VRNS - Earnings call transcript Q2 2020

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Operator

Greetings. Welcome to Varonis Systems Incorporated Second Quarter 2020 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 this conference is being recorded. the to turn Arestia. host, now will conference your over James I you begin. Sir, may

James Arestia

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

should upon as any any views in statements described filings. forward-looking date. These are relied related these representing our of any and encourage statements laws, to business this future call, Due make disclaims SEC During statements that to Forward-Looking not obligation revisions Varonis quarter securities may and Statements, to be expressly to differ under will from our results a other release our fully federal number operating undertaking third Commission. forward-looking XXXX. captioned read including forth Exchange actual our considered September our any we Securities the all we important to filed of are investors that We of the XX, statements ending risk section those results materially more be the and with under only factors, subsequent our or publicly earnings for of as as or projections today press updates views factors made forth issued set in These reflect today release in may reports herein. factors and set such statements.

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

Yaki Faitelson

Thanks, I quarter three Thank before call everyone. cover joining topics our results. I afternoon, XXXX and you over us to will second turn today discuss Guy. Jamie, good to the for

an finally, First, of how our second, the environment; what in long-term. trends current update we and the business believe seeing will seeing QX; we for are Varonis the over benefit we’re

engaged. environment online is and we and financial well risk our team and activities prospects been continue customers thoughts While delivered which strong and COVID-XX strong The who virtual the are inbound executing continue in are second quarter working extremely Virtual our see all those across team, impact with this to results are part and interest. well our many in of and have to assessment affected regions.

always, continue As return remain purchasing of believe second-half monitoring normal XXXX. we the will and QX in in patterns the that to saw diligent in the we we business, more

never been the almost the now globally. trends part transition competitive seeing is environment to a environment all like that massive as has a serving to is position. company in much and are the providing over unique long-term are a a to our with platform us visibility a revenue in to new we profitability. financial the today in better on caring, is subscription the that how XX% clear we the second to current it the position, to one-year turn and stronger I mix plan quarter, second capitalize allowing subscription from enter the tailwind standpoint, And our from a would we time, on current As us this better and believe world. of We Varonis in year, a navigate

data have companies on the environment. pivoted April, and continued work powerful now a related elevated The risk The business laser-focused not security today. but even from uniquely this As are stemming emergency platform we us on employees’ sensitive make normal. spend risks this from positioned continuity, in is are new, data safety home overexposed and reducing from them to to more to discussed risk address inherent urgent new

a external and employees endpoints, from customers, bad and provides home As much employees hackers an are company access with critical data employees. for used still data COVID, example, we prior capabilities. investigation to protection resonating their unsecured worried outside of frequently the dangerous the from X,XXX directory, ransom. of both believe computer in elevated risks the than facing time, Teams employees they in platform problems. X,XXX Varonis environment both data across threats alert, habits. and five has of remote our for as alerting our are a extremely enormous as the more had customers sensitive more bypass to normal ever. security same worry with threat the data actors company time, seeing worldwide is routinely perimeters customer This about XXX expose persistent all about system is been weaknesses data, attack and advanced the Today, users Office to well and industries is and handful accessing faced job it CISO insiders. of it to same to a Companies about offices At opens offices, and and Organized threatened vulnerable remote going sophisticated new worry sensitive At to why hackers, This are same hold active VPN. to on-prem and a warning the as the threats existing

the was saying We is the and customers our is to license of double-digit it on quarters per a that priority customers path list now very high spending clear than Varonis few are ago. for just

large call compliance a with global the security signed we this QX I few manufacturer the have that of a and in us. to needed wins up ensure to Guy, Before show demonstrate GDPR. important enormous customer I front data want that highlight quarter turn We opportunity in to

Office and just to Varonis deriving addressing risk virtual customer detection an because support platform compliance. our larger demonstrate customer integration. data our During investment and XX protection, more quickly superior able a on-prem making and the This a and to architecture threat cloud assessment, initial environment, XXX licenses than more This and is of new purchased our Varonis transition new one of in value model. response example subscription to was

rates more several became they county in perpetual data COVID, on a cover open well This coupled took opportunity crisis XXX significant We new fueling allowing over expand Data protection. XXXX, trends that agency within ones need the for the expansion the open offering, we to their seeing strategy subscription incremental increases platform lifetime due customer the from of our this with who renewal. see remain is we When to time underpenetrated migration company. a and meaningful us in the Office an a licenses plans that migrate up Classification has significantly X.X to adoption believe they them current go-forward all While value XXXX, all example automation timeline across as expansion access buying and renewed DatAdvantage, an by good is speed which additional folders four larger to customers existing In can the remediate to to base, greater cloud represents drive everyone. January, engine, for licenses our to purchased subscription of example we’re A includes the the ahead advantage base. our in excellent buy offering quickly adoption. departments. customers, and employees. and stores, This million allow of issues as providing U.S. with in cloud to is who confirmed platform And with we of the our for Varonis engage are opportunity cemented customers, seven should

our year, to to As intensified we call on that unique the turn only of very Guy? the look over that, ability COVID are Guy. have With solve with capitalized we problems the this by let me long-term to back-half opportunity. and encouraged

