Varonis Systems Inc (VRNS) 2014 Q4 法說會逐字稿

Good day, and welcome to the Varonis Systems, Incorporated, fourth-quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Staci Mortenson, Investor Relations. Please go ahead.

Thank you; good afternoon. Thank you for joining us today to review Varonis' fourth-quarter and full-year 2014 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 up the call 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 first quarter of fiscal year ending December 31, 2015. Actual results may differ materially from those set forth in such statements.

Important factors such as risks associated with anticipated growth in our addressable markets; competitive factors, including increased sales cycle time; changes in the competitive environment; pricing changes and increased competition; the risk that we may not be able to attract or retain employees, including engineers and sales personnel; our ability to build and expand our direct sales efforts and resell our distribution channels; general economic and industry conditions, including expenditure trends for data governance and data security software; new product introductions and Varonis' ability to develop and deliver innovative products; risks associated with international operations; Varonis' ability to provide high-quality service and support offerings; and macroeconomic conditions 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 in our report filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should be not relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application 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 fourth-quarter 2014 earnings press release, which can be found at www.varonis.com in the Investor Relations 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?

Thanks, Staci, and good afternoon, everyone. 2014 was [good year] for Varonis. We completed our successful IPO and celebrated 10 years of operation -- both meaningful milestones in our development as a Company. I would like to thank all of our customers [including] and partners for helping us achieve our success.

To quickly recap the results, Q4 revenues rose $33.7 million, an increase of 31% year over year. For the full year, revenues were $101.3 million, up 36%. Our results further validate a growing demand for organizations and by organizations to secure, manage and take advantage of the rapidly expanding human-generated data.

On one hand, we are seeing an increasing number of high-profile [butchers], those that are not only target financial information, but also sensitive data and intellectual property to meaningfully [disturb] business. On the other hand, employees are starting to find and access the same information, which is unacceptable that the [dock hills] can more easily search out and extract intellectual property than [placid] employees. It is becoming increasingly clear that organizations cannot reverse or even slow this [strength, one] that threatens their ability to conduct business, without having Varonis as a co-component of their infrastructure.

Gili will offer the financial details in a moment. But I wanted to provide you with additional business [filax] that illustrate the success we are having in growing our business and building the wellness of our product. Companies face the challenge of keeping clinical data information secure without compromising the productivity of the employees. And this is only getting more difficult as the explosion of business data and our dependence on it complicates organization need to protect it, while still make it usable and accessible.

We recently sponsored a study that was conducted by the Ponemon Institute, a leading research center dedicated to privacy data protection and information security policy. The study included more than 2,000 employees in the US, UK, France and Germany, across a variety of industries. The study revealed that organizations lack control over employees' access in the use of company data, and that organizations would overlook security risks before they would sacrifice productivity. The truth is, they are not improving productivity, but overlooking security risks. They are slowing it down.

With Varonis, the same control and practices that keep your data safe when used correctly also allow employees to utilize data more effectively. For example, 71% of employees say they have access to data they shouldn't. Yet 43% of end-users take weeks, months or longer to be granted access to data they need to do their jobs. At the same time, 73% of end-users believe the growth of company data is very significantly or significantly a factor in their ability to find and access data. And 68% of end-users say it's difficult or very difficult to share appropriate data or files with business partners, such as customers or vendors.

These findings represent a unique opportunity for Varonis, and illustrate what we have believed for many years -- that it is no longer acceptable to be either productive or secure. Organizations must be both. Our solutions not only dramatically reduce risk, but actually improve productivity and efficiency at the same time. Our huge market opportunity reinforces our commitment to extending our product offering and opening up more [useful space].

We are pleased with the early attention we are getting around our version 6 Metadata platform, which became generally available in the quarter, as well as our [DatAnswers stillage platform]. Enterprise search is a large opportunity, and we believe our approach to attacking the problem will position us well to capture market share.

