Varonis Systems Inc (VRNS) 2016 Q2 法說會逐字稿

Welcome to Varonis Systems incorporated second quarter 2016 earnings conference. Today's call is being recorded. I would like to turn the call over to Ms. Lisa Sheldon.

Thank you for joining to us today to review Varonis' second quarter 2016 financial results. With me 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 ending 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 risked associated with anticipated growth in the addressable market, competitive factors including increased sales, cycle time, changes in the competitive environment, pricing changes and increased competition, the risk we may not be able to attract or reach employees including engineers and sales personnel, general economic and industry conditions, including expenditure trends for data governance and data security software, risks associates 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 office efforts and resell our 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 service and support operations 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 released today under the section captioned forward-looking statements. They 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 not be relied upon as representing our views as of any subsequent date.

Varonis expressly disclaims any application or under 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 www.varonis.com in the Investor Relations section.

Also please note that a web cast of today's call will be available on our website in the Investor Relations section. With, that I would like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Yaki?

Thank you, Lisa and good afternoon, everyone. We are 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 growing both license and total revenue by 30% or more year over year. We also exceeded our guidance on both the top and bottom lines. The (inaudible) solutions increased globally and our efforts to reach customers with more than 1,000 employees who can make larger commitments for us over time are showing results.

Total revenues for the second quarter were $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 the (inaudible) visibility into the massive and growing stores of unstructured data and file systems. Both in premise and in the cloud. Unstructured data is what companies have the most of and know the least about, putting it at risk. So many of the digital assets are sensitive and valuable, far more than many realize. (inaudible) disgruntled employees are (inaudible) are targeting these assets which are not protected by other security solutions. Therefore, the management and protection of unstructured data and file systems are becoming key spending priorities for IT and security professionals, as well as senior executives who understand the ramification of not taking action.

We are also benefiting from trends in UBA, User Behavior Analytics. As companies realize, they need credible data about the assets they are trying to protect. Without it, there is just no match to analyze. We have over a decade of experience generating, collecting and refining that credible data. So our audit capabilities, permission 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 big and getting bigger. According to a new study we released earlier today of 3,000 corporate IT professional end users which we commissioned and were independently conducted by the (inaudible) institute, closing the security gaps to protect corporate data is a huge problem. In fact, 88% of those end users service use sensitive data as part of their job. Up from 76% 18 months ago.

62% of end users said they have access to company data they probably shouldn't see. And 76% of IT professionals said the organization had recently experienced the loss or theft of company data. This response is up sharply from the 67% who reported loss or theft of data in the 2014 survey, taken 18 months prior. And they reported that compromised insider accounts are by far the greatest common denominator of these breaches. Varonis is uniquely positioned to help companies monitor, protect and manage their unstructured data to secure the organization, all while allowing their employees to do their job effectively.

Our solution immediately detects threats by analysing data account activity and user behavior. We help prevent compromise by locking down sensitive and stale data, reducing both access and simplifying permission. Finally, Varonis helps its customers sustain a secure state by automating the authorization, migration and disposition.

As of June, our methodology is now viewable in our executive briefing center at www.Varonis.com/watch. Our detective and preventive capabilities both play such a meaningful roles in protecting organizations from rising trends like ransomware. Ransomware continues to be a strong driver for our business. Not only because data alert detects it but because it brings to light what we have been saying for over 11 years. Organizations have too much unprotected data.

Way too many people with access to it and too many unknowns. Who is using it, deleting it or encrypting it for ransom. Ransomware is the only side of threat that announces its presence and when companies fail to detect ransomware encrypting files under fire shells they begin to wonder what other more dangerous threats they are not seeing. (inaudible) employees stealing data. Abusive administrator reading other people's emails. Contractors acting maliciously.

When they see what a single compromised account can encrypt on their poorly secured fire shells, they begin to realize the extent of their vulnerability. Dramatically illustrating the need for the preventive governance capability in their platform. The urgency to stop ransomware and the awareness it builds drive higher level of engagement within the organization. We believe DatAlert represents the most advanced analytic and predictive threats monitoring available to detect inside of (inaudible) ransomware and leads the customer to go further to secure their data for our solution and proven methodology.