Guy Melamed

all call, hope quarter, and your afternoon, for us safe given spent Thanks, everyone. ARR on by I revenues. time execution earnings to pillars into of providing driven our that business Last insight quarter about I compared healthy. the XXXX, some from the Yaki. you Good the drive today. recurring and think families Thank COVID, three you are second on the focusing joining how the uncertainty across we XX% grew our our business.

maintenance customers, of finally, First, our new underpenetrated; existing and licenses. landing customers; of second, expansion time where over with extremely perpetual we still subscription both the renewals our are and

of to customer new to the perpetual front, adoption the see This now the fact to the due subscription we model, We model. to consumption executing are On partially a but greater double on under a to high-quality the license due customer model. of compared new is average, ease five, number also our see licenses average close strategy perpetual logos. on for of subscription we what we the new saw under is acquiring roughly that continue

customers. acquiring a be of logos On strong lifetime from our level side, the strategy to new is and also continues generating value, high-quality there expand greater engagement of existing

XX, our growth a our year customers from ago; licenses, employees volumes to or XXX of larger see a value As purchased rapid speaks of more these and or adoption XX% more up of six XX% year the from ago. XX% more licenses, XX% from June with up purchased metrics customers platform. of or four The our a

now time us purchase ago; more, from revenues ago. portion Turning allows up two XX% were QX product year total XX% through a year in XX% of of a stronger a to uncertainty position. finally, customers much up from of or three our and this recurring of all XX% purchase the XX% or nature. recurring more, move families. our to from revenues And

and of to maintenance As XX%. be of XX% above licenses QX continues the renewal grew at mentioned, ARR year-over-year I rates on perpetual end

rate, Our greater end was dollar-based QX. XXX% the retention or of net at than NRR,

the quarter, ARR for and this now NRR provide on of accounts to NRR from annual an we customers, As all plan in basis. growth

results. revenues quarter. much quarter Turning second to our mix were despite up subscription the $XX.X XX% from this the Total higher headwind million,

were To Maintenance services subscription to professional and $XX.X you, on partners line remind our of our which was quarter $XX.X a more Second $XX.X strategic services work. revenues channel or included million, take revenues, item by million have this impacted million. license were decision XX% revenues subscription mix.

X% of X% of business EMEA, to revenues. grew revenues world the In XX% America total of revenues were $XX.X XX% to or Rest $XX.X North representing at $X million, million, revenues total million, Looking XX% revenue. grew of revenues. or total geographically,

I’ll back payroll forward, Turning point like gains statement, be exclude to to associated losses. the that results going as FX and compensation tax, I’d non-GAAP as well stock-based discussing and income continues out to which

gross of notes issuance margin convertible quarter of second also our second totaled to Operating Gross related a quarter of going exclude second the quarter for the $XX.X $XX.X This to non-GAAP debt quarter expenses and compared in million. the forward, discount in the XX.X%, amortization results million, issuance May. XXXX. XX.X% costs was and representing profit in

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

Our travel and C, marketing outperformed QX A, well ahead COVID-related guidance, we: of business. the benefited B, the primarily management line; from as activities; operating on and our prudent margin to cost of savings, continued top expenses meaningfully across was due

During interest by of our income. expense interest primarily convertible offset partially the quarter, financial on due approximately expense had we $XXX,XXX, notes, to

and $X to million equivalents, successful proceeds the a shares Our sheet. diluted basic with on million basic We per includes diluted $XXX.X the quarter in XXXX. for early of the a QX second convertible we for May, net offering or $X.XX and share $X.X healthy for already loss outstanding QX of basic compared of $X.XX XXXX. million and shares marketable This of million quarter XXXX, securities short-term XX.X XXXX basic loss or diluted diluted and ended loss net second of loss deposits, net of $XXX.X quarter per an debt based placed and million was share, cash million, XX.X and outstanding strengthening cash the and which is balance in for from

impact of of $X cash operations of we transition. in months headwind million the from X,XXX a the used last six X% reflecting second from with generating first ended to employees, increase the quarter the shortfall subscription the revenue of quarter cash due $XX.X the to year, from the For the of XXXX. the first and COVID same operations, million compared XXXX, We period in from quarter

guidance our of to XXXX. Moving for quarter third the

to total expect $XX We million $XX revenues million. of

tax $X.XX. in million diluted This We $X.XX operating share expect net to range our the million negative basic and non-GAAP and $X loss XX.X provision loss between per shares to of $XXX,XXX on $X color basic range expense and convertible a to more and non-GAAP negative outstanding. To guidance. assumes notes of approximately million to with associated provide diluted the of interest $XXX,XXX $XXX,XXX

possibility volatility With we First, the effects said, and XXXX. and broader what we of of future, the see investments direct gradually results for low-end potential foreseeable macroeconomics market, considers a the the that guidance for of business given given indirect the resume COVID. in to plan in the QX

remind of in the apples-to-apples QX, second-half everyone to be in year, was XX% more in want I Second, subscription starting we that where the the mix XXXX. will

well As accelerate front result, flow of want opportunities the not us cash margin impacted. while growth, of running be has order naturally business summary, percentage philosophy ARR advantage a changed. growth non-GAAP showing improvements, will generation. the as to in We in operating our as to In of take

second back-half a our you as the on executing remain is XXXX. take to close loved and happy year, strong quarter And us we be your team that, hope the joining would today. And and pleased with to We healthy. of to Operator? results. we questions. on ones for Thanks With the we look focused are safe

