on I'm here contracts this mentioned subscription subscription? contract an a plus isn't mix Guy just increase, As point we XX% rates license renewal to and maintenance a buying going legacy are where convert

Yaki Faitelson

execution. Yes. still But we We we going are customer that most bought of with customers It’s on focused need careful subscription them Definitely is just better be X,XXX – have almost well. to relationships. anticipated. transition the we early. Matt, than And need so the much very we the it's going perpetual. intensely

But and we us the $X every very we the tell and So predictability be come But underway that statement anymore strong [marketing] we're now, subscription, now you sure will to sell this have of. billion shortening perpetual. to that business from subscription probability to that in the get it's and to for I are and all [ph]. make definitely that to it fastest increasing time can’t a the and be with we subscription indicators bold a are in not definitely deal aware will transition sales trying is the

Matt Hedberg

– of you which the the sense. the bigger XXX, you on further there here. about into level seeing to market? of customers, And that these alluded new even a seeing I you to needed sort of so That's are penetrate the in we’ve it zero you talk you've are the sort additional deemphasizing investment follow-up, Are maybe call success investments then dovetails are shorter cycles could about great. of – these of larger success, customers contracts which talk guess, was subscription, then makes lot high my maybe seen there – end are and the to the

Yaki Faitelson

sales same, in they time. – the sales just So cycles upfront relatively stayed buy cycles more over can

that So but of this budgets just to sense. under a for protection the contested. us and they so customer and us for definitely makes still We works for for The a the the APTs, can so sense that spend of clear Officer, the subscription us economics us, have we but well from DPO, the of the lot lot they don't barely automation is everything and finding data many related for the get buckets makes the XX the sense, very for have lot budget just how to more, competition customer. makes Compliance CISO move a there’s it much compliance, it’s it – just so wants path licenses single all budget customer. that with time makes move us predictable to with and And every

Matt Hedberg

it. Got done. Well

Operator

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

Saket Kalia

lot offering that beneficial getting it's Hi Yaki an the the Clearly, I of value a I and about that the subscription selling what other on of beyond reflects products that customer higher guys. of But my in initial has customer to realize a been customers you versus than the just are in compared Thanks what feedback more in finding the I'm first. guess, curious subscription subscription, additional for here. execution. points them for sale. are meaning pricing the upfront taking on that sort benefit success for Maybe perpetual. questions course, is talk you, subscription?

Yaki Faitelson

remediation, more too and don't end, exponentially and value. on the platforms, holes. they pricing and also end more how overall the reports of fidelity licenses overall byproduct They have cloud, when support – a going in clear understand going of package expand. the amount out with on it's this is massive The visibility, what can to with And is end value customers ongoing can data can many the bigger can everything have is many to going they in one they we they the and as value At to more buy and going of when alerts, lot have a infrastructure, time are high definitely when automation. is are automation get on of value. on is to classification when Automation the and the in they different other what's automation immediate data the for them – security

enough now compliance So we and the and precision to the the consume they this threat – subscription. on they we threat just And understand security, very what the this demonstrating is off us. form is everything just the automation everybody and a We fast bat, around want we when to execution. sell to benefiting respect This insiders from problems really them licenses and right diving this this lot and what going advanced disciplined that's is visibility. really once and they And very of are strong have remediation is product, see platform. transition in awareness,

Saket Kalia

it. Got it. Got

even, existing just that at It's little higher as subscription you, XX-XX. talk potentially metric about you for about if a Can business, just the becomes being mix bit range could mix been about it forward, of that impact going in customers? part as license maybe But subscription guess in the even I all? we For think from how an we've same seen of you about follow-up, generally my just bigger of talk Guy. that can –

Guy Melamed

Absolutely.

are bought four we five customers buying in to new as look of And compared saw first-year price behavior purchase the you first three including model, that that between subscription perpetual list price XX% So two the licenses. to at of see licenses perpetual what customers, under when we’ve to where maintenance. priced new remember, we XX%, between the they the list definitely as initial our you

what than which years. we So ability be from is see break-even that see period we our that XX% three a here break-even break-even that lower that three-year of is period,

very embracing healthy But under are subscription of the that years, that consistent this customers slightly licenses the this buying very, that adoption QX. higher and pilot, break-even. a in to model saw the customers. is QX and gets in mix our transition three-year happy and than we're during Existing is but us They're of with very break-even that we we saw existing three

we're the them. very adopting customers happy with So new and customers that are fact existing both

Saket Kalia

Very guys. Thanks helpful.

