Varonis Systems Inc (VRNS) 2015 Q1 法說會逐字稿

Good day, and welcome to the Varonis Systems first-quarter 2015 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' first-quarter 2015 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 second quarter and 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; 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, or our ability to build and expand our direct sales force efforts in retail or 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 risks are described more fully in our reports 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 not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any obligation 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 first-quarter 2015 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?

Thanks, Staci, and good afternoon, everyone. Our results for the quarter were driven by strength in the US, as we continued to see strong demand for our solutions; however, our business in EMEA this quarter was weaker than expected. We experienced a more difficult selling environment in some countries. In addition, we faced some selling execution challenges in the UK, and we are dedicating additional [senior] attention, as well as middle-management support, to help with improving pipeline development in our close process. Our expectation is that it will take a few quarters to correct itself. Despite this, we achieved our guidance with Q1 revenues coming at $23 million, an increase of 32% year over year, and also an increase of 35% on constant currency basis.

During the quarter, we added 189 new customers and saw an increase year over year in the percentage of customers who purchased more than one product. We continue to have success selling our (inaudible) business, which is based on high volume and low ASPs. Over the last month, we held nearly a dozen Varonis connect events globally, interacting with several hundred attendees. These events were designed for (inaudible) across North America and Europe to learn about new Varonis product innovations and share experiences and success stories.

I was able to attend several of these events and things globally were the same. New and existing customers need solutions to help them manage their human-generated data on (inaudible) the cloud, and they look to improve productivity while managing security risks. And, they are looking to Varonis as a long-term partner based on our focused innovation.

On the security (inaudible), our goal is to minimize the damage any single-user account can cause by reducing their access to need-to-know data and putting into place sophisticated detective controls to alert when sensitive data may be in jeopardy. Varonis seals the blind spot in the Company's security strategy, when someone gets inside the network and touching data we uniquely enable the owners of the data (inaudible). You may have noticed that recently launched an insider-threat campaign and we had an extended presence (inaudible) just a few weeks ago, as we elevate our position in the data security conversation.

A great example of this is a new customer, Columbia State Bank. They are a rapidly growing premier northwest community bank with $8.4 billion in assets with over 156 locations in Washington, Oregon, and Idaho. In Q1, they purchased DatAdvantage for Windows, DatAlert, DatAnswers, and Data classification framework.

They chose Varonis to increase their overall security [posture] and meet compliance standards. The bank expects to use Varonis Solutions to improve its ability to compile alerts, anomalous activities, and general reports based on their compliance [efforts]. The Data classification framework in DatAnswers will provide comprehensive and reliable search capabilities across the entire scope of its file services in a timely manner.

Another emerging business driver that became increasingly apparent from our discussion will several customers is that some data is moving to the cloud. Our customers have been asking us to offer support for Office365, and we are delighted that it will be ready for them to test during the second quarter, with the beta release of version 6.1.30 (inaudible). Many of our customers are in the initial stages of moving some of their human-generated data to the cloud, but they are concerned about protecting it.

They need to make sure they understand who can and who does use it, and they need to make sure sensitive content is stored in the right places. No technology is better suited to help them protect and manage data than the Varonis Metadata Framework. Its elasticity, once again, allowed us to expand platform support and add more license to our portfolio with DatAdvantage for change online, SharePoint online, and (inaudible) and the IDU data classification framework for SharePoint (inaudible).

The [sales key] discussion area was that our customer wants more from us and our focus on ongoing innovation is a key reason they partner with Varonis. For example, we saw good initial traction for DatAnswers, our newly released search portal across value (inaudible). In addition to the upcoming beta release of our Metadata Framework, we are making several other product introduction enhancements during the second quarter.

DataPrivilege for SharePoint will be available for testing. This product automates access provisioning, entitlement reviews, and policy enforcement, just like it has been doing for file share for years. DataPrivilege will let data owners manage their SharePoint data without IT assistance. In some ways, this was one of the dreams of SharePoint, with DataPrivilege for SharePoint that dream is realized.