In addition, DatAnswers is expanding [valooska saving] to related areas, such as [eDiscovery]. [eDiscovery] functionality expands many of our [products]. The search is definitely one of the key categories of solution easily answered critical questions for business, legal and IT users, such as, which file exists that contains a reference to a model, what data did the person have access to at a certain time, and have any of the files been altered, by whom and when? When purchasing, we can easily activate the [slide-in key], leveraging the Metadata Framework already in place with our other product family.

We are also excited to announce that the IDU Classification Framework for UNIX and Linux will be generally available by the end of Q1. Many of our customers store important files on UNIX and Linux [server] and UNIX-accessible NAS devices. And they need to be able to finally classify those that are sensitive, regulated or otherwise interesting.

In addition to the new offering, our version 6 Metadata platform will include enhancements to both DatAdvantage and DataPrivilege. The entire DatAdvantage family will get more granular statistical views and reports on employees' [prior and heemos] activity to enhance security, [fight] the operations, and business intelligence. DataPrivilege will get new automations to make secure corroboration easier. With [difficult] certifications for UNIX and Linux, we have increased our license count to 12, providing an excellent opportunity for existing customers and broader offerings for new ones.

We also announced mutual compatibility to our Metadata Framework with Microsoft Office 365 to help protect customers' investments as they evolve their IT strategies to include cloud platform, expected to be introduced later in the first half of the year as the cloud becomes more mainstream. We are extending our commitment to protect and manage human-generated data, regardless of where it [fish type].

These are the first of many exciting updates and several new licenses we plan to announce this year. We continue to see success with our ongoing efforts to increase our customer base, adding 363 new customers in the fourth quarter and 950 in 2014, for 27% and 30% year-over-year growth, respectively, and ending the year with more than 3,300 customers.

During the fourth quarter, we saw our high-volume/low-ASP business model plays out, which provides us with a steady source of business for mostly on existing customers throughout the quarter, and meaningfully reduces our dependence on [big deal]. We have a very good attach rate across our entire product line, which reinforces the expanding set of [use-key-says proper].

It is important to remember that it takes approximately 18 months for our sale rates to be fully productive. Therefore, our 2014 results are primarily driven by our 2012 and 2013 investments. We plan to invest in [sales] in 2015, with the addition of new [hopes], managers, child enablement programs, to drive growth. We also plan to invest in ongoing product development to [further] the fuel engine. However, in [2016], you should expect us to see incremental leverage in the model as we gain efficiencies in the business.

We continue to add and expand with great set of customers, and let me spend a moment providing you with few examples. Ohio National Financial Services [for] DatAdvantage for Windows, ID classification framework and DatAlert as a proactive and preventive approach to protecting its customer and corporate data. With its [awnings] in place, Ohio National has a comprehensive view into how its 1,200 users use data and automated detective controls that alert on unusual activity.

When the Boston Globe wanted to reduce [copper retreats] and audit finding by identifying/locating corporate data that needed to be protected, and ensuring rightful access, they also wanted monitoring controls that would ensure ongoing compliance and to reduce probable storage costs by identifying and eliminating [stale] data. After evaluating Varonis, the Globe purchased DatAdvantage for Windows, DatAlert and IDU Classification Framework to meet these objectives.

And finally, I wanted to highlight [More-froy-say's] purchase of DatAnswers. More-froy-say is a French international company specializing in electronic security solution. They came to Varonis because they wanted to make sure their users could get value from their data and enhanced end-user experience [pus telch] was, as well as to ensure that only the right data was accessible to the right people, and organized correctly. It was Varonis' DatAnswer and DatAdvantage end-users access to relevant secure [stelch] results, where it is accessible to only those who should have access to it, and all use is monitored.

When we look to 2015, we see meaningful growth drivers for the business, and we will continue to make investment in support of our product, competitive differentiation and go-to-market initiative. [As the other detach done], you should expect us to continue to enhance the overall portfolio, thereby extending the value we provide our customers in our market position. We also continue to make investment to [go to sales] organization, but also focusing on helping those we have [added in] the last year [ramp out] in the reach productivity.