We continue to receive more attention from decision makers who have access to budgets and are willing to spend it. We continue to have access globally and, of course, mid and large enterprises but are focused on engagement with companies with 1,000 employees or more is a key driver for our growth. Our pipeline is ongoing and we are 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 of our investments. We have made to drive awareness and adoption.

During Q1 and Q2 we conducted 23 worldwide Varonis connect events and attendance nearly doubled compared to the same period in 2015. Customers were particularly interested in DatAlert and how it expressed ransomware and the other insider threat as well, is how we can help them protect most all of the files in the system and other (inaudible) of unstructured data. Our (inaudible) generates awareness (inaudible) and our trial and demo requests nearly doubled in the first half of this year compared to the first half of last year.

Our Q2 customer reinforce the value for products, or for product drive across multiple use cases including great additions such as city of Calgary, the city of San Diego and John Hancock to name a few. New customer, bank of North Carolina CIO's initiated an engagement with the goal securing BNCs large amount of unstructured data. BNC is a quickly growing bank in the southeast, going through significant M&A and the CIO and the team are very security focused. Varonis has enabled them to locate their sensitive data. Visualized with access to it and reduced the risk of mal ware and insider threats.

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 a difference is (inaudible). One of France's largest mobile phone and Internet service providers.

In Q2, (inaudible) advantage, DatAlert and the data privilege for Windows and SharePoint to serve major challenges in analyzing and securing access to (inaudible) across different platform. They also need to improve auditing and compliance capabilities. With Varonis, they are now monitoring all the resources for one dish bulb with (inaudible) and alerting they need. And because of data privilege, their data owners can self-service product to keep access decisions aligned with the business needs.

We are pleased with our execution. We are benefiting from our efforts to build awareness to (inaudible) solutions and taking advantage of key plans that drive security spending and data protection. Overall, demand remains very positive. And we believe that we will continue to capitalize on the variable spend moving in our direction.

With that, I will turn the call over to Gili.

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 have been able to deliver. As we see a continuation of positive business trends including healthy global demand, strong execution on our two-pronged strategy attracting new customers and expanding our relationships with existing customers and our consistently high maintenance renewal rates of over 90%.

Licensed revenues were $21.7 million. This represents a 36% increase from the second quarter of 2015. Our maintenance and services revenue were $16.9 million, an increase of 29% compared to the second quarter of 2015. Looking at the business geographically, we had strong growth in every region, led by the US which increased 35%, with $24.3 million, or 53% of total revenues.

EMEA increased 28% to $11.9 million, or 31% of total revenues. And rest of world increased 34%, to $2.5 million, or 6% of total revenue. We successfully broadened our relationships with existing customers and also increased new customer addition.

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 purchased more than one product family, up from 43% from June 30, 2015.

When with you look at the large number of customers we add each quarter and the increasing traction across our existing customer base and product lines you can begin to see the strong foundation we are building for long-term scale and favorable 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. For the second quarter of 2016 excludes a total of $3.4 million of 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 are pleased with the levels we are 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.

Investigating in (inaudible) development to expand our use 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, and meaningful improvement compared to an operating loss of $4.6 million in the same period last year. During the quarter, we had 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 movements in foreign currency rate. Our net loss was $3 million for the second quarter of 2016, a loss of $0.12 per basic and diluted common share compared to net loss of $4.4 million 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 second quarter of 2015. We are focused on adding people to deliver innovation and expanding sales capacity in order to drive growth.

We are also focusing on scaling the business. If we 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 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 for 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 total revenues in the range of $158.6, to $160.6 million, will present a 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 $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 solutions 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 would be happy to take questions that you have. Operator?

(Operator Instructions). We move first with John DiFucci, with Jeffreries.

Thank you for taking my question. Listen, Yaki and Gili, the numbers really speak for themselves over the last three quarters and it apparent that the customers find value in what you have to offer. And I realize that you have been dealing with for a while there was this need to evangelize what Varonis had to offer, but it really seems like that's being recognized by your customers today. And you have had a little bit of help with the market too, with some really high-profile breaches. And I guess my question is; Are we now at what might be considered a little more of a steady state market or as you broaden your offerings is there an opportunity for much more to come from this?

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 unstructured data and file shares are very vulnerable. So we are much more than the unstructured data.