Active Directory is one of the most critical components in the modern data center. Almost every user, service, and device connect and (inaudible) for authentication and (inaudible). Controlling active directories is paramount and this is the reason DatAdvantage for directory services has been so successful.

DatAdvantage for directory services is getting more capabilities in this release. It will now be able to not only detect good policy changes in Active Directory, but also show IT staff exactly which policy settings were changed, more (inaudible) information will be captured and analyzed web security better support possible intrusions and we're sure this enhancement will help IT better control the security and stability of the critical infrastructure components.

Lastly, we are making significant enhancement to our (inaudible) engine, the underlying mechanism that allows solution to affect changes in our customers' environments. We have added the ability to program changes in bulk, more flexibly to schedule and monitor execution, and more flexibly to hold back changes later. With these enhancements, our customers will be able to get their environment under control more quickly than ever before.

Our long-term outlook for Varonis is [light]. We will continue to support innovation and go-to-market investments. We are in an early stage market and have considerable opportunity in front of us. Our pipelines are growing and evaluation continues to grow well, as awareness and demand builds for our products in the complex problem we serve.

With that said, we believe that the challenges we faced in EMEA could continue over the next few quarters, and therefore, believe the right thing to do is to adjust our full-year guidance. We now expect to grow revenues in the range of 22% to 25% for the full year 2015. Corresponding with this revenue guidance, we are also making some adjustments to our spending, primarily in sales and marketing, including managing out underperformers and adding new sales headcount at a more moderate pace while continuing to focus on productivity.

We believe this will better align the business overall as we remain laser focused on capturing the massive opportunity in front of us. With that, I will turn the call over to Gili.

Thank you, Yaki. Total revenues for the first quarter increased 32% to $23 million. Growth was driven by strength in the US. The success we are seeing with our land and expand strategy and consistently high maintenance renewal rates is over 90%.

The movement in foreign currency from when we provided guidance in February, negatively impacted revenues by approximately $80,000 during the quarter. License revenues were $10.2 million. This represents a 26% increase from the first quarter of 2014. Our maintenance and services revenues were $12.8 million, increasing 36% compared to the first quarter of 2014.

Looking at the business geographically, US revenues increase 44% to $13.1 million, or 57% of total revenues. EMEA increased 15% to $8 million, or 35% of total revenue, and rest of world increased 31% to $1.9 million, or 8% of total revenues. For the first quarter, existing customer license and first-year maintenance revenue contribution was 36% versus 33% in the first quarter of 2014.

Our land and expand model is delivering results and we will continue making investments to broaden our relationship with existing customers as well as increase new customer additions. As of March 31, 2015, 43% of customers had purchased more than one product family, up from 40% as of March 31, 2014, further validating our focus on innovation and expanding the use cases for our products.

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 first quarter of 2015 excludes a total of $1.7 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 first quarter was $20.2 million, representing a gross margin of 88.1%, compared to an 88.4% gross margin in the first quarter of 2014. Sales and marketing expenses increased to $19.5 million or 85% of revenue for the first quarter of 2015, compared to $13.9 million, or 80% of revenue in the first quarter of 2014. The increase was primarily due to increased sales force headcount and go-to-market expenses to drive our growth and our annual sales kickoff, which is primarily to train our sales force in our exciting new offerings.

R&D dollars in the first quarter were $7.3 million, compared to $6.2 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 market, and competitive position. G&A expenses were $3.4 million, or 15% of revenue, compared with $2.6 million, or 15% of revenues in the first quarter of 2014, primarily related to the global expansion of our business.

Operating expenses totaled $30.1 million in the first quarter, compared to $22.7 million last year. As a result, our operating growth was $9.9 million for the first quarter, compared to an operating loss of $7.3 million in the same period last year.

During the quarter, we had financial expense of $1 million, primarily due to foreign exchange losses, compared to $38,000 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 $11 million for the first quarter of 2015, or a loss of $0.44 per basic common share, compared to net loss of $7.4 million, or a loss of $0.30 per basic common share for the first quarter of 2014. This is based on 24.7 million and 24.4 million basic common shares outstanding for Q1 2015 and Q1 2014, respectively.