Guy Melamed

Thank you.

Operator

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

Alex Henderson

your context wanted much I wondering implied why of if its a conversion transition I actually that in that the the was deck, rate period. to you you question quarter go just reasons lower that you the of and through quarters, budget just but about the ask could other in imply in hoping a fourth versus was lower to where quarter or year-end a Thanks. you slide in Thanks. flush, that's back talked subscription helpful. that assuming be could go would I

Guy Melamed

Absolutely.

some So remember, as you mix. the subscription we when gave commentary last quarter we gave guidance on

the in to then QX be low XXs. expected and quarter to last be QX expected XX% We

year, mix good that great actually subscription we're for doubling second reason doubling the and of indication that we approximately this approximately a we're about transition, that's very part the the So that's the feel percentage.

that quarter. QX commentary CapEx is we But similar to last the more weighted of a gave quarter,

We three-year year. to X.X. to just we reason don't very mix be feel taking to this cautious. good about happy the increase the subscription at break-even very we're second just and factor, of we're the part range and don't of for of QX bit our QX, want the that that's know. for we But So X.X that X.X by the And transition on and we part expecting way, conversion the to factor, know be a which just is that

Alex Henderson

makes sense. more Yes, I if question it good One could.

$XXX,XXX say, would three-year does what So you over subscription, and compensation seen three roll to does pay, through that the this the the to to sales channel approach, salespeople? just that say, does with How hypothetically respect transaction, so Varonis as a with otherwise? customer sales guy a how deal change a agrees years, the on have

Guy Melamed

want don't bore I but XXX, with the expense revenue to commission everyone to simple, keep to very So, death recognition. it match with the you

portion, when would – will the we years, would in ratio. maintenance we the shipped again, first-year in three, then year ACV license year the over $XXX,XXX which in of So be you one, have ship for then that commission if portion, we would the $XX,XXX and which quarter the your take we three invoice we about $XX,XXX, recognize have recognized example that annual maintenance about is period. be if and license same the I again, $XX,XXX And the the and

matching revenue and do of XXX way principle the you commission, and to that's So kind between the this. requires the

Alex Henderson

in is how how So, year compensated that salesperson is the that's it, XXX requires but one?

Guy Melamed

No.

detail, want the in much that that a second-year – the portion and into So is a payment. one collect we we portion rep too paid have get in I sales – after have but year two is to paid don't year

Alex Henderson

I see.

very Thank you much. Okay.

Guy Melamed

Thank you.

Operator

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

Shaul Eyal

be Thank understand billion afternoon, when Congrats committing as Varonis over results. doubt you. the the single-digit, timeframe. is it at in double-digit Am do past about on profitability and without be Good a longer the up zip code. anticipating; $X margins? course double-digit, the this to quick ramp I would I we the shift looking But should subscription, a think about down of road you revenue we we Yaki, to the imagine a operating level vision probably should term gentlemen. with in we correctly? few specific quarters company, of that seeing talk what a we're without