We are excited about the opportunity in front of us, and believe we are building a world-class organization, with the people and technology to go [in-scale]. With that, I will turn the call over to Gili.

Thank you, Yaki. Total revenues for the fourth quarter increased 31% to $33.7 million. Growth was very balanced, driven by new customer wins, the success we have seen with our land-and-expand strategy, and consistently high maintenance renewal rates of over 90%. The movement in foreign currencies from when we provided guidance in November negatively impacted our revenue by approximately $300,000 during the quarter.

License revenues were $21.7 million. This represents a 29% increase from the fourth quarter of 2013. Our maintenance and services revenue was $12 million, increasing 36% compared to the fourth quarter of 2013.

Looking at the business geographically, we saw broad-based growth. US revenues increased 26% to $17.9 million, or 53% of total revenue. EMEA increased 37% to $12.7 million, or 58% of total revenue. And Rest-of-World increased 41% to $3.1 million, or 9% of total revenue.

For the fourth quarter, existing customer license and first-year maintenance revenue contribution was 36%. This was 37% in the fourth quarter of 2013. And for the full year, it's at 36%, versus 34% in 2013.

Our land-and-expand model is delivering results, and we'll continue making investments to broaden our relationship with existing customers, as well as increase new customer additions. As of December 31, 2014, 42% of customers had purchased more than one product family, up from 39% as of December 31, 2013, total validating our focus on innovation and extending the use cases for our products.

Our ASP for the full-year 2014 was $58,000, compared to $61,000 in 2013. This reflects the strength in our high-volume/low-ASP model during the year, and our ability to grow 2014 total revenue 36% without meaningful contribution from [lodge-adee].

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 fourth quarter of 2014, excludes a total of $1.8 million in stock-based compensation expense. 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 fourth quarter was $31 million, representing a gross margin of 91.9%, compared to 92.4% gross margin in the fourth quarter of 2013. This was in line with our expectation, as we invested in infrastructure and personnel to support our increased revenues and high [re-ordering]. [Desert] marketing expenses increased to $18.6 million, or 55% of revenues for the fourth quarter of 2014, compared to $13 million or 51% of revenue in the fourth quarter of 2013. The increase was primarily due to increased sales force headcount and go-to-market expenses driving our growth.

R&D dollars in the fourth quarter were $7.1 million, compared to $5.7 million last year. This reflects our ongoing investment in innovation to enhance our existing products and launch new products to expand our value, total addressable markets and competitive position. G&A expenses were $3.2 million or 9% of revenue, compared with $2.9 million or 11% of revenue in the fourth quarter of 2013, primarily related to the global expansion of our business.

Operating expenses totaled $28.9 million in the fourth quarter compared to $21.5 million last year. As a result, our operating income was $2.1 million for the fourth quarter, compared to an operating income of $2.2 million in the same period last year.

During the quarter, we had financial expense of $806,000, primarily due to foreign exchange losses, compared to a gain of $116,000, due primarily to foreign exchange gains 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 incremental expense associated with foreign exchange gains or losses, as we do not estimate movements in foreign currency rates.

Our net income was $1.5 million for the fourth quarter of 2014, or $0.06 per diluted common share, compared to net income of $2.2 million or $0.10 per diluted common share for the fourth quarter of 2013. This is based on 27.2 million and 21.6 million diluted common shares outstanding for Q4 2014 and Q4 2013, respectively.

We ended the quarter with 814 [employees], a 47% increase from 573 at the end of the fourth quarter of 2013, and an addition of 51 people from the prior quarter. This reflects the increasing investment in our business to support additional innovation, new products and expanded sales capacity in order to drive significant sustainable growth.