Operator

is conducting be first will question-and-answer [Operator Our JPMorgan. with Please Auty question from we proceed with – session. Sterling a question. from time, this your At Instructions]

Sterling Auty

closing the to that guys. Hi, Varonis Are give interested, understand thanks. already increase. and seeing solutions? more environment statement bit in projects color you your wondering us Yes, you I’m priority now little other budget actually taking But solutions was companies solutions that the Varonis Yaki, that I demand are if I’m started deals? to existing for just on is has on budget the spending from are for. purchase this that your for could particularly a there

Operator

Please lines are your make sure unmuted.

Yaki Faitelson

Can you now? us hear

Operator

Yes, please.

Yaki Faitelson

in nature, we’re capacity starting and of that lot cloud. So remotely from fast from VPN laptops of have talent, with we things risk to lot work the point, and to scarcity one returns at understand Office urgency have XXX are add just around this of to And not the this tremendous just after this of this they data working a in from visibility a many customers very on-prem repositories people of saw home Teams, a adoption we need digital of that in to order access And urgency lot that acute it. and of can and really, in transformation only that diminishing automation. provide

budget budgets, – and – and budgets. project risk we one can can these not almost it’s see insider the data So terms organizations we protection have earmarked, and in just completely always, – the of cloud the from but of fund get we that for a Varonis lot security, can and of we

don’t cloud risk. spall, the goes So becoming you place, on-prem have it’s it’s just the huge they priority. by, – a all the see that bigger the they if And workloads in in organization data understand and like connected that have everyday to something an

Sterling Auty

follow-up one Guy. then And sense. makes to That

of that just revenue given later we bit on the you saw some pandemic, to the around comment as But quarter. the Obviously, of given you the would the linearity? what business subscription to So can give little expect in us a anything linearity and whole? color push results, just strong a

Guy Melamed

So back-end there this norm. quarter but our in unusual of were was loaded, there like compared nothing to similar enterprise linearity, was nothing unusual terms companies

Sterling Auty

you. Thank Great.

Guy Melamed

you. Thank

Operator

from proceed Barclays. Saket is question. question Please next our with And Kalia your from

Saket Kalia

about I thanks the my largely first said this a a Yaki. of introductions sort think, could for for model? taking areas in XX% consumption is months the guess, XX what product question. mix Okay, of But in quarter. great. sort subscription as six thinking from of And Longer-term Hey, you, transition you you of that guys, now on here. next product Maybe the they I questions easier part touch to How new sort are of high-level? complete,

Yaki Faitelson

Yes.

on so for ahead the we much is So, behind just us. And most company, a us meat that believe a there more us in do of there’s what that space We is than as bone. we’re innovate. thankfully,

cases have cater each we and the different deep the in can products. that use integration one you to go and of you So platforms also very between

which automation lot we So, on behavior a behavior with lot for customers, XXX. Azure, any on massive a and abnormal content In is a of behavior analytics. of user efforts problem put – there’s

also all terms we’re add we our all So on the functionalities. and innovate value And the customers of lot of really, we in innovation, that firing on, cylinders. can that ways they – the feel and most have to we play a integrate areas of

can to we game the DatAdvantage, other so The whole is data same Data, are analysts with every plan the and of thing forth. that a Classifying happening lot repository that platform using, apply starting that, that’s is users of have

a we next few have years. that feel So lot that in a and we can lot can of we we the innovate innovation

Saket Kalia

my And Good net at Got XXX%. of up-sell, course, cross-sell anecdotally, licenses of on follow-up driving the Got it. then what customers what it. retention? gross of for Can Maybe from seeing maybe performance? on part Does Guy. you, you’re sort perhaps are that for to sense? see the bigger you revenue touch make just a retention

Guy Melamed

Absolutely, Saket.

So the thanks for question.

customers the of engine. family, of DatAdvantage more We There our buy see to buy. allows XXX to lot consume a customers whether existing Office very the XXX%. move continue XX kind of I think The are NRR being just are fact we’ve to happy renewing, than not allows the customers it’s of customers – indicative subscription that larger all There’s a expanding. really under it’s with existing said We’re are to product our along. really licenses And offering automation many our licenses. our what platform. QX customers but lot And – existing

of the it and the tremendous platform. for on to have really So But need reflects within base. overall, customer existing the opportunity same also commentary the the kind shows at we environment time, expand the I our think it really

So we’re pleased overall, results. those with

Saket Kalia

Very helpful. Thanks, guys.

Guy Melamed

Thank you.

Yaki Faitelson

Thank you.