So if it becomes much less need to evangelize, you need to position it right and explain why Varonis is first and how it's integrated into the ecosystem and this works very well for salespeople that know how to do it. The second thing is really data health. You don't need to do a project. You are coming into the core end, if you will, the customer dysfunction, and we give just precise alerts that are coming from the data itself.

We are doing all of this infrastructure and critical data and active directory, but, you know, ten years ago, for the detection of the credit card. The other thing we are benefiting. You know you have this emergency spending and security, security is still very strong secular trend. Customer now saying I can spend $1 million on security but I'm not secured. What do I need to do? I need to go from the data.

Where is the risk? The risk is coming from the inside and this is what we are benefiting and there is significant friction. You know, the sales cycle is becoming more and more predictable. We will see it works better. The channel partners are more happy to push the products but, you know, it's a market that's shaping and we are owning this market. So I really believe that this is only the beginning and the market will form. It takes time and it's always, as I told you, I believe that this is going to be standard infrastructure. In this environment, it's something that the business side of us can clear up.

Well, the numbers show that to be happening, Yaki, but you bring up something that is sort of, another question came to me, and then when you mentioned data alert and the alerts and the notifications, oftentimes what we hear about in security products and security offerings, people get overwhelmed with false positives. I'm curious. What are you experiencing or what are your customers experiences with Varonis products in that regard?

It's an excellent question. Thanks. It all starts with the data you are monitoring. A lot of false positives is because we take these logs that are very hard to understand what is an event. An event at Varonis, someone is reading your email. An administrator is changing positions for a folder and reading files. Someone is trying to take your credential and do something with them. We are starting at the place where we are seeing it and we have 4,800 customers. Amazing feedback group from the market.

So we build these threat models that the customers make us better and better and on top of that, as you know, we are exporting machine level. We are seeding the right place in the data. So we are able to give something that's very accurate. We have a massive amount of customers and very advanced security labs, you know, engineering department, there will be threat models and open top of that, all the expertise we have in threat earnings. These are alerts that are just very accurate.

Well, great. Thank you very much, and excellent job.

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

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 a broad based success in the 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?

Yes, we can't talk about the third quarter and it's just too early to talk about are Brexit. You know, the third quarter is a slow quarter in Europe because of the timing. So we still didn't see any impact but it's too early.

All right. Thanks. And then you continue to expand on the amount of customers with multiple products. Can you just remind us, what is the most common add-on products after data advantage and how you are typically expanding within your customer base?

The data classification framework.

All right. Thank you.

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

Great. Thanks for taking my question. Yaki, I wonder if you talk about the extent which your initial conversations are changing with customers? I'm particularly curious if customers are now coming to you specifically for the user behavioral analysis use case versus before? Maybe it was more infrastructure related? And if it is for the UBA use case, who are you competing with against that?

Yes, so it's definitely worth selling more to the security use case and the DatAlerts coming with data advantage and the security part of it is usually leaving, and after that you have all the governance. You want to detect if something there is happening and then you really want to fix the overall infrastructure. We see less and less competition, overall form and on DatAlerts, almost none. So overall is percentage of POCs. We see less competition, but what is interesting is the companies are talking about user behavior analytics.

(inaudible) and analyze it and we have many start-ups and companies are talking about the insider threat because this is where the risk is. The last three quarters the first time for us, we don't have competition, but we are benefiting in a big way from the marketing that other companies are doing.

And it works very well for us, and this is why the customers are coming to us, and we are coming in, you know, we don't need to convince them 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 perimeter security is very limited.

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

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

Okay. That's helpful. Thank you.

And from Needham & Company, we move to Scott Zeller.

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

We are every day benefiting from increased awareness and increased demand. When the emergency spending happened, you know, we didn't benefit from it so much, but we are benefiting from a very thoughtful approach throughout security. So you can spend a lot of security and get nothing. You need to make sure that with the personnel that you have, you can really solve the problem and know where you are exposed.

In this universe, we are sitting almost on all file systems almost all unstructured data reported tools. On premise, a lot of them in the cloud. Active directory. When you look at inside (inaudible), this is 80% of the universe and we are benefiting in a big way from a market that is just forming and we own and so far we see significantly more budgets coming to a solution like ours.

