VRNS - Earnings call transcript Q4 2020

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Operator

Greetings and welcome to the Varonis Systems, Inc. Fourth 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] As a reminder, this conference is being recorded. to Director conference of like host, to now Arestia, James Investor would turn over the your I Relations. Thank you.

James Arestia

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

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

stock-based directly acquisition call, payroll be comparable this issuance reconciliation expenses, conference and today's fourth in and compensation investor press section. in GAAP XXXX quarter assets, foreign earnings as XXXX note expense amortization an convertible Yaki updated most gains intangible on the well to also to of financial discussed which related related measures our is be which taxes. over for year at our website I'd Faitelson. will acquisition of available like issued Additionally, are section. A related as losses, Investor measures turn our call can call discount and of With webcast our compensation, Yaki? stock-based www.varonis.com expenses, related Relations Investor that exchange debt a in Chief the non-GAAP amortization acquired the available Relations presentation, to tax costs and notes on excludes May Officer, Executive in Also, the found full to please release, financial that,

Yaki Faitelson

Thanks, Jamie, [fourth our both the XXXX quarter everyone. afternoon, good (sic) discuss top line. joining quarter] Thank for to all exceeded expectations first which and bottom results, on you and us

to guidance turn sensitive organizations more recapping opportunity long-term and to Varonis in security and during today fulfill will the begin performance, to trends want secular Our model, are by then that team's our mission especially XXXX. and platform, execution challenging today to data and an the a power in continued well-positioned is time testament will discuss on call Varonis detail. I we our this make capitalize for its are the provide performance a digital to discuss transformation that witnessing acceleration customers. are our global we XXXX of and the continue, results how subscription we the for for predicting are to the then many believe demand it protecting our I Guy experiencing exciting data to the of

in what But ago, to as we fastest subscription to history mid the have were Let's software. start overnight. was of COVID transition completing back our you one months. we by was When employees to a their the interrupted spoke looking work-from-home to almost hit. of year believe over the in XX March enable on last performance Companies our I momentum

employee business had quickly only data once stay. to These the on to cloud, risks. safety their to to on-prem realized and ever but relate addressed to digital of here continuity, and they exposing from more greater remote companies collaboration, in access them sensitive However, home, also is dependent risks the heightened reality workforce than don't working was which

on we and the in significant platform our started customers As pipeline uptick that a each result, became by From quarter. of to point our a business use Improved stronger. see

to end year needed Our high outstanding. QX were results provided guidance this improved further pre-COVID. exceed the gain our our solid. results were and have the to how that to is revenue momentum engine digital creating trends full XXXX and transformation. product the QX and strong QX impacting discuss I customers demand we the fueling now of secular like the With upswing, accelerated, is would our we strength

complexity given stopping Employees a highlights is increasing Let's business Teams. exposed there. leading a Microsoft only the and start more the need accelerated The globally, the and been across This application on like cloud for shift in trust multiple have and and years, approach, to. data. zero seen always we every Varonis to collaborating platform have to expansion has data which XXX all subscribed continue risks more for potentially organization will the cloud

companies and is the that and they insufficient, only access have that we monitor continually data Specifically, violations. to itself perimeter users for security believe should that require by should abuse

all. world solid One and perimeter them from COVID-related digital it to data, our phishing So emails continuous significant and trend of risk Emotet in the form around want to than sophisticated many remote accelerating, threat directory coming is protection. of to steal is target and before. with data the are who the year risk. alone, easier mission that the which its rogue data, companies more saw a specifically APTs is access targeting escalation are of is and has ever The collision bringing protect. itself or with advanced persistent this devices, is threats those transformation active This hack cybercrime that always Maze, in monetize and almost unstructured Ryuk, trend vulnerabilities times engine critical made biggest insider data like servers and Cryptocurrency

a customers us must tell is a As platform result, our increasingly have.

trend us Digital and regulation Another have CCPA, compliance increased GDPR the data no processes create cyber substantial can serious to and another and made automation. brings transformation to demand centric reason tell need This it's through to which growing reputational customers challenge. that longer a is like ignore attacks with for streamline continue massive companies regulation. me operational is and risks platform, a overriding Varonis

team pace to companies subscription cyber have realizing keep and our from secure flexibility creating CISO, it's the employees every The data, ensure have in power mitigate customer data and this of initially often efficient seamless over and must offering. our thousands For purchase which security model, the built Automation threats have our another integrated more is generating to compliance. risks. into more and licenses cannot of and benefiting and consume platform. time, find it continue answer, With our to

a data issues. a me a initial of a provide few had U.S new PHI customer example and company QX. examples One that reporting in care from retention Let large health by commitment

attackers of a externally, was During to XX% shared data endpoint assessment, that tools. the we easily allowing risk sidestep their found being

classification This access fix alert as on-prem several advantage in automation engine. automation new engine and days. purchased data for as so platform demonstrated and would licenses data have doing We're issues in customer manually cloud global could well also multiple how years. We taken data

licenses. focused data path necessary on-prem. opportunities significantly they increase. we will our a remain turn online, to X them we closing $X than protection was control. market the like clearer. we with me was expansion the further the planning data XX relied QX, the agency execute Like the the move in With license their In and again example, we acquisition customers agency than And be are for have closed cloud, protect in other than more never the would we to and subscription of Polyrize, move our provide move years and going assessment cloud opportunity than customers. double-digit been billion of has digital convinced to significantly we This in cloud has infrastructure, employees, to doing that team them them alerted OneDrive stronger XXXX, provide within target as government to remain over is With Today for licenses to which add and attacks, ever with ready as new addition local base. successful needs penetrated our Guy. data to into the We ransomware which is many I opportunity number data funds total, through our long-term the Azure address Varonis The as existing on as let to more QX, risk delivering customer customer that, SharePoint well see. beyond. online, inside closer data with take more demonstrate visibility call X,XXX Edge. example wins to customer, Varonis we additional to advantage Varonis We to well-positioned application Guy? of to our said, stores, their advantage this, with under now capacity And transformation our as been. on prime In on to sensitive which more licenses for Microsoft in for Exchange a this a