We ended the quarter with 863 employees, a 37% increase from 630 at the end of the first quarter of 2014, and an addition of 23 people from the prior quarter. This reflects increased investment in our business to support additional innovation, new products, and expanded sales capacity in order to drive sustainable growth.

If you look at the balance sheet, we ended the quarter with approximately $113 million in cash, cash equivalents, and short-term deposits. During the first three months of 2015, we generated $1.2 million in cash from operations.

Moving to guidance, for the second quarter of 2015, we expect total revenues of $28.5 million to $29.3 million, or 16% to 19% year-over-year growth. We expect our non-GAAP operating loss to range between $7.5 million and $6.7 million and non-GAAP loss per basic common share of $0.31 to $0.28. This assumes a tax provision of $100,000 to $300,000 and 24.8 million basic common shares outstanding.

Our guidance for the second quarter reflect that we expect sales conditions we experienced in EMEA to continue. In addition, in Q2 of last year, we closed a few large deals, both of these factors are expected to impact our growth rate. For the full year 2015, we now expect total revenues in the range of $123.6 million to $126.7 million, representing year-over-year growth of approximately 22% to 25%. This includes approximately $0.5 million impact from the strengthening of the US dollar against the foreign currencies we operate in since we last gave guidance in February.

We expect our non-GAAP operating loss to be in the range of $17.5 million to $16 million and non-GAAP loss per basic common share of $0.73 to $0.68. This assumes a tax provision of $650,000 to $850,000 and 24.8 million basic common shares outstanding. Our full-year guidance takes into consideration the selling conditions we are experiencing in EMEA. It also remains based on our model of volume and velocity.

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

(Operator Instructions)

John DiFucci with Jefferies. Mr. DiFucci, your line is open.

We'll move on to our next question from Keith Weiss of Morgan Stanley.

Thank you guys, and thank you for take my question.

So when I'm looking at the guidance for Q2, and assuming that you continue to see -- I mean, business is going to roll off the balance sheet. It seems to imply an even steeper deceleration in licensed revenue going into Q2 -- I'm getting somewhere between 8%- and 10%-type growth rate in overall license revenues -- so that opens the question of what exactly is the nature of the problem going on in Europe? And is it something that is getting worse? Something that you guys picked up at the end of the quarter that would lead to that further deceleration? And I was hoping that you could better detail what is going to reverse that downward trend line? What are the fixes that you guys are putting into place to get that curve or get that trend line headed back up?

Hello, Keith.

Just to explain the business in EMEA, the bulk of the business in EMEA is coming from the UK and France and it is fairly unusual, but we saw several million dollars in Russia last year. So, we pick some good times in Russia and we have good business there. So, what we saw is -- and most of the business concentrated. So with all the economic conditions started in Russia, Q4 was viable and from the beginning of this quarter it was completely frozen.

And regarding the UK, we just performed in the past very well, and also last year [unfolded our] EMEA business grew 77% year over year. And we have good management there, but we have some growth pangs there, and some execution problems that we are addressing with senior Management's attention and bringing in strong middle management. We have several hundred loyal customers there, so we believe it will fix the problem, but to fix it completely will take us a few quarters.

France is unusually big for us. They are performing very well, but the economy there is not ideal and it is a bit hard to close business. Performed very well in Q1, so what you see in the guidance for Q2 regarding Russia it's all bets off. Regarding the UK, it will take us several quarters to solve the problem. Last year we had [several last billing] second quarter, so it's a bit hard to compare. So we believe in this kind of situation this is the right way to give guidance for the quarter and for the year.

Got it. And then in terms of the competitive environment, we always talked about you guys having pretty much the market opportunity to yourselves. No one is really coming into the market with a solution quite like yours. It sounds semantic at the most recent analyst day we're talking about solutions that sound a lot more similar to what you do. Microsoft is talking about solutions that sound more similar. Are you guys seeing anything in the marketplace in terms of competitors at least trying to message more similar to what you do, and trying to put another layer of controls on top of the human-generated data?