Operator

Thill next from Jefferies. with is question question. Please with your Our Brent proceed

Brent Thill

Yaki. you. Thank

Just what the little than seeing accelerate? potentially portfolio work talk Guy, from home what there? year just in North you’re on curious if coming the of needs about lot how seeing a more to around growth EMEA, America. in Can a tailwinds just growth for what back-half think see you’re region to follow-through and a slower obviously, rates for the the you And that then you could and for Thanks. talk happen you you

Yaki Faitelson

there from and massive So configuration for And a on going of lot Teams a our that home, in of One and Azure the work and on. it collaboration of world visibility the Teams. a top which is understand customers everything behind whatsoever. protection several client is it’s to XXX Teams use aspects. adoption manage are and critical OneDrive, enables SharePoint that’s have organization of that much harder AD, and data every the in no lot

organizations thing to are problems that workloads the of tremendous lot a the – customers. a AWS and and for working other really running our create open is, to The those that lot other there the RDP Azure mechanics through with and and see we on-prem of on world iOS is environment, connected

the just fast So on urging for something terms our in we’re protection order And growing taken the And rapidly manage. now have in to this is is XXX and would repository, customers data that is of take that growing three, to very, data with months. years, parallel, four very protection something our plan. six for customers infrastructure

are that a online is of of customers issue persistence for really There are are unsecured, lot trade. cybercrime. from other the is heaving home a that working lot time. people advanced The This offices

very to bypass easy easy endpoint. within a user the of permissions, compromised data. space, So we and access to are machines. for It’s they lot steel trying see user And of very lot the hackers, the sophisticated a

they this really aspects, order of here, that in risk it that we constantly have increasing So and risk do to all to from organization these that is that stationary fix is need something we they it. call see understand like

go environment is exchange licenses OneDrive, many that, we do to deals just with this the And sale. cloud. larger SharePoint, customers all the it’s So can this the data Azure and the is platform classification and on-prem also whole they that in have is a to licenses, for for Azure We going – us, AD, XXX there, huge. happened is in fairly that took big we what XXX the protect connectivity

afraid an the their unfortunately, jobs. that protected, data accessing people place. the this see they need that sure employees environment data and is business very lot we of it. insiders that in customers collaborate that their God is And is are really And will that do. of want of fired, see, get employees the can all this last problem And scare the leaves are or a they’re So sometimes lot shouldn’t to just with of to edge. data things you doing they within they’ll to organization. a from data going They kind a times environment, they If protect thing partners over organizations maintain much and the when make huge he and forbid insider taking for competitive lose

go we see to – even and virtually administrators another and So behavior assets infrastructure. is just insiders environment that you from have is And this thing don’t these times people. and if protect at problematic something it’s very users, DevOps digital is impossible just Varonis, sometimes like an this privilege very

Guy Melamed

the second Just team of of slightly when at history to we X%. transition, last actually And European the on the gave at of if commentary XXXX, beginning we that was a adopt, the kind subscription year. EMEA on through and EMEA. on to you the slower question grew announced lot some EMEA give color of in the look QX transition

on effect territories, North and the to happy much team American with the Europe. we’re quicker starting both to – adopt in pipeline Obviously, very of transition. the was now the we’re see kind but So flywheel

opportunity have to the we we there, and happy capture a with We’re share. market team that feel tremendous

Brent Thill

Thanks.

Operator

Owens your next proceed Sandler. Rob one is question with And Piper Please from our question. with

Rob Owens

are if you if sales Great, to I’m around seeing this business, and your thank you, us question. And guys, specifically we could relative my wondering capacity? hiring inflection update and for taking of demand sales work the second-half? do talk And Thanks. that productivity? I in this also maybe environment, the you meet end capacity to about home you guess, could from to have

Yaki Faitelson

company hire XXX% to the changed subscription in across changed year, business every support, high renewals within platform company, it demand. is a there is But lot started feel what sales, really and We engineering, working. in a completely success, with customer almost of the the also play we became department

We – have a clear of than time licenses customers more path and our forward many spend to to with get get them. we XX more

this We’re direct between we the value correlation starting to device. that see give them and much how

we that So to success want keep well. We very want innovate. working customer make is to sure

answer from So we just hiring place and the And is short have path all team they across – working in great but adapted that, the organization. are a home. we to the

so And any see productivity. to we impact far, don’t

Guy Melamed

just going continue the we do When about end will quota-carrying saw give reps ahead, we color the at hiring the freeze, we across reps. talked that we QX continued to some opportunity to on to different quota-carrying hire forward. geographies, and of the And because the

So demand we we right continue we that. to feel meet will to have and the capacity do

Rob Owens

Great. Thank you.

Operator

your question next Hedberg with from our And question. proceed with Matt Markets. Please Capital RBC is

Matthew Hedberg

collaboration for we questions. this demand like applications drive in and it increasingly thanks start increasingly And tools, you’ve of partners are use being one then talked drivers when to us few give from of to wondering, Yaki, my post-COVID this world. that hear examples that I I’m we deals Varonis of a guys, to aware customers Microsoft for brought might shows expanded made the bigger you about taking partners, you’re into a Hi, call, think moved Teams that can of which talk guys? you how on

Yaki Faitelson

Yes.

