Varonis Systems' (VRNS) CEO Yaki Faitelson on Q2 2016 Results - Earnings Call Transcript

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Varonis Systems Inc. (NASDAQ:VRNS) Q2 2016 Earnings Conference Call August 9, 2016 5:00 PM ET


Lisa Sheldon - IR

Yaki Faitelson - CEO

Gili Iohan - CFO


John DiFucci - Jefferies

Matt Swanson - RBC Capital Markets

Scott Zeller - Needham & Company

Rishi Jaluria - JMP Securities

Andrew Kisch - Barclays

Yun Kim - Brean Capital

Srini Nandury - Summit Redstone Partners

Gur Talpaz - Stifel

Michael Kim - Imperial Capital


Please stand by. Good day everyone welcome to the Varonis Systems Incorporated Second Quarter 2016 Earnings Conference. Today's call is being recorded.

At this time I'd like to turn the program over to Ms. Lisa Sheldon. Please go ahead ma’am.

Lisa Sheldon

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis's second quarter 2016 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Gili Iohan, Chief Financial Officer. After preliminary remarks, we will open the call up to a question-and-answer session.

During this call we may make statements related to our business that would be considered forward-looking statements under Federal Securities Laws, including projections of future operating results for our third quarter, ended September 30, 2016 and our fiscal year ending December 31, 2016. Actual results may differ materially from those set forth in such statements.

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

These factors are addressed in the earnings press release that we issued today under the section captioned forward-looking statements and these and other important risk factors are described more fully on our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our view only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our second quarter 2016 earnings press release, which can be found at in the Investor Relation section. Also please note that a webcast of today's call will be available on our website in the Investor Relations section.

With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Yaki?

Yaki Faitelson

Thanks Lisa and good afternoon, everyone. We’re very pleased with our results for the second quarter. We see strong momentum in the business and this is now the third quarter in a row of going both license and total revenues with 30% or more year-over-year.

We’re also exceeded our guidance on both the top and bottom-line. The [SIEM] solution increased globally and our efforts to reach customer is more than 1,000 employees who can make larger commitments for us over the time are showing results.

Total revenues for the second quarter rose $38.6 million, an increase of 33% year-over-year. We are encouraged by the positive momentum we see in the business. More and more organizations realize that they don't have visibility into the massive and growing stores of unstructured data in prior system, both in Varonis and into cloud.

Unstructured data is what companies have the most and know the least about putting it at risk. So many of these digital assets are sensitive and valuable far more than many realize, [till] disgruntled employees and creator of over the [indiscernible] are targeting these assets which are not protected by other security solutions.

Therefore the management in protection of unstructured data in prior systems are becoming key spending priorities for IT and security professional as well as senior executives who understand their ramification of not taking action.

We are also benefiting from trends in UBA User Behavior Analytics as companies realize they need credible data at both the assets they are trying to protect. Without it there is just not much to analyze we are over a decade of experience generating, collection and refining the credible data to our audit capabilities, commission analysis and data classification. This means that more and more companies realize that they need Varonis first.

We know, that the problems we are trying to solve are bigger and getting bigger. According to a new study, we released earlier today of 3,000 corporate IT professional end user, which we commissioned and was independently conducted by the [indiscernible] institute, closing the security guards to protect corporate data is a huge problem.

In fact 88% of those end user service used sensitive data as part of their job. From 76% 18 months to go, 62% of end user said they have access to company data, they probably shouldn’t see and 76% of IT professional said the organization have recently experienced the loss of set of company data.

This response is up sharply from the 67% we reported loss of theft of data in the 2014 survey taking a 18 months trial and they reported that compromise inside of the count are by far the greatest common dominator of these breaches.

Varonis is uniquely positioned to have companies monitor, protect and manage the unstructured data to secure organization all the while allowing employees to their job effectively. Our solution immediately dictates press by analyzing data, accountability and user behavior and we will help prevent compromise by locking down sensitive and stale data, reducing board access and simplifying permission.

Finally Varonis help its customer to sustain a secure state by automating authorization migration and disposition.

As of June our methodology is now reviewable in our executives briefing center at Our detective and preventive capabilities both play such meaningful role in protecting organizations from rising trend like ransomware.