No, not at all. We measure everything -- every valuation, as you know and every competitive situation, so in terms of percentage of competitive situation from overall eval, we don't see any change whatsoever.

Got it. And then just one last question for me.

In terms of the cost structure, you talked about sort of adjusting the spending for what is going on in Europe. The overall -- I believe the operating margin targets for the full year still look for operating margins to be down for the year. So what's the philosophy behind those adjustments? You guys are looking to get to profitability faster? Or is it just matching up the current rate of spend to what you're seeing in the market, but still you are (inaudible)? Help us understand what the overall -- is there a philosophical change in how you're thinking about spending? Or is it just a minor adjustment because of some of the hiccups, if you will, you're having in Europe?

It is a minor adjustment. It is very important to explain that we are always focused on profitability but on profitability at scale. If you look at the (inaudible) more than three years the upsell is quite a profitable business and the [rates are] very productive. So, we need to make sure that we are investing in the right places and we are going to do it in a bit of a more motivated way. But we just learned to capture a market opportunity ahead of us, but in some places in the UK that we are operational, we have execution problem and we are going to solve it before we are putting a lot of capacity there. We just want to be a bit slow in the way that we are hiring, and feel that everything is working.

But, Keith, it's very important for us to isolate what's going on in Russia with radical economics condition. In the UK that was the problem to the other areas of the business. Most of the business is performing very well. The US did 44% growth, brought many new customers. All the key matrixes are working well with upsells and new customers, and you can look at that we are selling all the products. We are doing this for 10-1/2 years and know very well how to solve problems.

So, this is really what you see from us. We are focused on a case-by-case, focused but we have problems to solve them. We are also investing in the other markets and you have to make sure that in general is more diversified for us, but most of the investment that we put in the business are working very well for us.

Got it. Thank you very much, guys.

Raimo Lenschow with Barclays.

It is Andrew.

Saw again a nice uptick in the percentage of customers with multiple products and it's just generally looking like your newer products are continuing to see increased adoptions. So my question is, are you, at this point, seeing any sales to new customers that are being led by your newer products that aren't DatAdvantage? And do you see the potential for this to happen?

Yes, we definitely see that, but you need to understand that most of the time people with DatAdvantage. Interestingly, we see that the downloads of data anywhere, sometimes the free download generates good leads for other products because if someone is downloading it, obviously they (inaudible) data that they need to manage and protect. But overall we are pleased with the adoption of all the products and we also believe that the cloud is a huge opportunity for us.

Customers are very much concerned about security in the cloud and taking the data to the cloud and how much it is going to cost and we can really help them. So, we are pleased with the adoption of the current products. At times we see that we don't need to use DatAdvantage and we're also very excited about the new innovations that we introduced this quarter for supporting the cloud and also the enhancement to the current portfolio.

Great. Thanks, guys.

Matt Hedberg with RBC Capital Markets.

Thanks for taking my questions.

I'm curious about sales cycles, Yaki. You guys obviously have a large number of products, and I'm wondering if it's causing deal cycles to potentially elongate? Or is this mainly a European issue right now of just tougher macros?

It's Europe and Russia that's tougher in macros and the UK some execution problems, but we maniacally measuring everything in the business and sales cycles almost always stays fairly the same.

And coming off of 4Q, 1Q saw obviously some nice growth. I'm curious -- how much of the growth in Q1 was due to Q4 deals that slipped into the quarter? And maybe what are your thoughts about the US market heading into Q2?

So, in terms of -- every quarter we have some deal that will slip in, but you asked us about the first quarter and last quarter, and what I said it's not marking a trend. The US performed will and we have a lot of confidence in the US business. In Q4, 2013, we had several large deals and this is why no license can fluctuate. But the deal is good pipeline in the US and the team executed well against this pipeline and the same trend continued to Q1 and the team overall executed well. So, we feel comfortable with the US markets and other markets, and we feel comfortable with most of the investments we put in place and the way that sales management is running the business.