Teams, was to they and configuration they lot of in of understand web OneDrive understand lot with zero a have automation search are and even coming that do of so computer So to data our well. that Azure you’re it’s a and see lot the that like in people in once in And us. a it’s access who not have when online. to no use understand organization. you’re can lot configuration starting customer organic configuration doing remediate And interest hard impact And from partners, the just it’s organizations of a a a to access increase we SharePoint channels coming with starting We average what visibility. data, just human Microsoft that on-prem, like to to data to is not value, maintain you be to and happened to think can there. a and it. They terms impossible to the a outside of have subscription will is it’s sales lifetime of big are And are extensively have price critical, will very lot they drastic the business. us I webinars what ability in are what working And became a

next You think year and them. – about the in are If they they XXX,XXX, did then XX,XXX they go before.

this professional priority the ecosystem willing it, implement keep and a buy of we the lot whatever, it understand this every a get is lot the year. this customer is then so buy going. where partners do years are strategic. understand will are And that three they value understand a see they customers to spend the choose install virtually time we It’s and and another XX,XXX really that XX,XXX. for really it, is XX,XXX, This services. market a they you just very will another later, that XX,XXX, can organizations. what they year a is Once top non-contested. of number, if and with they is XXX,XXX Now And Customers

working the you the – margin, is well. can You pricing are coming maintain very

over revenues that of understand from think with we that, the it. that lot it, value a can evolving, but of And the customers I delighted is partners time, it’s So they get. market. are market they it’s get time understand a that Customers big a most

it’s working it’s everyone. for So, thankfully, – well working,

Matthew Hedberg

how fair off based was quarter, lot COVID so a guided July been mean, And very guidance your Has there kind unknowns COVID. assume strong QX quarter. the when well. potential in great. as the quarter? you’re of of conservatism you obviously, just a quarter? – risk I you around how QX a to last there the amount That’s do Guy, has changed relative uncertainty guided of strong the off I since of then effectively, you or methodology think about is coming And

Guy Melamed

we Well, to you’re remind everyone, of much behavior. more of QX extrapolation QX. improvement so that an the much we in much QX when uncertainties April, the the guidance of customer responsible based was and more guided because thoughtful a right, really end in in and lot there on is when were saw we’ve of And was always guidance guided and we QX and way. QX, guided in not a the reflected

the pleased we really in the thoughtful time, QX. guide. responsible But we performance at there’s the way and that in of always kind same with saw We’re way

So But think can kind could that you, than tell confidence macroeconomics quarter, there’s us, I reflected QX. the going more if incremental the in of if low-end into impact the we’re with third QX with being volatility guidance. it’s much about of you said, that

Matthew Hedberg

Super helpful. guys. Congrats on the results,

Guy Melamed

you. Thank

Operator

And our next question. question with with is from Please your Needham. proceed Alex Henderson

Alex Henderson

I update know a of requests piece was subscriptions, the on very that’s an then hoping didn’t And you but lot say the look it us on you about it appetite detail could still field close rate what pipeline risk given on give record various key was, any in automation the engine looks I like on talk does rate? and seeing that? of us much. could numbers Thank of data of Great. and assessment piece second was how a assessment the you and the the you it? hoping what I Are I is? uptake you’ve

Guy Melamed

cover and all components. of try I’ll those

that risk talked note, throughout quarter holding that, to done we lot of virtual. COVID. is assessments are we that before First the thing are and that all, know about We’ve one a the I

now. Obviously, We’re now of impact. are our virtually, done assessments risk haven’t doing but all seen we it being any

really generated. We about is the very pipeline the with Our strong, very healthy. year we that of pipeline part the feel second good have

remember, months. deals, three the months. nine sales our In And if on XX terms kind of of cycle closing, to it’s up larger is between the you to

similar of pre-COVID that sales So only was pipeline pipeline cycle. portion was But that related in was closed closed to a expected, as kind QX. of small in the COVID

a So much seen and we haven’t very change there encouraging. that of was

very the automation the nicely. family. engine consumed It’s customers In part automation of is product engine, terms DatAdvantage of by

attach tell our wanted to that part moved to you because big more model towards and the a automation we were the licenses engine reason the can I the provide geared that consume don’t was, that. of that So rates. automation, of we component But customers of was subscription

that seeing it. and of to enjoying we And product. definitely continue We’re sell enjoying that customers plan forward the customers going are value to

Alex Henderson

for Thank for Great. the great quarter. and very clarity, much the thanks you

Guy Melamed

you. Thank

Yaki Faitelson

you. Thank

Operator

question. from question Shaul next proceed Oppenheimer. Our your is with from Please Eyal

Shaul Eyal

last afternoon, also your trends Good that of mentioned update? you. a last on I strategy, the I you too be discount. think, Congrats think you of with or penalized about the in us afternoon. Can guys. quarter, I’ve ASP if light asked high Yaki, any salespeople by time quarter. Thank discounting. where I latest Good unusual provide commission they could provide

change on What’s any So that front? latest? the

Yaki Faitelson

is Regarding extremely the holding the well. pricing, pricing

to that decide The pricing need well it. is surprised price when just they we how and They we the almost holding the – understand buy time, negotiating. very that very very, want. already really are So well. they customers all But get they we were