Yaki Faitelson

– Look, that our and sell But on-prem a a of very a just base. lot end, that see a have customer we licenses what overall from come from platform well. play, works the would to in Guy answer lot the about just going and with just code of think zip lot spoil I the about of data value the my to a subscription of fast I are over revenues we cloud lot let very to – be. business,

we XX% business perpetual the On have rate. and just very, can we We than very think more unique subscription renewal that business. a strong very be

forward. better make is important we the act also these that we so more very, us. over balancing And very of time, all between much becoming that we're inching days, possibility profitable subscription, everything And much wanted the And can growing, sure, and with just we efficient to being efficiencies. for believe constantly realize

philosophy doing fast this didn't there. wheel, going change build in. much we we to fly as us Everything will kick possibility the now, as it's So better a can are give

really are on very it. and on we So the is focused this overall philosophy executing

Guy Melamed

transition, to back that. growth we've just as exit XX-plus-percent. on the we comfortable in seen this to the we We very Shaul, going And is revenue that all that levels said add which feel along past,

it and I license investors specifically think subscription that provided of that having kind at how businesses. normalized compare sure we growth look understand of quarter, QX wanted we a basis this when and apples-to-apples, strong to And to of you make the normalized those only approximately really a good. like but only – transition. XX%, years, is this know in happy I And we're quarter been feels for in is quarter. that. starting very our with don't kind very third third of this we've We're forget, we're subscription our of the mode

Shaul Eyal

Got it.

that's sticking Okay, bundles And major That's you're converting Any becoming preferred fair. that the as seeing subscription. fair. customers? with more by to shift

Guy Melamed

is going perpetual customers their customers already try to perpetual existing in not we license. to what seen and China to and don't mode. convert we're the licenses additional willing convert subscription that to customers existing go to So existing are they buy subscription. from actually under we But What own have our them

Yaki Faitelson

automation. Engine, with with connected it case is terms Edge the Automation of and XXX, where much data everything. in the depends it license more It pressing just can more is so analytics mixed the and everything what be for is the you customer content the with on and be use can And need classification

Shaul Eyal

Good you. Thank Congrats. Understood. job.

Operator

the question question. proceed Morgan Please line next with from of comes Weiss your Stanley. from Our Keith

Keith Weiss

the for Franchi. in one of the side on subscription. Weiss equation the It’s you question. execution sort for on wanted Melissa dig of Thank in filling I and taking the one guys Keith

of Europe hold you guys terms execution execution hoping, first and in the kind On about give capacity are you year the how kind side. Europe the half your sales update the changes of feel I us an in guys been how doing in can you on taking execution, kind was the and of and put the into place how that that's of of

the kind likely you rate be level there's to Where to that, a be equation, of normalized today? customers see ramp, term I've existing I in this ramp in it on really it’s fast perpetual should given go versus terms and of on of out ever not over is subscriptions been dynamic? QX How commentary do that intensive. And think subscription would CapEx pushing fact of longer and subscriptions. about the the you're we fast kind seen side to you think transition But subscription starts the what or customer given towards the agree your a anything as base

Guy Melamed

potential our We're mixed. to let the at QX happy unleash that purchase is that very allowing we kind I'm looking at And I'll the subscription happy. in that European this performance, of that much this allowing very then platform. and transition team we're year. utilize to in. mix look front. When really and very the the this we're the in mix. the more them start adopted up chip Yaki utilize salesforce has with part line second truly has the well and customers I'll reported about and very happy happy our was We're of This in customers done of And with very EMEA, subscription licenses happy So adoption

terms those but buying customers QX of during offering. existing customers and we have or the existing we go where saw and In are ahead. QX, subscription Yes, enjoying pilot this does this as

were And That's well. aiming That's company. that very subscription see to we're we we be. what So a what we're targeting. trying to be working

Yaki Faitelson

moving working extremely their have But we play, and in extremely are just well. is subscription need very it's the in Guy from overall This and just, the of are the excited which we this transition well. in more transition, is customers said, platform budgets as the visibility. the empirical forward working But early QX. the option working. we The is As evidence are budgets

you say. telling are we exactly what We

the with do same will We the fourth quarter.

are very to We careful. we just prudent and a then be management need

Keith Weiss

quarter Very nice guys. Excellent.