Great. And then maybe one last one.

Can you talk about how the Sony breach might benefit future results? Typically the nature of that breach, and what was exposed?

Matt, it's hard to predict. I think that people understand the consequences of not being secure. I think there is a lot of noise in the security market today, but when everything is said and done, I think people are starting to understand what they need to protect is the data itself, and making sure only the right people can access the data, and to know who is accessing the data at all times, and alert abnormal behavior. This is the first frontier and unstructured data, no one is doing it better than Varonis. So I think that overall, security is very important for most enterprises and something that we are going to benefit from. How it's going to -- exactly the tangible way, how it's going to benefit the future, it's hard to know.

Great. Thanks, Yaki.

Thank you.

Srini Nandury with Summit Research.

Thank you for taking my call.

Yaki, can you talk about the pipelines in various geographies? Have the pipelines been harvested in Europe and that's the reason you need more time to build out pipelines, particularly in UK?

I think that except the (inaudible) that the overall sentiment there is not to do a lot, the pipelines are growing well and also growing well in the right categories. The key is just to make sure that you have enough density and you have teams that are executing the programs and lining up the new business, engaging the channels, and a competent middle management that is building the pipeline to close the deals. So overall, pipeline we feel very well.

We also feel very well -- we saw hundreds of hundreds of customers in the [connecters] day -- the excitement of our customer base to buy more product and the way that we cater to more and more use cases. So, the way that the pipeline is building we feel very comfortable, but you also -- in the UK you need to make sure that you have the right people to execute on this pipeline and to do it in a very consistent way. In our business one of the main keys is not to lean on large deals, to have this consistent business from [onry deals]. But overall we are very pleased with the pipeline development.

What about the sales cycles in general? Have you seen any changes in the geography there? Or have they been consistent, just other issues you are dealing with?

Except the issues that I mentioned we are dealing with, they stayed fairly consistent.

Okay. Finally one question.

Keith mentioned this earlier in the call and touched on this -- Symantec and Microsoft have some similar solutions. You said that you are competing against them and some of the solutions are expensive, in prior conference calls. For example, your (inaudible) solutions. When you go back to your customer base and talk to them, what do the conversations look like? Are they using similar solutions? If they're using similar solution, can you get them to replace their solution with your solution? What are the connotations like?

At times we see Symantec initially the way we say is the valuation, and when we are evaluating against them, competition is vanishing extremely fast. Regarding Microsoft, they're pushing -- they're helping us, because when you're talking about the cloud and you are giving (inaudible) and the key is to build them up. The metadata and they provide this metadata for solutions like ours to provide better control, just emphasizes how important it is and mainly how important it is in the cloud and pushing the need for the product in the cloud and on premise, so everything that Microsoft is doing is helping us tremendously.

Regarding eDiscovery, we have data answers that cater to enterprise search and some eDiscovery. Some eDiscovery [products] do not come to replace it, so we're not going to compete with it. It's just a very effective, secure enterprise search, primarily for SharePoint sites and mainly for file shares. And when we introduced this product what was mind-boggling, if you will, is that most of our customers don't have enterprise sales, don't have eDiscovery and just sort of (inaudible) because of the economics and because it is not secure.

So, for us it's just a big opportunity. Most times we are introducing this product. We are not conflicting with competition. This wasn't the intent when we introduced this product. We just understood there is a need, but it's just very expensive or it's hard to scale and without technology we are able to fix the economics to deliver this value and also make sure it will be very secure.

All right. Thank you so much for taking my call.

Thank you.

John DiFucci with Jefferies.

Thank you. Can you hear me, Yaki?

Yes, hello, John.

Okay. I'm sorry. Sorry about before. A little technical glitch on our side, I think. I'm an engineer and a software analyst, but sometimes a technical idiot. Two quick questions.