Guy Melamed

to mentioned. just Shaul, color on the And, that you grading system give some

It at for announced grading things than us. the well this you they system, for they reps holding the allows favor transition system also And the company do or a that that’s at right, very worked we make can I beginning company. they’re are they to money when if at sell our make well we get they introduced can You’re discount, of been in grading the more reps if discount. penalized And tell right do the to where selling higher and the what XXXX, more of when allows us. right has that, that them for thing very sell

Shaul Eyal

Got it. Got one another long-term could little or And like Guy, be here. tricky, a really it. Yaki

road to So billion I’m talking $X about revenue. the

the you that about You meantime, [ph] specific appeared recently. And in changed. could has it it as years, could to appear get about thinking this even years, to might a could a still timeframe, XX committing again, accelerated sound. who you reasonable a Are may revenue bit? knows without have back a without COVID spoken the be committing would more in model past crease It actually to benefiting And be be timeframe. as specifically seven some little longer-term threshold? years

Yaki Faitelson

billion needs less with that, is ability the something we for and to the order this to of place organization about to that this [indiscernible] billion lifetime that what we regulation that and business. We have volume a investments much innovation I favor, subscription lot think of thing the happened that need XX/X. to customer that work to about the drastically increased a security, a in lot the the goal I And place. hard of be believe us. $X very goal. be it in traditional to the ability one that big we part to a part all moved so see giving in is organization and subscription well the And And single get that to get cloud the $X And that our the main just the increased I order all get the the And in in time. time there. we our I and in of think that already just fact is we platforms believe strategic think and we year value we

Shaul Eyal

you. Thank Good luck.

Operator

is proceed Please question our And from Hamza Fodderwala next question. Stanley. your Morgan with from

Hamza Fodderwala

for little seeing guess, guidance? you not I trends guys, QX. about in around the wonder a Hi, early giving a decision you could what you’re more thank QX taking specifically pipeline comment question. was my And full-year, if bit I

Guy Melamed

of QX the kind seeing still I the QX. and of we the the And why results customers started the used that uncertainty and work kind said, were on continuing. QX. end think giving throughout pipeline about – of back we normal from those to of then see. results through that build of the the initially, and COVID, pattern that’s trends – QX there’s COVID of at With were a guidance home that focused VPN, for trends I the started reflective is are we go that we think March, we’re impacted talked to seeing we purchasing And kind and with COVID. and lot kind when of

the guidance think at year. second in manner we’re a we’re of and same the kind for responsible looking providing that And I is in thoughtful the part the of the way. pipeline

into going QX with much than that had in – optimistic we very we confidence more We’re going into QX.

Hamza Fodderwala

really year-on-year year-on-year? you Got maybe expect that when Thank little That’s would rebound the growth? decline about clearly, Could that new the Did to it. And from you. me. comment was still it strong. you more And growth? to bit customer a business NRR

Yaki Faitelson

the and customers, Our strategy is working But comfortable that that bigger we it’s really expansion. underpenetrated, way happy balancing really the with to go and penetration it’s massive and we’re worked also a X,XXX-plus feel to And and base market is the needer products have very well. so we customer fairly far.

Guy Melamed

that, still to in add last results, mix. we just year subscription had a And XX%

this larger compare you apples-to-apples. when it’s But quarter, strategy well. Yaki go So working not said, that’s customers is to very to like last still quarter the to and

Hamza Fodderwala

Thank you.

Operator

with your next Ader Jason our with from is question. And proceed Please Blair. question William

Jason Ader

mix QX? there outlook any SMB? guys. U.S. afternoon, between change Federal the the could enterprise average and in you And and the on Is in for for Good thanks. comment also, size Yes, deal if then quarter

Guy Melamed

the and we time. basically customer was because ago reason We a employees. really business, years process customer train customers the assessment part and customer shift mainly, than would much obviously with So X,XXX is consume small have in a and say sell a the is when for to employees, that XXX small takes the conducting being the a that their of those I Yet lifetime And about user But mind, have, companies of same And customers keep shop, to up about we to the more the of user selling us shop more. selling X,XXX look their the greater. able three obviously, less was to we ability. and licenses going have more risk business. just are larger value XXX strategic type improve selling at to and than shifted that that reps from with

to they enterprises. larger then can move to the field So and out sell the

very So been it’s has strategy portion working that a neglected of but And business. the we’ve not small business, well. small our

is In terms quarter. Federal, QX their of largest

obviously We have of And end provide more team at quarter. a very good commentary the we in place. will the

Yaki Faitelson

like also the happened and the What campaigns process, bit more the last, sell predictable. two, years strategic, more a becoming that, much simpler is is three sales in

years. and spend much go So is to with it up-market makes this that time sense for us several buying across customer more

Jason Ader

in three last see that evidence over your on deal trends years? of the do average And you size

Guy Melamed

five subscription model and they’re the you offering through they and ASPs, I of of the bought customers two perpetual they is the sale, you that, a not obviously, new licenses, what would – embracing initial existing terms this customers, model and that transition, transition buying also this think They’re And this that between we’re in buy new truly buying tell the it our with apples-to-apples. buying that, can Well, with seeing subscription. they’re we’re so they’re when that. to in licenses. double lot they’re almost way they’re to closer three embracing customers, it’s And But now licenses licenses. about

us because with change, would our over I to overall, that customers. time say we’re happy to this So it allows very more sell

Jason Ader

Thanks.