I will now quickly recap the full-year results. Total revenues were $101.3 million, increasing 36% over [2014]. Non-GAAP operating loss was $12.6 million, and non-GAAP loss per basic share was $0.60. If we look at the balance sheet, we ended the year with approximately $111.7 million in cash, cash equivalents and short-term deposits. During the full-year 2014, we used $7.1 million in cash for operations.

Moving to guidance, for the first quarter of 2015, we expect total revenues of $22.9 million to $23.4 million. We expect our non-GAAP operating loss to range between $10.2 million and $9.7 million, and non-GAAP loss per basic common share of $0.42 to $0.40. This assumes a tax position of $100,000 to $300,000,and 24.7 million basic common shares outstanding. Our first-quarter expenses include our annual sales [keyhole], which is primarily to train our sales force in our exciting new offerings.

For the full-year 2015, we expect total revenues in the range of $129.7 million to $132.8 million, representing year-over-year growth of approximately 28% to 31%. We expect our non-GAAP operating loss to be in the range of $13 million to $12 million, and non-GAAP loss per basic common share of $0.56 to $0.52. This assumes a tax provision of $650,000 to $850,000, and 24.7 million basic common shares outstanding.

To summarize, we are pleased with our fourth quarter and full-year 2014 performance. And we are very excited about the Company's positioning for 2015 and beyond. With that, we would be happy to take questions you have. Operator?

(Operator Instructions)

Raimo Lenschow, Barclays.

Thanks for taking my question. Yaki, could you -- my first question is on the retail performance. Can you talk a little bit what you saw in the different regions? According to my model, US seems to be a touch weaker this quarter, but then Europe and the Rest of World was performing better. Can you talk a little bit of what you're seeing in the different regions? Thank you.

Hi, Raimo. So overall, it was a solid quarter and we really benefited from the high-volume/low ASP. Last -- in 2013 in the fourth quarter, we had several large [obstacles] in the US that we didn't have this year. But if you look at the year, the US performed well, 35% gross. And we are very pleased with the overall investment that we did. Results can fluctuate a bit from quarter to quarter, but we have a well-balanced business. And if one market is not doing so well relatively to last year, others are picking up. But we feel very comfortable about the US. We feel very comfortable about the investment in the US and the positioning for 2015.

Okay. And one follow-up question from me. Can you talk a little bit about the whole enterprise search, eDiscovery [state] that used to have this interest in autonomy and fast-search, et cetera, all that rolls into bigger enterprises? And there seems to be a big opportunity there now as you go in against that market with a really focused solution. What has been the customer interest so far on that one? And how do I have to think about the revenue going into the pipeline as we go forward 2015? Thank you.

Thanks. I need to remind you that we're still in the early innings, and it usually takes a year for us to see material revenues from a new product. But so far, so good. We saw several in the fourth quarter, and I think there are two parts of the market. One is, we have 3,300 customers, and most of them don't have [search] surprisingly very well search. They have budgets that we discovered and we want to do it at those price search, but the current products in the marketplace are very expensive and they are not secure.

And there is another segment of the market that already put an investment in place. And most of the other players in enterprise search are a perpetual license that they take the upfront license investment. But then they're also charging you for every object that they are indexing, and it just costs an arm and a leg.

And this is a market that is, in my opinion, prime for disruption. So there is a big greenfield opportunity of people that know about it, but the economics didn't make sense for them. And there is another [state] part of the market of people that investment is just -- invested in it and it just costs an arm and a leg. And the annual spend of [they intend] this product doesn't make sense for them, and we can take the budget.

So it's interesting for us. We are entering a budgeted market. And also, enterprise search is also driving our other product. There are two really two budgets there. One is enterprise search and the other one is eDiscovery. And for eDiscovery, the most -- the co-component is search. But to refine the data, we want to make sure that the right people -- only the right people touched it, no one changed it. And you also want to find critical data and quarantine it. So it really -- it drives DatAdvantage and the data transport engine.

So far, there are very good signs, because it was a very strong, strategic decision to go after this market. Because we cost a fraction, and the performance are extremely high with us, and the total cost of ownership is low, and the results are secure.