I don't want to keep beating this thing, this one topic, but it's something that we're all going to be addressing tomorrow with investors. This execution in the UK that's going to take a few quarters to improve on -- how do you plan on correcting this? Is it as easy as replacing some personnel, and that's sort of you alluded to that? Or is it also a process issue? And is there something you're changing along those lines which you may or may not be able to get into in detail?

It's not replacing the personnel -- just bringing the right people and executing our processes. So Jim O'Boyle of Worldwide Sales and I are doing it for a long time and Jimmy is going to take it as his personal project and just want to make sure that the team that grew quite a bit last year can execute the programs effectively and the new people that we are bringing on board are the right people that can execute the Varonis go-to-market strategy. When we are executing our strategy of building the right valuations and demonstrating the value, the result is very predictable. So our business [for years] until 300,000 - 350,000 is a volume business, very predictable business.

And the team has some challenges sometimes to do this scale, so at times they are doing very well when they are closing large deals, but we just need to make sure that we have enough density and enough pipeline and we are touching our customer base in the right way, and then this business is coming a very predictable business.

The main thing is that Jimmy will get in and just make sure that they are executing the program and the right people are coming on board and right off the bat they are doing it in Varonis way and not deviating from the way we take the products to market. But the reality is, as I said, we are doing it for 10-1/2 years and know how to solve problems. You don't solve problems in one quarter. It takes a few quarters to show me that you can do it in a systematic way quarter after quarter.

I appreciate that. So it sounds more like it's just more focused with things that have worked in the past that are tried and true. We get it, thanks.

And I guess my second question is another one I know you're going to get a lot of. It looks like, when I look at your guidance for revenue and then for non-GAAP net income, you're bringing OpEx down a little bit with revenue coming down some; but it's still elevated for investment, which makes sense, because of the opportunity seems compelling here. But given what we're seeing a little bit -- well, this quarter was sort of in line -- well it was in line -- but lowering the guidance for the year, is it possible or have you thought that maybe it's possible you are still too early in the spend? Because a lot of this is, as you know, a sort of evangelical sale. And could it be that you're just spending but people just aren't quite ready yet? Is that something you thought about at all?

Yes, we always measure in the adoption curve of our customers and how we (inaudible) when you have around 6,500 customers you have a lot of [clinical] evidence how it works and how the evaluation is working, and the close rate is working. When we have the right people that are executing our program it works very well, and evidence what is going on in the US and going on in France, and in other markets the program is working very well. And at times you need to do also brute force, and when you get to critical mass, the other thing that we see is a lot of interest from [silent] partners that will help us to carry to market.

So we just see that the way we are -- it is a very good question, because what you said, because a new market is a different dynamic, but it is the right balance between productivity and capacity and we think that we are balancing each in the right way. And we talk a lot about it and I also think that we are managing it in the right level.

And the other thing that is very important to emphasize is Russia. It was a blessing early on, we find good people in Russia and it did very well for us. And we were still not a big company, and we sold several million dollars there last year, and then you have a business that is completely frozen. When you are small it has an effect, but by and large, all the investments are working very well and we are measuring them very well, and we have a reliable margin of error in the way that we are doing it, and we're bringing more and more customers that we can sell to them. And when you have more customers it is becoming more earmarked in terms of budget, so we feel confident in the way that we are investing in the business.

Okay, Yaki, that makes sense. Thank you.

(Operator Instructions)

Scott Zeller with Needham & Company.

Good afternoon. Thanks for taking the question.

So, could you help us understand how much of last year's revenue approximately was from Russia, as we think about calendar 2015?

Several million.

Several -- okay. I guess we will leave it at that.

And, Yaki, when you think about the sales methodology that each of us as analysts have heard you talk about, how different is that outside of the US versus what you've described to us about your domestic sales operations, and the various parts -- the high-volume strategy, low ASP, and developing people from within. How similar is that outside of the US?