Ransomware continues to be strong driver for our business not just because DatAlert detects it because it brings to life what we have been saying for 11 years. Organization have too much unprotected data, way too many people with access to it and too many unknowns, who is using it, deleting it, or keeping it for ransom. Ransomware is the only side of threat that announced its presence.

And when companies fail to dictate ransomware encrypt files on the file shelf, they begin to wonder what other more dangerous they're not seeing. This kind of employees stealing data, abusive administrator reading other people email, contact those acting maliciously and when they see what a single company account can encrypt on their fully secured file share, they begin to realize the extent of vulnerability, dramatically illustrating the need for the preventive governance capabilities in our platform. And the urgency to stop ransomware and the awareness it builds, drive higher level of engagements with the organization.

We believe data level presents the most advanced analytic and predictive spread monitoring available to dictate inside of threat enhancement world and increase customer to go farther to secure their data through our solution and proven methodology. We continue to receive more attention from decision maker with access to budget and are willing to spend them.

We continue to have access globally and a cost medium and large enterprises but our focus on engagement with companies with 1,000 employees or more is key driver for our growth.

Our pipeline is ongoing and we're experiencing less friction in the sales cycle as buyers understand what we do and the need for software. This has changed the dynamics of the conversation we are having today versus even a year ago.

We have capitalized on this increased interest and see return of our investment. We have made to drive the awareness in adoption. During Q1 and Q2 we conducted 23 worldwide Varonis Connect event and attendance nearly doubled compared to the same period in 2015.

Customers were particularly interested in DatAlert and now it addresses the ransomware and the other insider threat as well as how we can help them protect most of all of their files and email system and stores of unstructured data.

Our insider threat complaints generate awareness in web traffic and our trial and demo request nearly doubled during the first half of this year compared to the first half of last year. Our Q2 customer wins reinforced the value of our product driver across multiple used case study including great addition such as city of Calgary, the city of San Diego and John Hancock to name a few.

New customer Bank of North Carolina's CIO initiated an engagement with the goals of securing BNC large amount of unstructured data. BNC is a quickly growing bank in the southeast, growing through to significant M&A and the CIO and his teams are very security focused.

Varonis has enabled them to lock in their sensitive data, visualize with access to it and reduce the risk of malware and insider threat. BNC also plans to use data transport engine to secure data migration during merger and acquisition.

Another great example of how the breadth of the Varonis portfolio can make difference is Bouygues Telecom, one of France's largest mobile phone and internet service provider in Q2 and they choose Varonis DatAdvantage, DatAlert and DataPrivilege for Windows and SharePoint to solve major challenges in analyzing and securing access to emission across different platforms.

They also need to improve auditing and compliance capabilities and with Varonis they are now monitoring all the resources for one dashboard with the reporting and alerting they need and because of Data Privilege, their data on air have self-service portal to keep access decisions aligned with business needs.

We are pleased with our execution. We are benefiting from our exports to build awareness around solutions and taking advantage of key trends that drive security spending and data protection. Overall, demand remains very positive and we believe that we will continue to capitalize on the various spend moving in our direction.

With that I will turn the call over to Gili.

Gili Iohan

Thank you, Yaki. Total revenues for the second quarter were $38.6 million, an increase of 33% year-over-year growth. We are pleased with the consistent high levels of growth we’ve been able to deliver.

As we see a continuation of positive business trends, including healthy global demand, strong execution on our two prong strategy attracting new customers and expanding our relationship with existing customers and our consistently high maintenance renewal rates of over 90%.

License revenues were $21.7 million. This represents a 36% increase from the second quarter of 2015. Our maintenance and services revenues were $16.9 million, an increase of 29% compared to the second quarter of 2015.

Looking at the business geographically, we have strong growth in every region led by the U.S. which increased 35% with $24.3 million or 63% of total revenue. EMEA increased 28% to $11.9 million or 31% of total revenues and rest of the world increased 34% to $2.5 million or 6% of total revenue.

We've successful broadened our relationship with existing customers and also increased new customer additions. For the second quarter we added 285 new customers, compared with 258 last year. Existing customer license and first year maintenance revenue contribution was 41% in line with the second quarter of 2015.

During the second quarter, we closed one deal greater than $1 million with a new customer. As of June 30, 2016, 46% of customers who had purchased more than one product family, up from 43% as of June 30, 2015.