Guy Melamed

QX top down these that To our with and a to for fourth across demand three quarter, operating XX% afternoon, performance, Thank outstanding said we results, margins XX.X%, with close everyone. us the revenues execute that growth both year non-GAAP which our Good our into model subscription continued We're leverage. revenue our drill and with I of validated pleased quarter the of expectations. growing the pillars today. power is platform our combined strong ahead the continue driving joining and Thanks, of accelerating Yaki. despite drive helped challenges. total operating Last you our us at line business. for both trends

within First, existing landing expanding second, renewals. customers; new enterprise and finally, customers; strong

to multiple to our value larger the customers deliver subscription We customer On of our be strategy on know that demand. licenses the purchasing and incremental new continues allows realize greater focusing of ease successful. the on us model front, enterprises by

This on lifetime previously former perpetual value healthy customers about five customer or and Xx our New average upsell renewals, than licenses was increases license through more trend under purchased future purchased model. opportunities. what the

XXX from our with more into visibility are XX% or more XX, year end these or employees our ago. XX% customers is customers More up growth than QX. year ago. year-over-year our or revenues. of helps of were time, metrics XX% revenues As XXXX, purchased also licenses rapid as unleashing four a up the future successfully fourth same licenses, of a December purchased from of At XX% XX% more reflected XX% the six of our which the of potential ARR million, in recurring, of quarter which that of provide we $XXX.X platform. confirms grew This of total The

ARR Our based which net the in customers the retention at dollar for XXX% NRR, rate from was active all end accounts of or QX. growth

Turning a compared to million. renewal Maintenance $XX.X $XX.X mix now included and exceeded revenues Total quarter detail. revenues services XX%. in $XX.X year-over-year which to fourth in results million more ago. almost a million XXX% grew and were at at rates, XX% again subscription driven once to XX% by came the XX% year Subscription growth revenues

a $XX.X were the that of kicking XXXX. are XX% business XX% revenues flywheel XX% grew $X.X million, we total start pleased revenues of after world In to America grew now or geographically, EMEA, of the total or is of revenues revenues. or revenues Rest in subscription at in total to early X% Looking million, North and $XX.X slower XX% revenues. million,

in quarter Turning quarter income fourth for to statement, profit back be I'd a that to discussing totaled million. I'll Gross gross $XX.X out was of the the results like fourth non-GAAP fourth Operating XX.X% of forward. expenses XXXX. $XX.X compared XX.X% representing in million, the quarter going point to margin the

validate the result, a negative capabilities, or quarter and outperformance in In of we last forward. which else expense or an X.X% leverage to management will margin our year. related the operating on and our execution going drive was for of operating As cost model we million, strength margin continues period of of benefited million, an operating COVID compared from loss same the This anticipate again the ongoing everyone like income line, top savings. QX, meaningful $XX.X operating fourth prudent $X.X margin to XX.X% impressive operating an

diluted $X.XX convertible million, per During of notes. expense of cash $X.X for net due interest share or of was securities loss million the with for the outstanding ended XXXX XXXX. and $XX.X on short-term fourth and $XXX,XXX, diluted quarter shares $X.XX our expense to outstanding primarily basic approximately and financial earnings in of XXXX. million or equivalent, QX basic We cash XX.X a for diluted QX quarter, and income had fourth is XXXX This of diluted for loss the XX.X based million year deposits. share of quarter on we $XXX.X to compared Net and the marketable per a shares million

For as will a cash the I of period XXXX, to December net million, particular the the quarter and of XXXX now the $X.X in high X,XXX XX, pre-COVID. increase last X hiring new recap year. year take XX with end grew on months advantage the used the the an we generated original of of results. We the insignificant of fourth our year a from Total increase X% we in of same and ended year compared the an with the full briefly sales operations see ago, to third continue revenues to ended exceeding employees of R&D. XX% we from $XXX.X million employees, quarter from market, XXXX focus we XXXX guidance and issued the opportunities support a business amount growth

in XX% mix compared revenues our to XX% recurring. XXXX, XX% XXXX. subscription subscription of In mix Our were was

X.X% negative was margin strength of our operating for Our Again, XXXX. the XX.X% to compared business. negative demonstrating

like to ARR go to I I would time. Before one guidance, more turn over

to converting As I've the said we in perpetual are past, not customers subscriptions.

ARR And new by to new from customers, driven customers. primarily well licenses growth as as net so existing is subscription ACV

moment apples-to-apples tracking closely ARR more comparison should items. XXXX housekeeping a discuss want I growth. a with an result, also to take revenue closer a to to normalize few to As

customers families. have continue metrics relevant or success our trend customers while product to We more family. selling historically purchasing more or percentage product provided same the they these of the are two to licenses And more and positively, given three across less

metric the this As future. such, providing we will in stop

XXXX that to $XX expect million. We in CapEx $XX the million in the be will range of

of X a Lastly, of we on common Trading and stock common our stockholder to announcing are XX on share. XX, each held accessible stock March on receive record it additional of a will employees basis split today make to March for for will two XXXX. Each split X then begin more XXXX, shares investors. adjusted

Our have not impact results of stock for in been the the adjusted guidance splits.