Perfect. Thank you. Thanks.

John DiFucci, Jefferies.

Thank you. Yaki, you mentioned the recent high-profile security breaches, but you also mentioned in the press release increased use cases for your products. Could you talk a little bit more about those increased use cases, even if it's in the areas, like -- you've always been strong in security and archiving. But are there other areas? Or are they still more focused in those general areas?

Hi, John. They reality is that it's the balancing act between security and productivity is just a huge challenge. You need to use this asset, and you also need to protect it, and it's very hard. What we are seeing is that if you have critical information, someone needs it. So someone wants it. And also other people need it, which are our employees].

So we definitely see search and the file synchronization the ability to access the data, secure it from anywhere on any device, and find the data that you need is a big use case. But also making sure that the economics of maintaining the data remains safe. But we see the data transport engine plays out in two menu systems. One is really for compliance and regulation. I find critical data, I want to move it to the right places. And the other one -- I just want to make sure that I can utilize my infrastructure in the right way.

So timing and accessing data in a secure way,- there is a big productivity play there. And a lot of automation and alerting to understand that, we call it low-no touch value. To make sure without touching anything if anything bad is happening, that we have an alert. And then also to move the right data in the right places for security regulation and compliance reasons. And also to make sure that you can utilize the infrastructure in the right way, and how archive data [participate].

Okay, great. That's helpful. So, we should be thinking along the lines of security, but also along the lines of efficiency. And it sounds like there's probably -- it's being used in several different ways with those goals in mind. Okay, that's helpful.

If I might follow up for Gili. Gili, could you talk a little bit about foreign exchange and the impact on the bottom line, with the impact on the other income line? Can you tell us what the impact on the top line was this quarter? And perhaps what it will have, what impact it might have on the top line for your guidance for maybe the first quarter in the year?

Yes, on a constant currency basis, the foreign currency movement from Q3 last year negatively impacted our revenue by approximately $600,000. And if you compare it to the last guidance, as I said, it was $300,000 negative impact on the revenue. And if we use the prior-year exchange rates for 2015 guidance, it would have been approximately 3% higher than what we just provided.

Okay, great. That's very helpful. Thank you very much. Nice job.

Thank you.

Matt Hedberg, RBC Capital Markets.

Thanks for taking my questions, guys. Given the large market opportunity, I think in your prepared remarks you talked about continuing to invest in sales and marketing. But I'm curious -- what's the right level of spend here? And how we should we think about some of the productivity gains from some of the hiring that you did the last two years?

Hi, Matt. It takes around 18 months for a rep to be fully productive. And just if I can walk you through the productivity curve. The right walks, the first three months, we just teach them about the overall product suite. It's a big product suite, with a lot of use-case [stays] around security, productivity and cost efficiencies. After three months, there is time to do their own meetings and they're starting to do evaluation. 90 days after the first evaluation closing, the small deals; six months, the mid-sized deals; in a year, there will be a lot of deals. So they really start to contribute to revenues after three quarters, to be productive after 1.5 years.

So the people that we've had more than 1.5 years, they are productive, and productive in more than [postable]. The new people that we hired are gaining productivity and building strong pipeline. And this was a year of a lot of upfront investment; upfront investment being, first you need to put the management in place. And early on they are not managing a lot of people, then you put the reps that they are managing and you need to train them. But it's a huge market opportunity. We feel very comfortable with how we get peoples through the program and make them more productive. And we're striving here for a way to build a Company that is in order of magnitude bigger than it is now, and we feel that we are investing in the right way. Having said that, with time, we are going to have more 10-year reps than new reps, but we are going to keep investing.

And then maybe as a follow-up to that, I think you mentioned that you're starting to see some incremental leverage in the business. How should we think about cash flow this year relative to your earnings guidance? And any updated thoughts on when you might expect to hit the cash flow breakeven for the year?