When you look at the large number of customers we add each quarter and the increasing traction across our existing customer base and product line, you can begin to see the strong foundation we're building for long-term scale and stable unit economics.

Before moving on to the profit and loss items, I would like to point out that I will be discussing non-GAAP results going forward unless otherwise stated, which for the second quarter of 2016 excludes the total of $3.4 million in stock-based compensation expense and $79,000 of payroll tax expense related to stock-based compensation.

Please note that the detailed GAAP to non-GAAP reconciliation can be found in the tables of our press release which is available on our website.

Gross profit for the second quarter was $35.1 million representing gross margin of 90.8%, compared to a 90.6% gross margin in the second quarter of 2015.

Sales and marketing expenses were $25.2 million or 65% of revenues for the second quarter of 2016, compared to $20.6 million or 71% of revenues in the second quarter of 2015. We're pleased with the levers we were able to realize in this area during the quarter.

R&D expenses in the second quarter were $8.1 million, compared to $7.3 million last year. Investing in product development to expand our used cases, grow our total addressable market, enhance our competitive position and increase the value we provide to our customers remains a priority for us.

G&A expenses were $4 million or 10% of revenues, compared with $3.2 million or 11% of revenues in the second quarter of 2015. Operating expenses totaled $37.2 million in the second quarter, compared to $31 million last year.

As a result, our operating loss was $2.1 million for the second quarter, a meaningful improvement compared to an operating loss of $4.6 million in the same period last year.

During the quarter, we had financial expenses of $605,000 primarily due to foreign exchange losses, compared to financial income of $402,000 in the same period last year.

As you know, foreign exchange gains and losses can fluctuate. Our guidance does not consider any additional potential impact to financial and other income and expense, associated with foreign exchange gains or losses as we do not estimate movement in foreign currency rates.

Our net loss was $3 million for the second quarter of 2016 or a loss of $0.12 per basic and diluted common share, compared to net loss of $4.4 million or a loss of $0.18 per basic and diluted common share for the second quarter of 2015. This is based on $26.3 million and $24.9 million basic and diluted common shares outstanding for Q2 2016 and Q2 2015 respectively.

We ended the quarter with 996 employees, a 17% increase from 850 at the end of the second quarter of 2015. We are focused on adding people to deliver innovation and expanding self-capacity in order to drive growth while also focusing on scaling the business.

If you look at the balance sheet, we ended the quarter with approximately $108.5 million in cash, cash equivalents and short-term deposits. During the first six months of 2016, we generated $2.3 million in cash from operations.

Moving to guidance, for the third quarter of 2016, we expect total revenues of $38.2 million to $38.8 million or 22% to 24% year-over-year growth. We expect our non-GAAP operating loss to range between $2.7 million and $2.3 million and non-GAAP loss per basic and diluted common share of $0.11 to $0.10. This assumes a tax provision of $200,000 to $400,000 and $26.4 million basic and diluted common shares outstanding.

For the full-year 2016, we are raising both our revenue and profit guidance. We now expect upper revenues in the range of $158.6 million to $160.6 million, representing year-over-year growth of approximately 25% to 26%.

We now expect our non-GAAP operating loss to be in the range of $8.5 million to $7.5 million and our non-GAAP loss per basic and diluted common share of $0.36 to $0.33. This assumes a tax provision of $900,000 to $1.3 million and 26.3 million basic and diluted common shares outstanding.

In closing, we finished the first half of the year on a strong note. Market awareness for our solution continues to grow. We see increased adoption of our product and we are well positioned for success in the second half of 2016.

With that, we'll be happy to take questions you have. Operator?

Question-and-Answer Session


Thank you. [Operator Instructions] We’ll move first to John DiFucci with Jefferies.

John DiFucci

Thank you. Thanks for taking my question. Listen Yaki and Gili the numbers really speak for themselves, over the last three quarter and its apparent the customers find value, you have to offer, but -- and I realize that you have been dealing with for while there was this need to vandalize, what Varonis had to offer.

But it really seems like that’s being recognize by your customers today and you had a little bit help of the market to with some really high profile breach, and I guess my question are we now at what might be considered a little more of a steady state market or as you brought your offering is there an opportunity for much more to come from that?