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

We provide it on an annual basis but it was within the range of our expectation and our model continues to be high volume low SP. The main focus for us is the customer lifetime value which is very strong for us and the length and extent. Not just about a single purchase and this continues to be very strong, both for a new and existing customer.

Thank you.

Next we'll go to Greg McDowell, with JMP Securities.

Hi, this is Ricci Jularia dialing in for Greg. Thank you for taking my question. So first, in the past couple of quarters, we have seen a delta in the growth rates between license and then maintenance and services. Is this a trend that we can kind of expect to continue that growth rates from licenses is going to continue to outpace maintenances and services or how should we be thinking about that?

We gave guidance. The own thing that we can say at this point is we feel very comfortable with the way the business is performing and awareness of the market. We can't commit more than that.

Maintenance and Services continues to be strong. And renewal rates, also, is very strong for us, like always, over 90% consistently.

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

It's work in progress. We see definitely more demand, more demand from the partners, but this is coming from all over. If you open any Tier 1 business publication, every day you look at 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 we have the seen the way that the market is morphing. What is the practical approach? What are so the solutions that can give value? What are the critical assets? Where is the critical infrastructure?

And this is what we are benefiting from and what happens is it's in actually what it does, it makes the sales process much more predictable. We do everything by POC and you do an evaluation (inaudible) and you can see the dysfunction and most times people feel responsible to act and this is a problem that they want to solve.

Thank you so much.

From Barclays, we move to Raimo Lenschow.

This is Andrew Kisch, on for Raimo. My congratulations, as well, on a really solid quarter. We are starting to see some pretty meaningful leverage in sales and marketing. Can you talk about anything specifically that might be driving it?

It's hat we said, you know, with time, we have more (inaudible) and more people in the overall productivity curve and, we said it will inch forward towards profitability, and this is what we are doing. It's a tremendous opportunity, these 285 customers we present every customer in the world. Everybody that's files and emails is important to him, and has a active directory can be a Varonis customer, but, you know, with time, we have (inaudible) we are innovators.

We keep investing in R&D and sales and marketing. But with time, we see more leverage. It's a business with a lot of earning power and this is what you are seeing.

And we made a lot of investments in the business. So we just built a lot of capacity into the business and now it comes into fruition.

Thanks, guys.

We'll hear next from Yun Kim, with Brean Capital.

Thank you. Congratulations on another strong quarter, Yaki and Gili. When the customers are coming in and buying to address the data (inaudible) prevention. Are customers buying your products across multiple platforms or are they simply buying it just for one platform initially and rolling it out to other platforms later?

It depends. It depends. It's on a case by case basis, but with time, they want more platform and data level changing the sales motion. Because when we sell to the infrastructure, we're selling to the people that are managing the Windows, UNIX, and messaging and it's coming from security people. The security team wants to make sure and also the business side, that all the platforms are secured. So also if they, because of budgets or whatnot, they can buy multiple platforms in the first purchase. They are trying, sooner rather than later to have coverage on other platforms, but the DatAlert makes it much more sticky and much more probable that they will buy additional platforms.

Great. And Gili, you talked about the ASP remaining more or less the same, but has there been any increase in the number of large-sized deals in your pipeline. And just curious, you had one seven figure deal in the quarter. What was the primary driver on that deal, given that it was with a new customer?

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

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 grants, especially in Europe, (inaudible) head count and productivity? And, what your plan could be going forward, especially given that your business has (inaudible) acceleration. Is there any thoughts to perhaps accelerating your investments to increase sales capacity given that your business has been strong?

Having covered 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 that we are bringing the right talent and we want to make sure that we enable them and make them productive, and they have the right managers and this can fluctuate a bit from quarter to quarter but building a significant sales force that can capture on the massive opportunity is key for our plan.

And as you can see from the guidance, we are improving the margin, but we are also giving us some flexibility to invest during the second half of the year. We are flowing through a healthy portion of Q2 beat to the annual guidance, but not all of it. So we didn't really change the way we think about balancing between vesting in the business, in the sales capacity and product development, and also moving on the (inaudible) stability, but we are still investing in a business to capture the opportunity.

Great. Thank you so much.

(Operator Instructions). We'll move on to Srini Nandury, with Summit Redstone Partners.