Operator

Stifel. next question. Gur with with Please question And Talpaz from is your our proceed

Gur Talpaz

like? my and taking follow-up age licenses. you us for double-digit lifetime questions. you talked Thanks both. path that. subscription? a Thank How great. then, the Okay, think to what about to we value walk Guy, through should customer that And looks of about you, Yaki, Can the path

Yaki Faitelson

I that think lot that are just everything almost a of customers we need – have. them

data, said, UNIX classifying six your to we I user This five, and six with five, on-premise and all these licenses have licenses. and is can as have. have behavior after the for that the you environment So XXX, analytics you Windows

the the And much that enterprise, expand. adoption subscription for we platform predictable to they way budgeting it’s enterprise. the a to selling we coming not So the it’s same whole the the really it us protect of fact of and a the with IT, silo that lot and And it functionality for now, easier policy different as a much multiyear see lot of see more are stores. to this rate this because from data in CISO across

Guy Melamed

value. lifetime customer the on add to just And

the is seen that was shift that with things higher close it license customers at And with number to value perpetual fact to they model for under time licenses being NRR in of the of have product. of what couple kind is, allows the of licenses. this following consume the was XXX% we more the but of of which automated because years also But started there, subscription. customers over saw last initial that double-digit how great it drove getting the our to customers the with them it we existing can much generate can them And is has those value to wanting transition that start we One licenses seeing this And five, purchase much, least, a been indicative consuming and that. lifetime over provides this are harder the how to customer our the greater this fact years customers, continue just see than model. and to consume we

Gur Talpaz

you. Thank

Operator

question. Craig-Hallum. with And our with next your Please Nick question is Mattiacci from proceed

Nick Mattiacci

the guide for year, should of for customers comping we throughout Mattiacci second-half now for the and the this subscription? growth are how QX? Hi, a Thanks the QX Nick we ARR in about my Thanks. should off mix we is that then contribution from think And Chad taking Bennett. versus on questions. new terms How about higher think for of existing

Guy Melamed

this more that So of fact move when of year growth, part to we ARR the year, through so talked second you quickly the that the throughout get impact, because be one closer terms the of things is the an starting the have transition, ARR we’re in you apples-to-apples. to should and

mix obviously have apples-to-apples. would much subscription more an ARR And XXXX. we So because impact, a it’s QX in XX% have

licenses, existing being if customers talked seeing happy we’re how increased healthy of very than is we’re And and our tell contribution. which and questions, of previous thinking of of NRR consuming. In indicative other about with if talk number in the is I of their – the some customers, also both they’re larger I with kind we’re that existing terms XXX you of customers, you can about new this new the

who and nicely have kind six think to more you that the to sell of our last how much the for our growth, customers have we four XXX less metric XX% have licenses. or existing licenses points four or versus is year, and the so look of we much over at I XX% grown very not the same more XX% more how customer And number versus there. base or more or it more that the or on than when with customer employees, licenses out it’s existing to But to licenses very and at more sell XX% time, last more year, growth base. six year; last nice important, shows

Nick Mattiacci

Got you. Thank it.

Operator

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

Erik Suppiger

you about Yes, thanks timing, balancing you for talk earnings? share the see break-even when a want One, we investments how your thoughts timing to growth between can criteria decision? talk taking bit you can and terms your a bit to the making through might for that if question. little Or in little you’re get Do about of break-even? any have don’t you

Yaki Faitelson

really always something balance us that strike very predictable the are in us, to flywheel we more – time, something going for important be and growth right this the give profitability. to to much to is move is Profitability to And that subscription and is Obviously, try the we way. more between over is balance profitable a do.

we behave. see cell now do larger on we you always we We sure And but have that timeline, with now top our it going So we’ll just think this a can that but at make scale. every And line. is high that, a just not future. what’s give to I want the how profitability the were – renewal to spend in adjusting issue that we rate

Erik Suppiger

Okay.

pipeline talked from you You also you the all? quantitatively at how QX Can higher much around size QX. pipeline that? entering confidence about in have compare the the metrics of Any to QX

Yaki Faitelson

this tell pipeline But quantify it. the you are can and quarter. that good healthy going We is pipeline. the feeling confident commentary we did we the feel that than more think last quarter, into we really I don’t is about I

we that line and the think purchasing need and patterns that I needed QX of customers it’s kind how are product in reflective – increased the of purchasing that kind we’ve of saw us. of

overall, part good about pipeline. the of the year So think feel very I we second

Erik Suppiger

Thank you. good. Very

Operator

And question Please with your is our question. Summit next from Nandury with Research Srini Partners. proceed

Srini Nandury

at Korea taking out insider of you point All which CA seeing the even are such the the well proof competitive Broadcom, bit. Zscaler as your a for that of you. threats? helpful? deals? such right, up Guys. going thank CASB actually there question. Any I’m DLP, any in as or are have would Thank vendors landscape you as Are showing any new [ph] my after color solutions, What looking FASU companies about be as [indiscernible] of

Yaki Faitelson

scale. unless don’t see the to more everything or in All We protection – right. any – their even itself don’t a attacks time, XX% No, of vendors are related there we just we classifying And data at just the we is alone. we CASB it them see or the confusion.