Moving XXXX. to our for guidance

to representing XX% $XX.X expect growth revenues we of For XX%. the first $XX total quarter, million of million, to

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

revenues $XXX For the to XX% XX%. we total million, full year, expect million $XXX of growth to of representing

are diluted ahead continue their Varonis assumes as the XX.X our basic when shares on year proud non-GAAP questions. year, I we respectively. know diluted $X.XX. all this are basic XX.X shares and I us. happy capitalize This diluted for speak per today. of of with their opportunity results to QX on loss that, strategy outstanding $X.X the Operator? non-GAAP income expect employees to to I XXXX. long-term going say of In we summary, we full us net and share million income in into behalf I we and of million the range take Thanks for outstanding to would our net outstanding, contributions And range joining and of between to be thank want execute on and million operating and $X.XX diluted negative We per and breakeven non-GAAP to share excited

Operator

state Auty from with [Operator Instructions] your JPMorgan. our first And question. Sterling Please question comes

Sterling Auty

guys. Yes, Hi, thanks.

prepared curious is will a pandemic? there you're confidence In outlined forward growth to now was experiencing concern of there that Yaki just at demand what pull continue that the business massive a words, you gives your look you on you your other that I'm that post So when that work-from-home shift remarks? in

Yaki Faitelson

Sterling. that Hi. -- think we it's work-from-home. don't No, the happened

critical only many is is a this should is the the Zero access I you is where something the problem right you're just is this, humans world have have and data that happened this repositories. in can't problem. And the data happens about people access overall lot talking -- the When manage is acceleration think Trust what going. and the that of revolution protection what and they biggest we that the is can digital of data

who the there them overall the So is they they becoming strong just sell we something being cybercrime staff will more trends, pandemic things very that always collide. is more was that we be -- here happening stationary that of was the that some now stationary will are transformation, in digital engine then happen, regulation not repository. are are but that And growth one strong stay, trends generated work-from-home there XXX and are may envisioned are really and more protection, way data there stationary digital, just us. for to -- very platform, and data

easy with not is was of an at by just beginning the it So what had that you usability pandemic of know, us, to remote as saw platform. the a every data. went close and uptick we and workload the everybody access for that But when business new in month business. and set this for happened this work, new to up continuity dealt And configuration you

have this infrastructure on are it's from And sit, more attacks and clouds leaps we economy. on and is go just digital lot and will increased inevitable. data things repository capitalized will well protecting we just digital will and This universe it on-prem bounds. I And sophisticated -- of much you risk applications. believe many where data the Just where and and become we in and a that -- the strongly

Sterling Auty

for Guy, housekeeping, you. one And sense. makes That

end willing update? give year, that customer to you a us total we're count be Now the at would of the

Guy Melamed

ago, of much so and in larger acquire. focusing is the type the of it's focusing the things on A in we that much more customer count of not that and can the that years that we're we we started we're on -- customers customer customers on of type customers One talked really of customer in the the number, quality lifetime terms the increase helps getting us focusing that of we about can more the bring couple value.

size. that value that focused and lifetime customer less we So in less. is right for number, The number right we're think investors, metric on the the increasing the getting important by is

Yaki Faitelson

on It's that getting the terms us, for company just subscription time really are the the company customers to a focus the sense Sterling, not it spend the above pipe the and completely the conversion licenses change, change changes. a as business they X the that and years and thousand buying that the its just that value of different users business than are of ago. with makes customers, in

Sterling Auty

Understood. you. Thank

Yaki Faitelson

Thank you.

Operator

And Hedberg with comes Matt you. Thank next question our RBC. from

Matt Hedberg

obviously, breach guys. acceleration you're my really I year. Hey, some questions in do Thanks for congrats seeing a guess, multiproduct think a trends is data and important data of would attach. I'm curious, potentially, that really the on importance more and I taking even world. in security strong an business? post the governance, is Sunburst think accelerant your how SolarWinds nice to you broad

Yaki Faitelson

following The but Matt. the fourth increased didn’t in affect pipeline deals. definitely Hi, quarter,

that happening, because a to is is lot is see that spilling very cyber that a this is is the space. happening. with This from sophisticated, you where happened important skill and this something commercial of war are I to understand is think inevitable. state that actors extremely where what SolarWind really we What is have

the in a that want it, everything usability bring and of stemming want customer wants security lifetime and collaborate ability it. very the products just data, is insufficient. develop, Varonis be sophisticated we what very this able I is to returns. what other and a just these lot just have target you you beginning. is something if can forces really a in unfortunately, that critical, that we And think really you like when and just what a many have the is just this you coal very I happened all of and product critical these in are in to is back, are additional a in also And have and in you that you the from if that from the develop between the value And have There but And you understand get we with And have data played to critical also have order happened The target, ways in. you strategic and we to is SolarWinds to a you service shift is infrastructure And you critical bigger to lot asset driving And COVID to and a -- a the tools, but uptick security there the productivity mine where what's the easy market cybercrime. we the is this midst with much cryptocurrency. security thing are need you believe so get product, is and faster tension more is accounts data the happens value. really someone This adoption increase trends canary business. with that of automated lot big happening the our target. constant critical [ph]. will digital protected. of and is you that available customer the from asset, And faster, be from that something It's see data need these critical overall data you agility, protect. is to problems of go this secular This will the is to what’s saw will this and happening, to need to extract and the they monetize over, you’ve really value diminishing and see

Matt Hedberg

done Yaki talking this then quarter. Guy. mean, one for, That's about and just great. And great expanding pipelines maybe I profitability Obviously, got

thinking on sales R&D. accelerating sales You're bit lower investment how you're about and margins quota that reps, a perhaps about Can street guiding little next bearing the year. marketing vis-a-vis talk you

you the side get look of of as trying equation the OpEx XXXX? to to Just sense a

Guy Melamed

Absolutely.