Thank you so much for taking my question. Yaki, announced in your press release that you integrated your solution with Dell fluid file system. How should (inaudible) be thinking about this new channel? Is this going to be really a new channel or do you have to go through somebody else to (inaudible)?

I'm sorry, I missed the question.

Basically, you announced that you integrated your solution with Dell fluid file system, right? So I was kind of wondering is it a new opportunity? Is it a new avenue for markets? So that's what I was getting at.

This is just a technology partnership and we are trying to support every commercially viable file system on Prem and the cloud platform. And this is part of the technological efforts to make sure we can give value to our customers regardless of what platform they choose to put their files on.

Okay. Understood. You know, with regards to the questions of John, you are seeing a lot momentum in the sales cycles. Are the sales cycles shrinking? And are you talking to the (inaudible) now as opposed to the IT folks that you were targeting before?

(inaudible). We still need to do the regular sales cycle. It's just becoming much more just predictable. The customers are coming to us. There's a lot of attention from C level. We definitely are selling more to (inaudible). We have more involvement of the business. It's just becoming more predictable sales forces. The pane is clear. There are notifications are clear. The criticality of the business to act and do something is clear, and this is what we are benefiting from.

All right. Thank you so much.

We'll hear next from Gur Talpaz, with Stifel.

Great. Thank you. So Yaki, many vendors are trying to gain traction with the insider threat and ransom-based theme, including one vendor that we saw this week is basically offering an insurance backed guarantee for this solution. Clearly, you are winning. Can you talk about what's helping you win versus all the other guys out there trying to capture the same theme?

Yeah, we are sitting on the data. This is where it starts. We are sitting on the data and when these things start, it's going to the file shares and encrypt them. Immediately as this happens, we detect the behavior. We detect the patterns of file and we catch them and we generate an alert and tell you who is doing it and from where. It's from where we sit and we know what is the right behavior and what is the wrong behavior and any other place, you know, we are sitting on the target. And any other place that you sit and try to solve the problems, you have just marginal success at best. It starts from our position, from where we sit.

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're seeing a lot of (inaudible) vendors make partnerships. Guys like IBM partnering with (inaudible), and even a player like Splunk acquiring with Caspita. You're also winning with DatAlert. What is it about the DatAlert framework that's allowing you to capture the theme and win out versus the competition there?

We are not competing with them in any shape or form. What happens is that they are coming and they are trying to get some intelligence, to unlock potential and value from the (inaudible). But the logs, the VPN logs or whatnot. It's very hard to decipher them and understand what's going on. We sit on all your file systems. All your application. All you file shares, you know, your share point estate.

We are sitting on 365 on the cloud, on your active directory, and usually when (inaudible) will do something, we do it on the infrastructure, or this data and we just catch it. So many times the customers want to understand what insiders are doing and they are starting to think about UBA and they are coming to us. They understand that we call Varonis first.

You need Varonis first in order to unlock all the value. And this is something, because the data that we analyze, we can be very accurate. You don't need the data analysts 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 are taking a logs of network devices and others, it doesn't give you the value that you want.

So the whole theme of insider threat and UBA is just raising at awareness that the problem is coming from insiders and you need to analyze data. And then the question. What data need to analyze? What is value? How accurate it is. And what you understand from the alert. And we are just really benefiting tremendously from this discussion.

That's great, Yaki. Thanks a lot and congratulations on the quarter.

We'll hear now from Michael Kim, with Imperial Capital.

Hi, good afternoon, guys. So with the increase in awareness, are you seeing the growth in the channel being driven by more partners investing more significant in Varonis, and are you starting to drive more sales leverage as they are both sourcing and fulfilling a lot of the opportunities?

It's both. It's just more channel partners that are interested in Varonis and channel partners are becoming more productive and they can tell the story better. It's really both. You know? 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. It's not just Varonis talking about it. It's more products related to insider threat and all of this just driving the channel to do more.

And can you talk about what kind of growth investments you are making in the channel sales organization? Is, it you know, across all geos pretty comparable across geos and, what kind of efforts are taking place?

Channel managers, marketing programs, pushing the sales teams to work more with the partners enablement, just everything. But the channel partners are front and center to our go to market efforts.

Great. Thank you very much. Thank you.

And with no further questions, I will turn the conference back to you all for closing remarks.

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

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