It's the same. It's the same, and, Scott, don't forget that we grew the business 37% in a year last year and it's working very well. The key is, when you are scaling the business you can't bring everybody from inside; bringing some people from outside and they need to be the right people and they need to buy in very fast that we live and die by evaluation. And this is how we are building the pipeline and know how to do it together with the channel partners. But with Varonis, the first rule -- the iron rule -- is, everything starts and ends in evaluation and the front end of the (inaudible) inside sales to generate this evaluation and also need evaluation in the right sizes.

And lastly, on the differences between domestic versus international, could you refresh us on how much of business domestically versus business internationally is touched by channel partners?

We are doing almost everything through channel without high-touch of the Varonis (inaudible). We are going to market the same in the US, EMEA, and the other markets.

Okay, thank you very much.

Thank you.

Greg McDowell with JMP Securities.

Great, thank you.

My first question -- I just want to focus on the lowered full-year revenue guidance and hopefully try to get a more meaningful breakdown of the roughly $6 million that you lowered revenue by. How much of that $6 million would you attribute to currency movements versus just taking down your EMEA sales plan? And to that end, is the US still on the sales plan that you originally envisioned for the US at the beginning of the year? Thank you.

Gili will talk on the currency in a second so, yes, the US on the same plan. We took into consideration frozen Russia, the problems in the UK, and just in the margin, and maybe some (inaudible) in another market in EMEA, and we bake it into the guidance and we see the responsible way to guide.

Regarding the currency, Gili will give you the information.

The annual guidance was negatively impacted from the strengthening of the dollar by approximately $0.5 million since the last time we gave guidance in February; and on a constant currency basis, compared to the average currency rates from last year, the [impact] is approximately 2.5%.

Okay, thank you. And one quick followup.

I wanted to focus on the moderating headcount commentary. Is that across all geographies? Or is that mainly on the geographies where you're seeing some softness? And I guess part B of that question is, you added 23 people in the quarter. Should we think about employee growth being flattish for the rest of the year? Or just more moderating growth? Thank you.

Just more moderated growth. We'll keep investing but just more moderated growth for the year. And some parts of EMEA we are not going to invest, and we are just going to invest under the right managers in the right markets and make sure that we have the right attention to make them productive. This is not a major change from our plans from the beginning of the year.

Okay, thank you.

Michael Kim with Imperial Capital.

Good afternoon, guys.

Coming out of the RSA conference, curious if any feedback you can share on changes in spending priorities towards protecting data versus perhaps protecting perimeters? And if you are starting to see maybe an opportunity to gain a larger share of the budget, whether it's discretionary or even more formalized on a go-forward basis?

I think that definitely there is more focus on security, and I can't talk about it in detail, but more and more people talking about protecting the data. And we believe that more security budget will be available for Varonis. But what is also very exciting and we saw the people talking about security but the security conference, but our team this week (inaudible)m and what they experienced is that [storage] people are talking about security. Security is going to be something coherent in the infrastructure and every part of computing will need to deliver good security. And I think that Varonis is going to benefit from that in a big way.

I know on this call you talked quite a bit about sales execution in EMEA, but are you seeing any divergence between the North American customers and the European customers, especially UK, in their use cases? Maybe their demand profile and their receptivity to these types of solutions now?

No, the customer in North America and UK are the same. Amazing customers in the UK. People there are very advanced in the way that they are adopting technology. We know what we need to do; it will take us a few quarters and we are going to [show] this.

Great. And then just real quickly, on North America in Q1, was there any particular benefit from some new budgets at the early part of the year? Or was it a pretty normalized budgetary cycle for the quarter?

Completely normal Q1. This team executed well and the team executed well on the pipeline. As I said before, you ask me in Q4 what is going on with North America and we told you that it's just license revenues, sometimes fluctuates. The team executed well also in the fourth quarter, and they just carried the momentum to the first one.

Very good. Thank you very much.

Thank you.

At this time there are no further questions in the queue. At this time I will turn it back to Yaki Faitelson for any closing or additional remarks.

I would like to thank (inaudible) customers and partners for their continued support. Thank you for joining the call today and we're looking forward to speaking with you again soon. Thank you.

Thank you for your participation. This does conclude today's call.