XX.X% We there's So margin -- philosophy line changed. ways, to want to continue both look And see a that our margin improvement want impacted of to we and at and the at that by and X.X%, In of headwinds front year XXXX, kind minus XXXX, basis XXXX guiding we all first revenue operating of opportunity midpoint. growth. you was hasn't non-GAAP non-GAAP minus a profitability us. but as now we're obviously when huge responsible in a the you year-over-year, margin, transition on with non-GAAP And for the and finished the full the can at we were top the operating front. in in X% balance invest positive on our

the So with in R&D. right of in us always match direction. achieve. But sales provides invest to to try we're way. marketing the investments we the The and of we for growth is kind the majority And line opportunity a the revenues and we kind really want the kind plan top the moving the of strong in term of put responsible two longer in to where to areas expenses

Matt Hedberg

a it. guys. Got lot Thanks

Yaki Faitelson

Thank you.

Operator

next comes Brent Thill Jefferies. from with Our question

Brent Thill

What be and you're solutions, you you capacity, take the sales you're about of year, hiring these And at afternoon. shape lot you you Thank of exploding you're environment. quota-carrying asking assets XXXX? of many when kind of the Guy increase, and this on just teams terms into when what make think cloud based or it's you some usage year's in level can the are at next look these investors in the the come maybe an a seeing to, Good them of are or whether uptake. you as you. of group Yaki, productive. are growth last of for of talk kind corporate protection slack for more look do and How the systems, new there going providing how doing as to other

Yaki Faitelson

question. the for Thanks

So data directory there and we stores our and replicate and acquired Polyrize. store on-prem first, tremendous the XXX, the active have to why opportunity is data technology and regular to these for and can that we everything cloud there believe cloud done this is we we applications, all

that same So for playbook we these the to customers. be technological them for are same very we can we moat repositories, all believe the -- of cloud of same critical with do then all the going and just can our technology,

is believe that you also on-prem that a It on tremendous not now, slowing it's it can't very its So we is is that just anymore. the just have accelerating thing and the that it over support us -- data interesting for going place, humans this and tremendous down. phenomenon what's other data manage all

analytics. a data forensics alert problems very effective need repository and are user behavior is complex of really for standard playing the of a for a cloud going we that ability and lot protection, to we You automation and are to and intelligence a where and visibility, we to be on lot forensics. SaaS and do And this believe and data in the

Guy Melamed

to wanted this quota-carrying Yaki the much relates question, our throughout and reps the philosophy on we about way about looked to talked think answer a we talks every a to continue QX, the us a and this, generate and continue hiring. reps more quarter confidence where quota-carrying bit and still XXXX. I short-term in touch the And very of But headwind. didn't we year, short-term gave COVID more at It hiring to thereafter tailwind. was

them philosophy When see larger we the we're which of it grew actually are a we You in taking QX, opportunity. look long-term increasing XX quarter, mature. have of the more is advantage component net reps, new quota-carrying and part can the of employees at that of the in we

So the in that in in business reflected guidance XXXX think have and we expect I And the and the and gains. that's for kind the of all confidence productivity of up sets us the we pipeline.

Brent Thill

you. Thank

Operator

is question next Kalia from our And with Barclays. Saket

Saket Kalia

stores, little bit integrated? you Thanks questions was portfolio Polyrize? about that's product you, last can my but you envision impressions future, one sort taking your fully Yaki. first just to asked the of looking for a about been related Hey, around Little cloud Maybe talk bit the initial here. for guys. that once the into how And out

Yaki Faitelson

acquisition, great And There the the The with on and have from it are massive do happy see still the very potential. we said with the technology, with was so focused very there's all to that integration We accelerated drastically. from was the And that we progress. team, are before, I believe market eventually It revenues everything Yes, fit. direction. do. happy the to in a a are this to work the far very cloud, is full But culture integration. we're great the to of and happy quality move. just we next in the team, a we are to and the going want acquisition year, efforts. we a But right already time as going

Saket Kalia

Got on just it. want about the you my to make Guy, touched this I follow-up -- I prepared it. we it. you, remarks, but for ask Got sure on

would make the kind Does conceptually You might ARR about two? which the some growth next revenue guide, how clearly ARR sense? be for the takes between guiding year, revenue aren't that think versus growth, we to have to clearly what’s and but puts you of have to of and

Guy Melamed

some Absolutely. color on I'll give ARR.

it this was grow. to it closer expect to ARR really net is we but customers the why about it, And into is the much when look XX% metric, not growth customers, primarily the We're say of which apples-to-apples and And base at perpetual in should track but business. to revenue license the going from existing to to closer mix, the it provided it We subscription converting the track mentioned driven think customers. to the the growth. ACV by announced really when times, you subscription, strength also revenue we ARR having in transition when and subscription from XXXX I've our XXXX way new new the introduced I'll again, visibility many to

Saket Kalia

guys. Very helpful. Thanks,

Guy Melamed

you. Thank

Operator

with the Owens Rob question Piper is And next from Sandler.