Yaki Faitelson

Hi, John. I think it’s only the start. So the sales motion is definitely changing. So customers understand several things. One that the risk is coming from inside and with ransomware and everything that’s going on, the clearly unstructured data file shows, file systems and active directory are very vulnerable.

So just we're much more than overall unstructured data. So it became much less -- less need to evangelize, you need much more to position it right to explain why Varonis is first and now it’s integrate this ecosystem and this works very well for sales people that know how to do it.

And the second thing is really Alert. They don’t need to do a project to coming into the core and if you will customer dysfunction and we give just precise layer that’s coming from the data itself.

You know we are doing to -- all this infrastructure and critical data and active directory, what 10 years ago fraud detection need to credit card, and this is also works very well.

And the other thing that we are benefiting, you have this emerging system in security. Security still is an extremely strong secular trend, with customer now saying I can spend millions on security but I am not secured. What I need to do?

I think to go from the data, where is this -- this is coming from the inside and this is what we are benefitting and there is significantly less friction.

The sales cycle is becoming more and more predictable. The awareness works better. The channel partners are more happy to push the product, but it’s a market that is shaping and we are owning this market.

So I really believe that this is just only the beginning and the market will form and this is with time. It’s take time and as I always told you, but I believe that this is going to be standard infrastructure in this environment it’s something that the business side over can’t live without.

John DiFucci

Well the numbers, the numbers show that to be happening to be happy -- keep it you bring up something that's just another question came to me and then when you mentioned DatAlert and the alerts notification, so oftentimes what we hear about in security products and security offerings is there is just people get over one of the false positive and I am curious what are you experiencing or what are your customers experiencing with Varonis products, in that regard?

Yaki Faitelson

It’s an excellent question. Thanks. So it’s all starts with the data you are monitoring. A lot of the false positive is because you take the slogs that are very out one those then what is an event.

John, an event is someone is reading your email, an administrator is changing permissions for its folder and reading files. Someone is trying to take your credential and do something with them. So we started the place we are sitting it and then we have 4,800 customers amazing feedback loop from the market.

So we build a threat model that the customer make us better and better and on top of that is -- we are expert in machine learning. So we're starting with the data. We sit in the right place in the data. So we are able to give something that is very accurate, where this massive amount of customer and very advance security lab.

In genuine department the build a threat models and on top of that all the expertise that we have in machine learning this is create alert that are just very accurate.

John DiFucci

Great. Thank you very much and excellent job.


We’ll hear next from Matt Hedberg with RBC Capital Markets.

Matt Swanson

Thanks guys, this is actually Matt Swanson on for Matt. Congratulations on the quarter. Yaki, this is the third quarter in a row where we really saw broad based success of Geos, has this trend continued in the first five weeks of the third quarter, specifically around Europe and have you seen any impact from Brexit?

Yaki Faitelson

We can't talk about -- we can't talk about the third quarter and it's just too early to talk about Brexit, but you know -- also as you know the third quarter is a slow quarter in Europe because of this time also. We still didn’t see any impact, but it's too early.

Matt Swanson

All right. Thanks. And then you continue to expand on the amount of customers with multiple products, can you just remind us what the most common add-on product after DatAdvantage, just how you typically expanding within our customer base?

Yaki Faitelson

The Data Classification Framework.

Matt Swanson

All right. Thank you.


We'll hear now from Melissa Gorham with Morgan Stanley.

Melissa Gorham

Great. Thanks for taking my question. Yaki, I'm wondering if you can maybe just talk about the extent with your additional conversations are changing with customers. And I'm particularly curious if customers are now coming to you specifically for the user behavior analysis used case versus the floor maybe it was more structure related and if it for the UBA used case where are you sitting against that?

Yaki Faitelson

Yes so it's definitely we're selling more to the security used case and the data that was coming with DatAdvantage and the security part of it is usually leading and after that you are able the governance.

So you want to make to dictate is something that is happening and then you really want to fix the overall infrastructure. We see less and less competition overall from and on DatAlert almost none.

So overall it's percentage of our POC, we see less competition, but what is interesting is that company is talking about user behavior analytic because there are many companies who are trying to take load from SIEM solution and analyze it.