In our guidance for 2015, operating growth equaled 40% margin in leverage. And we plan to keep investing in our sales force in go-to-market in [US], and middle management in the [channel and interment] program. But as we gain efficiencies, we will see some leverage in our operating margins in the business.

Matt, if you look at it, we didn't burn a lot of cash. We know how to be profitable. And the key here, it's just a big market opportunities, to balance very well between gross investing back through the business and profitability.

And in terms of overall leveraging the model, you just will see us inching forward. We'll do it very, very gradually and make sure that we are striving for profitability at scale. So we still -- if you look at the last year, we see that all the building blocks of the model are working very well. We can do margin extrapolation and understand how it's working at scale. And we are starting to do it at scale, but you also -- it's important for me to explain that we are investing in a prudent way. We are looking at every stamp, what is the year on every stamp, and we have a very good output. What you can expect from us is to gradually inch forward towards more [reliability] in the model.

That's right. Maybe if I could squeeze in one last one, your model is, like you said in the prepared remarks, not predicated on large deals. And I think ASPs were down a little bit, but they've been more or less flat the last several years. As you start to see some of the leverage in the sales force going into expand, additional cross-sell opportunities, might we expect ASPs to inch higher as we go? Or should you expect this trend of 50,000 to 60,000 ASPs on initial deals to stay pretty consistent?

The ASP was within the range of what we expected them to be. And it's basically driven by the high-volume model. We completed a large number of deals, but we really didn't have a lot of large deals. And we continue to see strong adoption across our customers, both from new and existing customers. They often start with one product family. And it is important to remember that the ASP is calculated based on the annual [still], and the customer lifetime value is much higher.

Companies make a large commitment to us; they're just doing it over time. We have many customers that have spent with Varonis more than $1 million of license revenue, they just do it over time. And we are fine with that, because this is how we built our model, to be based on high volume of run rates, though not dependent on any large deals. And we plan to continue with that model.

Got it. Thanks, guys.

Thank you.

Srini Nandury, WR Hambrecht and Summit Research Partners.

Thank you for taking my call, I really appreciate it. Yaki and Gili, I know you have been interested quite a bit in the federal sector. Can you comment on the traction there and what have you been hearing from your partners?

We started to [study this hearing] in the federal market, but the fourth quarter we really -- the first quarter in the federal market, so this is just regular seasonality. But we believe that we have a big opportunity in the federal market, and we are investing there.

Okay. I have one more question, if I may. Can you talk about the large pipelines in the quarter, and have any of them slipped into fiscal 1Q?

The whole business modeling in high-volume/low ASP, sometimes we have large deals, and this is what can skew license goals a bit from quarter to quarter. But most times, in order to make sure that we have relatively short budget cycle, we can show immediate value. We are going to large organization penetrating for to solve the problem on subset of the infrastructure on a department level, and we expand from there.

So we have big pipeline with many large customers, but many times they are starting with $200,000, $300,000 deal and then expanding from there. As Gili said, the customer lifetime value is well over $1 million in license, and this is how we are doing it. And this also gives us a lot of predictability and consistency in the business.

All right. Thank you for taking my call.

Regarding slipped deals, you always have slipped deals. But every quarter, deals moving from one quarter to the other.

All right, thank you, guys. Appreciate taking my call.

Thank you.

Keith Weiss, Morgan Stanley.

Excellent. Thank you, guys, for taking my question. As we head into 2015, you guys are heading into your sales kick-off. Should we be expecting or are you guys expecting to do any, significant changes in the go-to-market strategy? Whether it be what products people are selling, maybe some specialization? Or referencing back to Mr. DiFucci's question, any particular efforts to more specifically target what we're seeing as a big shift of spending into the security use cases?

Thanks for the question, Keith. Instead of [skee-cough], we have this search product which we believe is a big opportunity. So their is one aspect on productivity. And also security becoming still ever imperative. And if we look at security, on-factual data is the strong incentive for this, so we're really making sure that our people know how to explain the value to skill level.