Rob Owens

taking Great and thanks for my questions.

First, integration with about over in you -- terms possibly Polyrize could you're talk the near-term? roadmap you hope to where and be of deliverables might where at the

Yaki Faitelson

please I’m repeat? hear. sorry, I Can couldn't you

Rob Owens

Polyrize Yes. where the about over Any would you little talk a and roadmap now? deliverables incremental near-term? hope the on Could you're deliver integration to bit right you with that at

Yaki Faitelson

well. the so working Yes, is integration very

to going that them. hit and We believe we have needed internal that hit, milestones are strongly we to we

it but just revenue lot few it internal we with integrated the As stuff standalone that Then see within be platform. I integration, the will There will cycles, of it we need minimal be way Varonis completely to the said, do, the and beginning to work, next year. will small are a a integration. will in that

Guy Melamed

expect And emphasize the don't we that to revenue XXXX. just we XXXX, is any material in in revenue expect

Rob Owens

looked that up? us expand how it little point? And the at pipeline land growing at both? pillars. to are color or then shaping give you talked you this more Can Is a guys, about Great. things scale velocity Is related you the or more and

Yaki Faitelson

bring top a with the We the in and both. pipeline the doing both above, of in just CECL, organization coming coming huge And the of is the segment with in boards. and and visibility value. conversion enterprise the feel a and priority. users rate it's platform. how sales. comfortable is in the But is ease There from uptick value It's just it's it we from the It's customers above, exciting customers what the customers, how spend other with more X,XXX are are predictable. we're effort where overall time our the really expect just increased X,XXX lifetime them more overall getting pipeline, drastically that results we customer base It's we customers. -- the that that in thing becoming it can is right new using and high we are we and customer the think and of But I very this economy

Rob Owens

you. Thank Great.

Yaki Faitelson

you. Thank

Operator

with with Henderson next question & Alex And Needham our is Company.

Alex Henderson

you're Thank in security but there's an tapped CEOs, viewpoint? And solution going and segment do the IT, you think so that CFOs we had just up. if was conversations to is as been specifically a how types, so, budgets spending been are of that lot I could set? hearing talk bit the Great. with the being what SolarWinds of much market for Varonis discussion you're of that There's talking on post the hoping and part support intentions hack not people that as you increase Have announcement. about little you. a

Yaki Faitelson

we talk with what do, This our and can Varonis. the Alex. represent we Hi, customers of view is constantly mainly I

will biggest prepared many, are inevitable is are budget and It which that like the do big, that So of they And we problem, in I general, it, manage just what and people that becoming we they're and mitigate that from space is in we people see problem us, remarks, things the see where so of to shortage and will it. it, just the many And those see it also it something huge regarding risk to in happen related that the digital going in like assets another mapping can't humans first -- all, increase. SolarWinds like because times. the insiders. cybercrime was to the and there risks how said

on so It's You have the need to place, all data side what's automation. very have to over actionable in understanding. you hard business going visibility much the

today, for that sitting business driven the this data is very I organizations. threat It's and incompliant to complex and a and response, data do tell top ever protection, hard So can with to organizations. detection something priority be you

So threats protection data then we that for and of are you’re starting benefiting to see this regulation insider buckets budget from big and them.

we see don't immediately, me. sit with understand that to there can happen got many you it -- hit, so organizations So understand people and it but people believe

problem. So happens, science me it's to happen is can not it when and this It huge fiction.

organizations can lose a There so place You becoming we organizations is generates it in putting right driven data of chaos. of this more lot Varonis kind shines. are digital lot in in how with are environment, the And your and then tension there. and controls more that and a of and

going And hard will tension not that to are -- we that to deeper to data to organizations how how and that want more digital in be see will budgets this be within will to productive, senior to we to the is will manage risk I regulation protect critical more it with people will that budgets, that increase infrastructure, become assets, and the benefit understand things believe like will and to more digital allocating be from be the and going how organization what that how cloud, protect able increase. the And very just it. in think we to to compliance business. happen So us protect will the be most

we We the that Varonis foundation transformation, digital part is Varonis critical need gains to ability productivity the believe this a that and sure that a we the going to that to without all trust have transformation, enjoy can make play enable in diminishing return.

Alex Henderson

not you else impact to to a represents been being clear? hacked your hacked. have anybody your clear, And suppliers any any threat be Just did directly or have that operations from are operations, that's you on don't you

Yaki Faitelson

Yes, nothing to us. happened

Alex Henderson

Thank Perfect. much. very you

Operator

And next from question is with our Shaul Oppenheimer. Eyal

Shaul Eyal

Good a you. Thank gentlemen. strong afternoon, on outlook. Congrats performance and

question, related but from SolarWinds direction. different Another a

to Varonis do a you portion So massive post the view have at have solutions been breach, this key to think, impact? breach of prevent might potential able as ahead able of flag Do of being potentially its plenty you discussion least the And of follow-up. what platform I attack? a Yaki,

Yaki Faitelson

Yes, a doubt. without

we and Our ability more but doing to what we very sophisticated four to customers doing abnormal do service APIs, can prevent using behavior. and understand a different and you order in million any And understand even or so. SolarWinds like account understand map things need accounts automatically it is service are it, that licenses that and can also

player kinds core So solving of attacks. these we definitely a in

Shaul Eyal

companies say adopting at understood. bigger platform. or you And with the Guy, Yaki are Varonis least interest Understood, than elevated X,XXX beginning in headcount, see to showing X,XXX, or greater

Yaki Faitelson

them, without Yes, a doubt. of Yes. definitely. Many

Shaul Eyal

Got it.