And you have many startup and companies are talking about the insider threat because this is where the risk is. So really in the last three quarters is the first time for us that we don’t have competition, but we are benefiting from a big way from the marketing that other companies are doing and it talks very well for us and this way customer were coming to us and we are coming in.

We don’t need to convince them that that they are exposed ransomware is doing a very good job in explaining that and where they are exposed and what they need to do and that a lot of the risk is coming from the inside and parameter security very limited.

Melissa Gorham

Okay. That's helpful. And then just one follow-up on the full year guidance, so it could be this quarter and the full year guidance moves up in terms of revenue, but it does assume a slowdown in growth. Is that just typical conservatism or is there something that we should be aware of that would cause that growth to slow down?

Yaki Faitelson

We believe that overall 25% is slowly than just we are very comfortable with the business the way it performed, the pipeline developing and the overall awareness. We just feel that half way into the year this is the responsible way to guide.

Melissa Gorham

Okay. That's helpful. Thank you.


And from Needham and Company, we will move to Scott Zeller.

Scott Zeller

Hi, good afternoon. Yaki, there are broad based let's call it cooling off of spending on security solutions and for number of quarters you told us even benefiting from increased awareness of your solution for security purposes. Can you tell us if you've noticed any sort of change in behavior or frantic nature of spending on security, has it changed your deals at all?

Yaki Faitelson

We are everyday benefiting from increased awareness and increased demand particularly when the emergency spending happen we didn’t benefit from it so much, but we are benefiting from a very thoughtful approach to our security. So you can spend a lot in security and get nothing. You need to make sure that who is the personnel that you have, who can really solve the problem and you need to know where you are exposed, and in this universe we are sitting all file system, almost all unstructured data repositories.

On premise, a lot of them in the cloud active directory, when you look at inside affair, this is 80% of the universe, and we're benefiting into B grade from a market that is just forming and we own and so far we see significantly a more budget coming toward a solution like ours.

Scott Zeller

And could you tell us if there has been any noticeable change in deal size over the past few quarters or how deal sizes remained roughly unchanged?

Gili Iohan

We provided on an annual basis, but it was within the range of our expectation. And our model continues to be high volume low ASP. The main focus for us is the customer lifetime value, which is a very strong for us and the lending expanse not just above the single purchase and this continues to be very strong both for a new and existing customer.

Scott Zeller

Thank you.


Next we’ll go to Greg McDowell with JMP Securities.

Rishi Jaluria

Hi this is Rishi Jaluria dialing in for Greg. Thank you for taking my question. So first just in the past couple quarters we’ve seen a delta in the growth rates between license and the maintenance services.

Is this a the trend that we can kind of expect to continue that growth rates from license is going to continue to outpace maintenance and services or how should we be thinking about that?

Yaki Faitelson

We gave guidance. The only thing that we can say at this point is we’re very comfortable with the way the business is performing and awareness of the market, we can’t comment more than that.

Gili Iohan

Yes, maintenance and services continues to be strong and renewal rate also is very strong for us, like always over 90% consistently.

Rishi Jaluria

Okay. Great. And Yaki you talked about seeing more widespread awareness of the need for these kinds of solution. How has the sales momentum as that awareness is built up, how is the sales momentum for the channel been progressing or your partners?

Yaki Faitelson

Its work in progress. We see definite more demand from the partners. But this is coming from all over, if you open Q1 business publication everyday you read about cyber security. What is happening is how we can solve the problem and the way to solve the problem is what is the practical way?

So I think the way that the market is morphing now is what is the practical approach? What are the solutions that can really give value? What the organization can digest? Where are the critical assets? Where is the critical infrastructure. And this is what we are benefiting from and what happens is in actuality what it does, it makes the self process much more predictable.

You come in we're doing everything with POC, we live in diabetes evaluation. And you do an evaluation and you can bring a C level person to the woman, and see the dysfunction and most times people just feel responsible to act, and this is a problem that they want to solve.

Rishi Jaluria

Okay, great. Very helpful. Thank you so much.


From Barclays we’ll move to Raimo Lenschow.

Andrew Kisch

Hey guys this is Andrew Kisch in for Raimo, my congrats also on a really solid quarter. So we're trying to see some pretty meaningful leverage in sales and marketing. Can you talk about anything specifically that might be driving it?