So, so the far any we in don’t see landscape. change competitive

Srini Nandury

you. Thank

Yaki Faitelson

you. Thank

Operator

question from our Wedbush proceed next with with question. And Please Ives your is Securities. Daniel

Daniel Ives

Yes, thanks.

this you customer? to So to about to my of still we trajectories, those question XX typo get and terms some a the can that when in – start just in license licenses does feel metrics for think eight to like regards of

Guy Melamed

clear. heard Did you you we double-digit can within don’t get ask we think if I licenses to customers?

Daniel Ives

Yes. yes. Yes,

Guy Melamed

Yes.

now per licenses had when was much customer it what perpetual the the path than I to model. think is double-digit clearer we

well, and through given get us customer. consuming more has more our consume that our double-digit we’re licenses customers to confidence way existing model that fact the think are in seeing initial per new that ability I to in purchase, first customers licenses as

Yaki Faitelson

make and very because data you have that of adoption stores protection due the is In protection, they XXX for and customers all the faster, risk because and much huge. understand it the real the need Azure COVID need adoption they to fast

something that’s XX and you sale our one that more sell to that to another can new, licenses and licenses. or accelerating. get platform So really an in up-sell five a this like this chunk an big is something is go This is is for customers shortcut is than

Daniel Ives

up. just Yes. on And point, brought that quite

step next about that new is with transition, cloud you even both more Azure you’re what of customers, benefit? AWS seeing think with the and like you’re when just just and more seeing guys the massive existing and a effect for you So ripple and where

Yaki Faitelson

one. not only the access all one, huge is This VPN but networks. This from another unsecured from is that,

became persistent the very trying malware at see of you time of used to and actors are XX% the threats so day, and lot data advanced much is sophisticated – that that end ransomware of today like are to they data. more have unstructured sophistication is the what get the a dangerous, You and exposed of bad data

many this look So and stronger there drivers, of at stronger. and just if each demand I them the become are one

of will Teams you mix, you XXX, with spall. all tremendous maybe which we and that in an have And licenses, this two. the the all we this and just this before But where that, And that one we acceleration coming another benefit do year can in you on-prem, buy with adoption just it’s five two have they that is really are Microsoft integrated and So in another is think four, them. to this see the sometimes problem. and then just have increasing security customers information then – up-sell

networks. it’s coming coming demand is from of There you demand, fact this is a and a over is all visibility on need shortcut. data People home the is are automation. accessing and in the place. lot I – said, of as lot the IT, everywhere. demand the load terms So from of that is a But The from

that just so So everything demand engine much and a increased became was more powerful.

Daniel Ives

Thanks. Great.

Operator

with one time question. that Davidson. Rishi A. Jaluria have question. D. last And your Please with And we for final from question is proceed

Rishi Jaluria

really in thanks me for guys, ones. the quick really, Hey, end. sneaking Two at just

the without then decreasing, or last for subscription on what how offer perspective, more is lot to it an you provided difference for on makes quarter, of a us your all? And do success Thank had customer your you in as do mix you XXX% have you. think last that And quarter partners. From NRR quarter? Can the this of number, with customers, versus XXX% First, services far? I you understand customer on sense that just seen so NRR was satisfaction? totally help impact it to having a what mentioned you meaningful

Yaki Faitelson

projects of regarding a last that was we work to partners focus can did, customer year the with a lot all to sure subscription. for to processes when architect And we adhere So, us. that success architected according all customers’ we it’s can our model sure are working for the what just balances customers standards to checks tremendous happy, with And that they make just working to in success. customer the managed the the we demand to us from the plan. just that make advancing success, moved a really and are the well We

Guy Melamed

terms maintenance business. is showed the really QX and of and In for the of much overall year-over-year NRR accounts is for timing. of perpetual the a NRR therefore, accounts of ARR much subscription NRR, reflective more QX a sample subscription ARR of and expansion the and QX larger it

Rishi Jaluria

Great. That’s you, helpful. Thank guys.

Guy Melamed

Thank you.

Operator

I James to call We the over will closing for And the Arestia the remarks. now of question-and-answer have session. reached end turn

James Arestia

good look a soon. today. night. to Thank hope healthy, very you. we all We your speaking So with interest thank everyone you safe much and Have for of all forward you is and

Operator

this concludes today’s And conference.

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

Varonis Systems (VRNS) 3 Aug 202020 Q2 Earnings call transcript