Yaki Faitelson

thousands that, that have add of on employees. So we customers of to have just hundreds

works So scale. we at -- product this

-- we larger the But have the been larger very scale. are targeting enterprise working we on are that have already well. and organizations, We customers that's

Shaul Eyal

you Thank for the Good Good Understood. call. luck. job.

Yaki Faitelson

you. Thank

Operator

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

Hamza Fodderwala

to for wondering, goal get Thank guys you taking I a question. billion Have portfolio given little you you my Hey, thought to talk you’re $X I'm guys, any to bit have a about thank transition? that like subscription there? feel get you. want for your the timeline to in do in revenue. have that? around the place your lapping And you not product you

Yaki Faitelson

believe not have the -- I’m we have yes, product the -- we but giving we time are product we lines, portfolio that together.

or to that too long too done less we all hardest together to need is, that portfolio, place incremental time, to together. building many investments. We do believe believe we probability in unknowns the the also very product the win. in a terms When need goals, take you of many you that there investments we have have have too thing you We believe the we to you in most get blocks have chances We order you the the of will have together. lost and of have that high get investment if have a goal, -- already

Hamza Fodderwala

just in mentioned then impact was Polyrize for point? a believe less contributor know And Guy, you QX, Got material a at a than closed it. I I question any not to billing like follow-up there ARR but XXXX. it all even -- to

Guy Melamed

build was this there no material we impact in Polyrize material No, year. guidance, bake any QX in didn't and when we from the impact

Hamza Fodderwala

Okay. you. Thank

Yaki Faitelson

Thank you.

Operator

Chad Craig-Hallum. Okay. next with from Bennett question And is our

Chad Bennett

my questions. guys. on job Nice Great. for quarter, the Thanks taking

you provide like It segment possibly, best-in-class, maybe the just just Guy, just on guide still sounds maintenance of high. the in rates Yaki, of year, So, just business? are color retention directional terms could for the any movement the for type or of

converting You're not maintenance. on any planning

to item of so that there. kind So no your are flat, up, speak. risks real kind of down, What expectations just transition line for

Guy Melamed

licenses, It's important that new because basically license to the remember getting of the isn't see XXXX portion you that the selling perpetual we're in can not numbers. any and perpetual maintenance fuel, material

percentages. rates, So the we of be decreasing it's have normal actually we because single-digit expect at that to kind getting in maintenance look XXXX still any not course. of but renewal perpetual just new high low We addition,

Chad Bennett

Okay.

would I XX%, to of company at phenomenal implies, business upper into growth on kind a type possibly you today think new of net expansion this you any net with mix of logo logo if when guess, see I I'm looking how XX% of relative standpoint, as software that expansion can the look is on line, about out backing year? how from right relative think there. the subscription that the you, versus rate subscription, you growth So into an which kind would or new

Guy Melamed

XXX% kind us always can of new of very think the perspective, that That's of when the a that's drive I the And for to have a been on to right the need focused they commission size. over achieve customers, at only the their at to to the customers. focus most reason part acquiring and wants So X,XXX from of if they it's we growth, new that bring of look reps, they kind rep customers. have we're pillars be a for targets, employees. not new And bring do

And customer lifetime But base. of value. So under penetrated that we the focused we aspect, metrics within can because drive customer our the also that that existing very that with you that growth on under know some six we're last more know the see we're licenses if we as And been that the as provide or it's nice more you look year, penetrated. has plus, or at and licenses. provide, four over XXX we the still

And the base in more, to It customers going six allows or win-win. XX% allows our platform, really that model really to sell We see allows -- unleash so have potential. more really so more us subscription to value. us and sell there's to a it's the the much to that

So of I would a two. those that say balance it's really

a I just we're much customers right new large think the as base. we very be majority bringing on customer the kind the time. because at focused should But have well existing of portion, such that

Chad Bennett

for you expansion low said penetration, when And maybe from real of Guy to net that net one me, yes, Do NRR just about year continue being number for XXX last mid top. to of XXXs, you rate on think assume, quick because XXX. just standpoint? of The kind growth I of throughout mean, I expect that one again, kind best-in-class think net the accelerate you a I the of, expansion. expansion

Guy Melamed

provide we we expansion past in base. of the timing The this we for drivers within was there's absolutely. been -- company so And an a on that a the subscription metric -- basis. all with is the the annual this timing, will the of of in year metric. one I we've before, growth NRR kind and year, that we for all, kind fluctuation only long-term of of XXX%. first said discussed average opportunity involved a that First have -- like But of And tremendous

So overall, of year we're the XXX%. pleased with NRR for an average

Chad Bennett

Nice it. job much. Thanks again. Got

Guy Melamed

Thank you.

Yaki Faitelson

Thank you.

Operator

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

Jason Ader

Yes, thanks.

Yaki. First for question

growth space, tailwinds secular the And are competition expecting come to you where your the expect to that Given do you see more competition? in in from?