Yaki Faitelson

No, what we said which time we've more tenure and more people in the overall productivity curve. And we said that we'll inch forward towards profitability and this is what we were doing. It’s a tremendous opportunity this 285 customers represent every customer -- every customer in the world, everybody that files an emails are important to him and has active direct can be Varonis customer.

But with time we’ll have more tenuous in the U.S. but we -- we're innovate, we keep investing in R&D and we keep investing in sales and marketing, but with time, we see more leverage and there is this business with a lot of earning power and this is what you think.

Gili Iohan

And we've made a lot of investments in the business that we guess there is a lot of capacity into the business and now it's come into fruition.

Andrew Kisch

Great. Thanks guys.


We’ll hear next from Yun Kim with Brean Capital.

Yun Kim

Thank you and congrats on another strong quarter Yaki and Gili. The question when customers are coming in and buying to address the kind of prevention are customers buying your product across multiple platforms or are they simply buying just for one platform initially and rolling that out on platforms later.

Yaki Faitelson

It depends, it depends, it’s on a case by case basis but with time definitely the mobile platform and data level changing the sales motion, because we sell more to infrastructure, we're selling to the people that are managing the Windows state, the UNIX state, and messaging and now that it's coming from security people -- the security team want to make sure and also the business side that all the platforms are secured.

So also if they because of budget or what they can't buy multiple platforms in the first purchase, they are trying sooner rather than later to have coverage on other platforms, but the DatAlert makes -- because DatAlert makes it much more sticky and much more portable that they will buy additional platforms.

Yun Kim

Great and then Gili you talked about a ASP remaining more or less the same, but has there been any increase in the number of large size deals in your pipeline and just curious, you did, you guys just signed a one seven figure deal in the quarter, what was the primary driver of that deal, just given that you work with a new customer?

Yaki Faitelson

From time to time we have larger deals with overall $1 million and we had good volume of larger deals with the new customers this quarter but as I said we continue to be focused on the total customer lifetime value and customer, we see customers realizing the value that we provide and they come back and purchase more of what they have and more product families. So, overall it's working very well.

Yun Kim

Okay. And then just last question on the sales force ramp, can you just give us an update on where we are in terms of the overall sales force ramp especially in Europe in terms of both headcount and productivity and what they’re planning to be going forward especially given the value business has been an acceleration.

Is there any thought to perhaps accelerating your investing in sales capacity given that your business has been strong.

Yaki Faitelson

Having coverage and increasing sales capacity is always part of the plan, just talking about just enormous market that we own, but we are doing it in a measured way.

We want to make sure bringing the high talent, we want to make sure we enable them, we make them productivity the right manager and this can fluctuate a bit from quarter-to-quarter, but definitely building is significant sales force that can capture on this massive opportunity is key for our plan.

Gili Iohan

And as you can see from the guidance we're improving their margin, but we are also giving us some flexibility to invest during the second half of the year we're flowing through a healthy portion of Q2 be to the annual guidance but not all of this.

So we didn't really change the way we think about balancing between investing in the business in the sales capacity and product development and also moving on the path to profitability, but we're still investing in the business to capture the opportunity.

Yun Kim

Great. Thank you so much.


[Operator Instructions] We’ll move on to Srini Nandury with Summit Redstone Partners.

Srini Nandury

Alright, thank you so much for taking my question. Yaki you've announced in your press release, you integrated the solution with Dell Fluid File System, how should we -- how should then we be thinking about this new channel -- but it's going to be a really a channel or you have to go through somebody else too…

Yaki Faitelson

I’m sorry I missed the question, if you can repeat…

Srini Nandury

Yes, please basically you announced that you integrated your solutions with Dell Fluid File System, right so, I was kind of wondering is that a new opportunities to news avenue for markets, is that what I was getting at?

Yaki Faitelson

So this is just a technology partnership and we are trying to support every commercially viable just file system on prem and cloud platform and this is just part of the technological effort to make sure that we can give value to our customer regardless of what platform they choose to put the files on.

Srini Nandury

Okay, understood, you with regards to John DiFucci answers question before you said that, you are seeing lot of momentum in your sales cycles, are sales cycles shrinking length of deals shrinking and are you talking to C sales now as opposed to the IT folks which you were targeting before?