And also we are going to support office space 365. And we believe that it's a big opportunity for two reasons. One is, organizations are like the economics of the cloud in some aspects, but of scale of the cloud, and they need better protection, and they also need to do migration. And the other thing is, we see that the unstructured data primarily is on-premise. And some of it is moving to the cloud.

If you remember how we price, it's by users that can access the platform. And we believe that the cloud is really increasing the overall total available market because the data is distributed, and it's another platform for us. So we just want to make sure that our people know how to talk about the productivity use cases. They know very well, because we always tell full evaluation how to demonstrate them.

And because we're bringing many new innovation this Q, sales kick-off was very important to make sure that everybody are on the same page, and we can execute in lock-step in how to do this. Because we gain some experience with the new product and the new use considering the fourth quarter, and wanted to make that to a man, we know that everybody know how to pitch it.

But no structural changes in your go-to-market strategy, in that everyone is still going to be selling across the portfolio?

Yes, we always have a [seas] that are specialized in other products. And we have several overall sales people for DatAnywhere, but not any meaningful change.

Got it. And if I can just follow up on that, specifically on the security use case, it is definitely a high priority out there. Do you think you can compete effectively enough when selling into a security-focused customer by using that more general-use approach? Or is there any potential that you would have to get more of a domain-focused sales person, like we've seen other vendors do, to more specifically target those security dollars?

No, I think that we can sell to specific security campaigns. The other thing that we see is a lot of interest around us, and a lot of security people wants to talk to us. But the other thing that it's very important to understand, that the security people many times are stepping up policies, and the people that need to implement them are the infrastructure people. So we need to -- we really need to target both. But definitely in our marketing effort, and the chief security officer is the target buyer. We are addressing them in every sales campaign. Security is really in our DNA.

Excellent. Thank you very much.

Scott Zeller, Needham & Company.

Working off of the recent question about the -- and Yaki had mentioned the chief security officer as a buyer. Could you review for us if you've noticed any changes in the target buyer within the IT organization? And just review for us which types of budgets you're pulling money from? Security systems, management, compliance, et cetera? Can you just review if there are any changes or shifts, and where the budget dollars are coming from?

Yes, of course. You need to remember that the bulk of our business is coming from companies between 500 to 5,000 users. And usually there is a security officer reporting to the CTO, the person on the infrastructure. So primarily, it's the same budget, and the city or the owner of the infrastructure has budget for system management infrastructure itself. And also security at many times is liaison to the business, and they need to solve many business problems. So many times we are getting to him, we show him the overall value. He understand that he can do many things with the platform and then find budget.

But for sure, we saw that the recent security breaches are generating a lot of awareness, and there is a lot of business dollars that are allocating -- that organizations are allocating to make sure that they are protected. Because I think that what is happening lately is that organizations and managements, and both, understand the severity of security breaches, and no one wants to be them.

Okay. And then just as follow-up, I think Keith had a question earlier around go-to-market or any structural changes in sales. I just wanted to ask specifically around your high-volume, modest ASP sales strategy, are you still committed to that practice? Just wanted to ask.

It's the best way to scale. We have an enormous market opportunity, our customer is buying more and more, and this what makes the business predictable. Yes, of course. This is how we can guide in the right way and how we can manage the business in the right way. And the large deals can be zero-sum game. So we want to make sure with the high-value/low ASP, we can make sure that we can make salespeople productive. And make sure that after 1.5 years, they can really contribute every quarter, quarter over quarter.

Thank you.

(Operator Instructions)

Greg McDowell, JMP Securities.

Great, thank you very much. My first question is on scaling the business, which we've talked a little bit about already. But I wanted to ask the type of sales rep you're investing in, maybe in the last six months of 2014 and in 2015? And whether you're putting more focus on inside tele-sales reps, outside reps, or in a channel or channel enablement rep? Thank you.