Yaki Faitelson

that all less to come see something if campaigns this complex that do. of At looking we [indiscernible], competition. to very point, you're sales at It's is

constantly making -- sure worried always we increasing we and add I'm innovate and the that the competitive business and just value sure are the can are make but plan. We that my And our about execute customer edge and and on roadmap. our

don’t will everything we So this competitive this and know. are where less I doing can competition we I are from, see it at stronger and keep But come point, we we than advantage. to ever

Jason Ader

come Do you from the or integrate think governance? more access would it players security more the data from that platforms repository

Yaki Faitelson

competitive to appeal just naturally accessing is can technology edge. a that extend maintain expertise to are We how is that is a is organically engineering something do they This something the dealing that time it one naturally all I believe this company or space, to for there data. with not -- that within very long governance repository the tell they from they that they you and we can hard domain which is that From have do. can is no

Jason Ader

to year spend for, dilution could the spend, how added And OpEx Okay. expecting you in Polyrize, just on and much a the or quantify then the OpEx. XXXX, Guy, follow-up Guy. added the on the least integration maybe you're at for

Guy Melamed

people the OpEx So side. was kind don't compared to OpEx integration, nothing expense hiring We obviously that the into Everything part expect more fluctuation. guidance. if of Polyrize, portion very that that's baked of there's is now we material. big number. kind But the of too And there is Varonis any kind small build when the already Varonis to acquired are expense we of

Jason Ader

It's to what XXXX. to fair to say in is integration. some it's say it in all the fair Correct? But that creating with of earnings dilution on you're kind doing the it

Guy Melamed

the opportunity. creating it's also But

kind a to numbers not small more it's integration. for operating But on So side, we're now I very where that the something it's it's people would dilution a hiring would the materially change us. say small, the of build

Jason Ader

Understood.

you. thank Okay,

Yaki Faitelson

Thank you.

Operator

with next Suppiger is JMP question Securities. from And our Erik

Erik Suppiger

to you can size a -- that. But for last you comment and Can your ARR terms customer year. follow-up of question course deal the what deal buying. good number size? per And translate a very congrats done I've are the or clearly from has in average little of Yes. Thanks the bit expanding got a on the You're of taking that either the over the on quarter. then customers licenses. doing well

Guy Melamed

of seen our never lot us. to back the customers things happy customer that of provide talk our to that's customers about subscription, to We've that move the more. one the consume that to go were higher And the the of learned the customers coming has customers the seen because value amount used kind the the have also up that customers of is increase that more other value and have customer likelihood to us clear And are under the now thing and that this And buying number is part on with the we licenses a per buy on they and more go, they more is subscription five average, the the licenses we see. licenses, perpetual the value of We've those them seen past to of kind commentary front, close more of to more model. licenses and than been the own, model. double-digit lifetime reason that with average buy of double strategic decision licenses. upscale So that we really to under allows

the ASP the the consuming customer of more lifetime us gains obviously, an productivity fact increase from to perspective, that really that they're allows that's So and impacted generate And by value. licenses.

Erik Suppiger

Well, a the that translate the the that a Xx to we -- new -- customer were lifetime perpetual if lifetime of can time can Is you way new customer? that? double a buys in customer about comment that licenses, does from the that a number think into you they Has value?

Guy Melamed

don't of price than Well, forget actual perpetual. of the the subscription that price lower is

obviously, So impact. there's that

same license to list at perpetual of the kind is of list comparison. the price price license subscription on XX% Our

lifetime. say but definitely the customer it's increasing wouldn't lifetime I double obviously, it's customer that So the value,

Erik Suppiger

perpetual about was think is Bur to us the for market and it way came became priority top that the ability the this in And to organizations. and it the impossible. this happen it it, the will world, consume to

just friction from we So reduced licenses what's have they and then what really and automation. new goals, And we licenses, can happening that that we a the subscription, adding bounds. tremendous it the and consume that buy made buying leaps lifetime happened because customer value such and platform increasing in in sure value are more just can they more

have And we coverage the value. look to at to they right drastically just in bigger amount customers way buying than to automation subscription same value the with ability the to enable it. more they buy customer of that the in the The more it way lifetime and is to -- get say and they at the licenses amount how are more. and have not terms looks perpetual, subscription, right would licenses it will look we So from just this

Erik Suppiger

good. very Okay,

margin that leverage the the anticipate of change you've cause cost getting the there would course anything did expansion that an question for is, expansion, the last you hiring? driving too anticipate Or been slight leverage XXXX? do would a you that that leverage in guiding Is slow would of acceleration year? operating given relatively did you margin that you XXXX, you're Do the Second you're in any that the change see marginal, slow? a in that expansion over that margin see type

Yaki Faitelson

and cloud opportunity that level And in see as at we cloud, we the digital customer the to the for level, faster, see platform, much economics, and extrapolation do we technology heavy highest here said to buying target today, profitable. it the done the always transformation. business overall just the that The, double to look much, take of amount was to digital business we becoming just of more very terms as we licenses so unit just If build we to replicate the lifting build in Guy done and big innovations -- said, on the the and of can look the the our -- And of a a and when opportunity. to get just balance to much new philosophy investment possibility. our before, we eye opportunity. you is you In they're SAS just And have eventually it's you is and tremendous work scale the in everything ability to to situation. We're more the the the always hard on a company, lot more can in at and the easy exceeding we've

-- done So to we want record the we something we are now have we to value are we we in the not value in sure we overall make this transition good big anything to rates. is And fulfill are subscription. exactly growth table, get on And doing. what opportunity. and very the of want of And the terms leaving we building the the the long-term of that this potential company, to

to the easy profitability inherited, power of the of very just to gradually. the those business terms it's want the and in get do So platform, we