Yaki Faitelson

It’s not, its enterprise sale, it's still need to do the regular sales cycle just becoming much more just predictable customers are coming to us. There is a lot of attention from sea level and they're definitely selling move to C Sales with more involvement of the business.

It is becoming more predictable sales process, the pen is clear, their ramifications are clear, the clarity of the business to act and do something is clear and this is what we are benefiting from.

Srini Nandury

All right. Thank you so much.


We’ll hear next from Gur Talpaz with Stifel.

Gur Talpaz

Great. Thank you. So Yaki many vendors are trying to gain traction with the insider threat and ransomware base team, including one vendor that we saw that was basically offering insurance backed guarantee for their solution, clearly you're winning. Can you talk about what’s helping you win versus all the other guys either kind of capture the same theme?

Yaki Faitelson

We are sitting on the data, this is where we start. We are sitting on the data and when this thing starts its going to your file, shows and keep them immediately as this happens we detect the behavior, we detect the pattern of the files and we catch them and we generate an alert to tell you who is doing it and from where.

It’s from where we sit and we know what is right behavior and what is wrong behavior. In any other place, we are sitting on the target. In any other place that we sit and try to solve the problem you will have just marginal success in this. It starts from our position from where we sit.

Gur Talpaz

That’s helpful. And then with regard to UBA it’s also becoming a much more prevalent theme from our vantage point. If you look out there, you are seeing a lot of same vendors make partnership, guys like IBM partnering Exabeam, HP also partnering Securonix and then even the player like Splunk acquired Caspida.

You're also winning with DatAlert, what is it about the DatAlert framework that's allowing you to capture that theme and really went out versus the competition there?

Yaki Faitelson

We're not competing with them in any shape or form. What happens is that they are coming and they are trying to get some intelligence, some to unlock potential and value from this logs they are seeing, but the logs, the VPN logs or what not, it’s very hard to decide for them and get -- and understand what’s going on.

We sit on all your file system that run all your applications, all your file share, your share point of state, we are sitting on 365 on the crowd on your active directory and when -- usually when insider will do something, it will do it on this infrastructure or this data and we just sketch it.

So many times customers want to understand what insider will be doing and they're starting to think about UBA and they're coming to us. They understand that we call it Varonis first. You need Varonis first in order to unlock older value.

And this is something because the data that we analyze, we can be very accurate, you don’t think this data analyst and at the end of the day you want to protect the data.

It's all about the data, all the security is to protect the data and the fact that you're taking logs of network devices and other it doesn’t give you the value that you want.

So the whole theme of insider threat and UBA you are just facing the awareness that the problems coming insider and you need to analyze, data then the question what data you need to analyze, what is value, how accurate it is, what you understand from the alert they give you on we just really benefiting tremendous risks from this discussion.

Gur Talpaz

That’s great. Yaki thanks a lot and congrats on the quarter.


We’ll hear now from Michael Kim with Imperial Capital.

Michael Kim

Hi. Good afternoon, guys. So with the increase in RES [ph] are you seeing the growth, the challenge being driven by more partners investing more special in Varonis and are starting to drive more sales leverage as they are both sourcing and fulfilling a lot of the opportunities?

Yaki Faitelson

It’s both, just no channel partner that are interesting in Varonis and they're just channel partner that becoming no more productive can tell the story better but it’s really both.

As I said in the last year, the market is coming together, it’s a gradual process, but it’s definitely happening in every quarter you can measure the network of the market, just more awareness, more understanding more feet on the street that is not just Varonis talking about it, more project that related to insider threat and all of this just driving the channel the more.

Michael Kim

And can you talk about what kind of growth investment you are making in channel sales organization. As if across all Geo’s is pretty comparable across Geo’s and what kind of an effort to take place?

Yaki Faitelson

The channel manage, marketing programs, pushing those sales teams to work more with the partners enablement just everything. But the channel partners are front and center to our go-to-market effort.

Michael Kim

Great. Thank you very much.

Yaki Faitelson

Thank you.


There is no further question. I’ll turn the conference back to you all for closing remarks.

Yaki Faitelson

So we end the call I would like to thank all of our employees for the contribution for success this quarter and all of our customers and partners for their continued support. Thank you for joining us today. We are looking forward to speaking with you again soon.


And that will conclude today’s conference. Again thank you all for joining us.

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