Guy Melamed

you. Thank you. Thank

Operator

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

Chris Spiros

is this which security Have competitor centric increasingly landscape you projects. are noted prioritizing data still actually competitive frequency XX does quite did Hi, transaction you in the that the awareness does Gur. Or a degree? encounter that altered you a Chris and low? remain CISOs for this on Yaki, Spiros trend have the increased

Yaki Faitelson

It's saw security of lot past. we saw see in than well than approach for and slow. the very centric working we Yes. even a But data we It's less awareness its us. definitely for

Chris Spiros

another adoption one both DatAlert continues and of Yaki, growth be And impressive. for the Data Engine to Classification

five Engine, benefited subscription new which now solutions from that Classification adopting have to outside Data noted this of most trend? customers You've the licenses average, four to DatAlert and on are

Yaki Faitelson

Yes.

of DatAnswers. them. all to think we doing very related cloud is I with XXX Everything well for well. us. as and overall doing nice all is The Edge that the active deals with compliance directory that a very UID, see

we really from platform. the are Just all benefiting

Chris Spiros

Yaki. Great. Thanks,

Yaki Faitelson

you. Thank

Operator

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

Dan Ives

thanks. Yes,

there? think So have I of seeing one six remember success I a overall we’re then the key over perspective, one start two you the months? or –maybe can never things driven many can me give look, us, maybe this subscription quick last I'll trends transitions from code the that

Yaki Faitelson

Great.

tremendous engineering achievement for automation, understanding Version first innovated facts. the that innovation market foremost. investment is condition. works It the and just all is our We a the value very way This First and get the us. X.X monumental in time. well in was the And right can the they in in foremost and just customers lot

for is use the sure to is will XXX% well. thing very use and have this business people We to we cases, they is extremely we execution. sure made everything working very in that were curves motion that so works working not very did be. that – licenses strategic way – all focused places these the adoption we understanding the How And that make that will the the and the company sales both, cases So that on quoting move premium the the these second are that not is we're very motion to sales well, also the the well. things, works

and just is attention first fitness to to and just they So the said say – market foremost platform we condition detail. of the is and that intense execution great the just after

Dan Ives

overcome And few do something quarters. think you hurdle the Great. then has been maybe next to and biggest what the

that you're think If about you cycles hurdle in sales to terms move you biggest the partners, of seeing think what the or would subscription?

Yaki Faitelson

success just right is do They something this to no single they is and think – hurdles. of small many we are many, lot day that see. every small The things only a

don't our most We important priority will sales sense the got need which here partners – the the we be to annual we revenues You subscription much is just possible. that and of happy some a of just force as customers, I for know, thing. just you it primarily for a we're lot are but And and makes they heavy, keep move for and know for to to top lot you QX, how doing. team the because CapEx what every the in leadership doing talked in employee them is mixed all tell the also fast company know will as sense

Dan Ives

Thanks. job. Great

Yaki Faitelson

you. Thank

Operator

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

Rishi Jaluria

a maintenance subscription It's that no component related converting have partners and yet, great more to of year-over-year on just the services wanted you’re deals I And But guidance the talk it basis? you we as Hi QX Thanks if I out for there's services with the you, my can us What existing much little just maintenance some to a is you perpetual then so of start for to decline full just taking on on why very question. guys. transition. about and see bit from implied year-over-year related kind in subscription a offer continued itself maintenance help line not Guy, the the guidance. not maintenance you the will declining more understand to subscription perpetual progress you line. automation headwind you there’s decline box. really, QX. and to go subscription that on through understand since interesting to year, can

Guy Melamed

line obviously item maintenance subscription is subscription remind And is part of components. look the so the maintenance maintenance said that at as sold line, very two Absolutely, you portion the everyone services when portion, comprised it’s that by the there derived and you the in of perpetual and are sales it’s important of P&L. to the

related and maintenance the thing maintenance to in line license. to is what’s from and have related perpetual the only services item, professional So, what’s services you

of When will perpetual one the as reason. are, XX%. consistently we be license and obviously, portion quickly maintenance rates on been over that’s selling impacted the we’re as renewal So, moving our have

with So, very happy that. we’re

automated for services professional be side, the out low-to-mid that professional go that second actually two main digits and POs. offering much on that services days from to less of single is own of their And and revenue. yes, On VARs so percentage days some the requires our slightly doing it’s is side, those reason our that’s are more license seen we’ve reasons; the the one on historically are down customers, that becoming in professional services used our total

So that’s seeing the part reason we’re that, strategy. our of it’s

and kind normal with of that fast it’s happy with trend this We’re transition.