It's everything. You know, quota-bearing reps is an important component, a seasonally important component, in-state sales and China. It's all of them. We are putting a bit more focus on enterprises with 500 users and above. But it's everything. When you look at the sales engine, all the building blocks needs to work, and we are looking for salespeople that primarily sell software infrastructure, salespeople that can understand our model.

Remember that our model is all about evaluation. We say we always lean on the value of the product, and this is really how it works. But we invest -- we are scaling the business and putting upfront investment in all the building blocks of the sales engine.

Great. And one quick follow-up, in terms of getting into those larger companies, companies with more than 500 employees. How important is it that your -- the UNIX and Linux operating system, why expand on those platforms? Why is it important for your business? I'd love to understand why you didn't have those operating systems covered before. And if you could just touch on the type of market opportunity that being on UNIX and Linux -- what's that now open up for you? Thank you.

Thanks, So first, we are supporting UNIX and Linux for years with DatAdvantage. Now we're supporting it with the data specification framework. And we just see that critical information also resides on UNIX and Linux, so the product -- and we just need to support -- we are committed to support the data where it is. So our customers came to us and said they want to understand who can access my UNIX file system or is touching the data, who is changing files, and also I want to understand where I have critical information. And we just saw a big opportunity with UNIX-to-Linux-based sales deals and also on NAS devices that are catering interface.

Just another platform for us with critical information, and we believe it will add a lot of value to our customers by finding critical information on this platform.

Great. Thank you very much.

Michael Kim, Imperial Capital.

Hi, guys. You talked quite a bit about extending your go-to-market investments. Just curious, with the expansion in sales capacity, how you feel about the sales leadership framework. Have you feilled out a lot of the country managers or regional managers? And any color you can provide around providing a structure for this increase in sales capacity?

We feel very good with the [stellar] leadership in most places and when we increase sales capacity only in the places that we are sure that management can grow in scale. So we also added the manager in several places, and then want to make sure that they know what they are doing and can do the right hiring decisions, can build the channel, can represent the product well and educate new reps. And then we are testing the water, we see how they are hiring. And after they are proven, we are starting to scale up around this new manager.

But overall, senior sales management is with the Company for many years, it's very strong. They also know how to build a [bean] and module unto them. And we feel that in 2014, we built a very strong management backbone that we can scale effectively for many years.

With the acceleration in international growth -- and I'm not sure if I missed this earlier, but are there any particular geos that you see specific accelerated growth opportunities, where you might put a heavier level of investment?

We're considering every market, but I think that most of our dollars are going to go to, at this point, to the US and Europe. Obviously, we're going also to invest in Asia-Pac. But in 2015, it's a slower rate, most of the dollars will go to the US and Europe.

And in a lot of these geos, are you finding a similar track where an initial product might be DatAdvantage? Or are they more interested in some of the newer products and different use cases?

It's now starting with DatAdvantage. I will say the data -- and it's still early innings. So I don't know how we it will play out. We're also testing to see if it makes sense to leave a new [disk] product at times. But we just need to make sure that it will go into the sales cycle, and we will also learn what is the most effective way to sell it. What we see with DatAnswer, and so that there is an instant gratification for the business user. You put the product in place, and people know how to use Google, it's the same. They are going in, they're finding the data that they need, and it's just a big win.

And it's part of the metadata format. So we install it with a customer, usually it takes less than 1.5 hours. So we'll see how this will play out and if we can -- literally if it makes sense in some campaigns to lead with this product, we'll do it. But at this point, it is DatAdvantage.

Okay, fair enough. Great, thank you very much.

Thank you.

There are no further questions at this time. I'd like to return the conference back to Yaki Faitelson for any additional or closing remarks.

Thank you. Before we end the call, I'd like to thank all of our employees for their contribution to our success this year, and all of our customers for their continued support. Thank you for joining us today. I look forward to speaking with you soon. Thank you.

This concludes today's conference. Thank you for your participation.