Erik Suppiger

you. Thank good. Very

Operator

from And our Schappel Mark with Company. question next is Benchmark

Mark Schappel

there's one Nice so question as you us It operation. just in Guy, of job to good on remind for are to driving if wondering particular Europe And that I the you could and And nice was you Thank results one taking quarter. was of Europe. rebound quarter. European in some question, the the countries Hi. just also just see my in for you. made strongly to changes if Europe

last so. or So year over the

Guy Melamed

year to to part of story I the the North effect place adopted when the from that this it team. opposed the last slower team reason in that's as of for And transition kind about expected of was to we America. the flywheel we the XXXX, American North fact growth European later the talked take saw think we subscription slightly that the than the that

good place that we have under We the we And great in of we a -- growth around the have that we France in are territories But as quarter. see are obviously opportunity. can in in the in the us see place teams the Europe. years. this the we that results presence countries of and we team upcoming we kind presence think for rest have still and see that have have as in are overall, in a in penetrated drivers U.K and the that I -- We strong the that as that Europe

Yaki Faitelson

did that North very we when move distribution. move We We two decided it after strong in to great world. quarters Europe, we subscription. changes We teams have to subscription. And We some America. were good needed channel to a the very customers, do they

happy the that quarter everything happened in the not we fourth are in happened and but So that EMEA, in everything surprised. --

Mark Schappel

Thank Great. you.

Operator

Our Tilton Markets. next Berenberg question Joshua with comes from Capital

Joshua Tilton

wanted for Thanks my shouldn't suggests business The strength growth guys. momentum confirm, to the going taking in change Hi, and I in the incremental of bookings that commentary be seeing the are case. any you this around secular the question. subscription meaningful just into the XXXX trends But new or

Yaki Faitelson

the tremendous XXX. growth We but cloud the surely the is the very said, this feel move coming for all to we as us. And as to you see healthy world strong a usability and we point, slowly is pipeline, this, us. healthy, second you This that -- know, engine

Joshua Tilton

quick And that, about Microsoft protocol announced Microsoft towards But then data the Varonis do very Okay. today. stores, data guys follow-up. does preview. a is given that how just governance geared a It incomplete think seem little you the platform

Yaki Faitelson

strong us. technological for At is They products, an with doing. Microsoft very security from what relationship. this enabler but good they a we are silver very Microsoft different point. a We have just partnership have are

many complimentary what are pushing the are in business. they is enabler, We so doing far very the

Joshua Tilton

it. very Appreciate you much. Thank

Yaki Faitelson

you. Thank

Operator

with from D.A. next our And question Davidson. Rishi final and is Jaluria

Rishi Jaluria

it me for guidance questions just and as see two I've squeezing next year. got for and outlook strong to guys. the Hey, Thanks execution. pertains great to continued

be Guy, about as of T&E should business the half can optimistically say come thinking bit level [indiscernible] The travel we in prepared How year, you some follow-up. where, those thinking some for and next little are year you first your about that have question. had a as a How of margins I've and savings. of might earlier into remarks back. the we cost a head follow-up back savings, to think sustainability COVID-related we let's the But of that, costs especially the about got be you mentioned

Guy Melamed

our but lot obviously, tried when know into back consideration in we normal When physical talked when of to were going a address in full as try in built kind and So bake we and already the little of we done know, the that of to expense kind guidance, past. of marketing in of and guidance. and we think of don't bit of that's normal a some the bake way and in know a baked kind flights year I you also the we've what don't to the took what we things come sure marketing. about back We that in XX overall terms second margin We the in events whole, part kind it as operating in take to Bake increasing headcount we're trying there in also of would isn't a longer tried Polyrize kind kind be that whole -- less when expenses more Polyrize the doing adds, before investments about we putting we of X% that committing year-over-year term balanced to the the margin. increasing And the of of now material. and with acquired advantage than acquisition and to about the heads sales It and I'd on employees. to there, also we're the say that opportunity. and improvement, were that make R&D but roughly

So changed, it's continue to same of a in to the we're a hasn't kind the trying of and philosophy XXXX. bit do

Rishi Jaluria

haven't now -- your thinking you not would been then And about have Can Thanks. less seasonality Got looks seen was going versus quickly has under as seasonality forward? how to But in we here, maybe have wanted All That's look perpetual I some just then should we pre-transition, reduction completely ASC explain seen little ask I model. we license of expected the about why super be out consistent XXX relatively maybe right. we means it what a would seasonality? that. that all big seasonality than just seasonality, And it like from and guess, it's it. ratable. clean

Yaki Faitelson

Of course.

the number similar QX were and XXX then the recognized seasonality perpetual stays with because that's to to portion subscription the the been is year, the the trend license we $X way continue. year and that historically term have and number And we is base licenses recognized the and So contributing to we is the of the portion of that expect of largest year recognize XXX to kind that. from basically for the way licensed the and a the that, very the ratably really the QX is over has of the of upfront, sold revenue lowest revenue same for maintenance subscription

Rishi Jaluria

All right, you wonderful. Thank much.. so

Yaki Faitelson

you. Thank

Operator

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

James Arestia

you, thank interest So for with have quarter. everyone, joining good Thanks for speaking and a to this night. and your more we look And forward today. everyone

Operator

Thank you. This concludes tonight's conference.

and evening. have this at disconnect may a lines great time. Again, your You your participation for thank you

Varonis Systems (VRNS) 9 Feb 212020 Q4 Earnings call transcript