Rishi Jaluria

opportunity, there about business, another given a at I but but I be think CCPA going should awhile to it. And kick actual major of mean, then Got has you’re that? think something just, contributor as or get about over equivalent Thanks. that And the want – perspective, That’s thinking to the it’s sure that whatever you. how been is for an this that from opportunity, to clearly, kind an could is thinking tap at, in, don’t Okay. just I’m actually we to take be state be time, GDPR helpful. and CCPA it’ll to I awareness about but to important least ways GDPR to be opportunity

Yaki Faitelson

trying see. have very predict overall very a and laws this digital are that we And that we No, diminished we never strong in and can a will in the the just consequences privacy universe is it, economy impose, world productivity. can you and tangible digital without you cyber what way, massive but to you tell

how get values few from and every and open data it with see privacy can about day what one a will you newspaper and the and security is election we every think thing. You this big data happen

this like something think need midst the that see. something really that coexist in to security sure information; is you think is I can with Varonis. have in productivity And the we of and that going technologies it of I this the make explosion that to order you’re

two, and next I top sense for what makes board every So, tell tell – for and I of organization, mind will you us it that what can awareness you became signs market this enterprise. quarters. tell that protect do into the you, protect we it just if up I massive to And driver business more is can happen than. will because go also believe can it data, three in you this the and But the every is you – a the or can that you like more

of companies very, to and before, mentioned that regular come works them. our well very supplies we this from like is something like all As Marriott, British Airways for

Rishi Jaluria

Great. Yaki. Thanks, Thanks, helpful. That’s Guy.

Guy Melamed

Thank you.

Operator

line Chad Please next of Our from your Bennett question comes from Craig-Hallum. proceed with question.

Chad Bennett

Thanks taking question. my Great. for

part when effectively, it a will we’re model quarter the like conversion perpetual right? right in is but I still revenue this fair subscription XXX. right? say the recognizing year look throw that accounting on under we it under lot I of a year subscription a subscription so we year XXX, pace of do of relative run it but to is be it’s or had significant on normalized when that. back accelerates we’ll to if good, out we’re on volatility mean So, know two kind booked because there, in that But the rates license, term the be a change, when then. rec? look companies kind process not quarter-to-quarter as to Because – that’s even the revenue don’t of out line second to And a water conversion, license into And you’re or a of

Guy Melamed

several So, in – answer me let ways. there’s

misleading and year When their subscription of component, year First when a they you three. only you three-year when renewal think way, it percentage by recognize look way when And talk that recognize license at impacted of portion When slightly I the the you kind we the three, the year look it, subscription other and is the transitioned maintenance one. they two recognize year at with you’re of being year and all, that’s provided requires companies of first same you license ship kind period. the that portion one-year We XXX have you we XXX, of recognized about did have to that over don’t and two comparing XXX shifts mix, the deal way. because have booking. the you out present of basically auto

And it’s recognizing booking the provide very it portion. our transition on mimicking essence booking one-year we’re way we color, because similar, don’t the that the So, only would representing perspective. but recognize of basically and you a is

will you three So that from from but that ratably, have two come a significantly of that of revenue because more visibility, the maintenance see you and year is recurring the shift predictability component, year quarter-to-quarter, recognized and us. to because

Chad Bennett

we think was I to it converted much pipeline subscription subscription Correct. about year? That booked was year-to-date, conversion that exiting Right? you then the the versus possibly how from performance if appreciate pipeline last guys license perpetual and just color. And that of recognized. new based net

Guy Melamed

our it’s deals, on three to nine to months. cycle is up So, between XX months larger sales and the

the the to deals, think So, most or when you perpetual the socialized customers. the provided under either pricing been during customer with perpetual it’s and year, have of about quotes evolved, have been pipeline the the way

see, fact going change, the to licenses. buy customers allows you having I’m And actually go customers. because back those is to force to sales back it and as to our it can are quotes, change So, kind the more under them offer And embracing opposed to value are four would they – to three prepared that new than five licenses of as customers perpetual. recognize significant are The to recognize what remarks. them between more two to allows the customers buying

but the discussed, has customers with through we to either important been price. been throughout well, still that even going or that’s is that very pipeline perpetual XXXX year, working it presented So, to remember are introduced or

Chad Bennett

then maybe I the at improvement, great mean improvement one see Got sequentially. to it. market last And one, EMEA

here think I we the speak. Thanks. up alluding model you to on feel to fully the kind sure, like to just so be adopted has want knock do make but should this, we are into would guys I change EMEA right from of and

Guy Melamed

Yes.

Chad Bennett

Thanks. Okay.

Guy Melamed

Thank you.

Yaki Faitelson

Thank you.

Operator

Ruykhaver question. your with Baird. proceed from Jonathan comes question next from Please Our

Jonathan Ruykhaver

last from performance. I Version question of we it adoption continue positive quarter, at with are of on but for X.X? you and occurring one and on hear strong changes within congrats answer only data really asked because to be then within respond but rate adoption might you having Yes. And data the impact to where for provide Varonis of the feedback X.X, hard regarding can enough can I just significant broader question; the have base the events might subscription amount to which that that these increase just the to license this installed a this similar on underlying channel the occurring that kind be the also, data see the around ASPs. pricing,

Yaki Faitelson

like very The you is upgrading buy the base much overwhelmed fairly X.X. – well version cases reflected it’s working easier well as in them to It’s working customer all more version licenses. just and used fast very said, are this for to

Jonathan Ruykhaver

improvements you some to and speak could automation you other the the from channel And hear users. seems that of around the the quite be to maybe, just incident Yaki, made That’s if feature to attractive response. we end

Yaki Faitelson

Yes.

organizational edit terms we I user based various perimeter machine we think, level, on what reliable bypass you a of the once really done and starting behavior on the the of that we’ve have, streams security, the the learning in lot models just analytics, in users it’s well. the data, VPN VPN everybody organization of service directory, active mixing everything to and and using proxy, with account. analyses working the critical understanding and how extremely from And then lot really classifying and a DNS is content, with

alerts a that and and able will some sophisticated most good very after also ability are human-readable attacks security give advanced in knowledge did forensics. to sure extremely make So, be very everybody to do basic our catch that the that,

effort well. something starting new understand to analytics behavior that user and us. level surprises. well. starting really work I and extremely it’s investors and just completely for working it’s that is good place The very works it, we is subscription, a call this can of And we surely the very slowly, Like this put customer extremely realize was organizational that lot the that exciting that because had think And what also on a is to innovation but

did just extremely just that team it think amazing. a analytics, – security So, works what it’s on here well, what I the

Jonathan Ruykhaver

very helpful. much. That’s Thank you

Yaki Faitelson

Thank you.

Guy Melamed

Thank you.

Operator

closing We question-and-answer the management the and of the I’ll remarks. reached to end now have over for session turn call

Yaki Faitelson

would and quarter. we like for think work Before contribution the our I success call, employees to the of end our all to hard this past

thank partners you and all and continuous like also We joining them. against would we’re Thank our today forward of customers speaking for all with to to the approach. us you for looking

Operator

at This concludes you may you today’s participation. lines this Thank your your conference and for time. disconnect

Varonis Systems (VRNS) 29 Jul 192019 Q2 Earnings call transcript