Varonis Systems Inc (VRNS) 2017 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Varonis Third Quarter 2017 Earnings Conference Call. (Operator Instructions) I'll now turn the call over to your host, Mr. Yun Kim, with Investor Relations. Thank you, sir, you may begin.

Thank you, operator, good afternoon. Thank you for joining us today to review Varonis' third quarter 2017 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Guy Melamed; Chief Financial Officer. After preliminary remarks, we'll open up the call to a question-and-answer session. During this call, we may make statements related to our business that will be considered forward-looking statements under Federal Securities Laws, including projections of future operating results for our fourth quarter and fiscal year ending December 31, 2017. Actual results may differ materially from those set forth in such statements. Important factor such as risk associated with anticipated growth in our addressable market; competitive factors, including increased sales cycle time; changes in competitive environment, pricing changes and increased competition; the risk that we may not be able to attract or retain employees including sales personnel and engineers; general economic and industry conditions, including expenditure trends for data security solutions; risks associated with the closing of large transactions, including our ability to close large transactions consistently on a quarterly basis; our ability to build and expand our direct sales efforts and reseller distribution channels; new product introductions and our ability to develop and deliver innovative products; risks associated with international operations; and our ability to provide high-quality services and support offerings, could cause actual results to differ materially from those contained in forward-looking statements.

These factors are addressed in the earnings press release that we issued today under the section captioned "Forward-Looking Statements," and these and other important risk factors are described more fully 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 implication 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 most directly comparable GAAP financial measures is also available in our third quarter 2017 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 Chief Executive Officer, Yaki Faitelson. Yaki?

Thanks, Yun, and good afternoon, everyone. Q3 was another strong quarter for Varonis reflecting continued momentum in our business. Our Q3 license revenues grew 30% year-over-year to $29.4 million, and total revenues grew 31% year-over-year to $53.6 million. In the third quarter, we saw continued strength in the U.S., with revenues increasing 36%. Our European business was also strong, with Q3 revenue growth at 31% year-over-year. Our solid sales momentum and increasing growth prospects validate our clearly differentiated technology and strong value proposition.

Our Data Security Platform provide visibility into file and e-mail systems, revealing that users can and do access in analyzing activity to detect any abnormal or harmful behavior that could signal a potential breach. In our view, these data centric approach to security is becoming essential and a new industry standard. In Q3, we saw how portal data breaches grew. How even in an organization, we saw the most sensitive data and those who should expect to have the highest level of protection are vulnerable. It's more troubling when this organization don't know they have been breached for weeks or months. And this is the case almost every time. Not only can Varonis detect such attacks when they occur but our software can limit their potential to do damage and even has the ability to prevent them altogether. Our technology not only identify gaps that lead to data breaches but also fixes many of them automatically. We believe that our new solutions continue to increase our advantage. The Automation Engine reduces exposure in fraction of the time it takes us out of technology. And our GDPR platform will reveal exposed personal information. In regard to GDPR, as we've said before, we expect GDPR adoption to have a long tail. And we believe that we're well-positioned to capture the opportunity. We know that GDPR applies to any organization that is doing business in the EU, which includes many multinational organizations who are headquartered outside of Europe.

High-profile data breaches can ruin regulation, increase awareness and demand for a solution. We see organizations shifting their focus towards securing their data where Varonis has always focused. More and more organization know that doing the security by itself is simply not enough. They are now asking the right question. Where is my sensitive data? Is it stored in the right places? Do only the right people have access to it? When the organizations start asking these questions, we all win. These are the questions that must be asked and answers to prevent breaches like Equifax. The Varonis Data Security Platform provides the answers and enables fast action, mitigating risk and addressing compliance requirements at the same time. The recent Forbes article titled Top Hot Data Security and Privacy Technologies highlights the recent force to reach a conclusion that the perimeter-based approach to security has become outdated. Security and privacy post must take data centric approach. Our Data Security Platform and its many supporting products is key to our growth.

This quarter, we see its playing video and video only on customers' overall security strategy. We continue to target and said to companies, we sell it to more employees who provide larger customer lifetime values. During the third quarter, revenue from existing customers in the percentage of customers with 2 or more product families continued to increase. We are also beginning to benefit from our continued investment in the federal market. And we were pleased with the result this quarter. Consequently, the federal government agency contacted us 1 weekend because they were concerned about sensitive content hidden in PDFs, following a potential breach. We quickly mobilized our team and we were able to locate the sensitive content they were looking for. They purchased the DatAlert suite and Data Classification Framework for more than 10,000 (inaudible) to prevent data breaches and to secure sensitive data going forward.

We are excited about the initial response of the Automation Engine that accelerates remediation projects and quickly reduce risk. One customer with only 5 minutes of configuration successfully analyzed and eliminated global access groups in approximately 60,000 folders. A task that would've taken weeks if not months. The return on investment is clear. And it is critical to understand the speed and magnitude of risk reduction. These all folders previously accessible to all the employees. Now, they are not. They are now only accessible to those that require access. The Automation Engine can significantly reduce the amount of time and effort to apply a least privilege model across the organization, which is an essential part of the overall data security practice.

Turning to the cloud. We see this as a big opportunity, and we believe that we're well positioned to capture it, with increasing momentum for our solutions in the support cloud infrastructure and application. As organizations increasingly adapt cloud, they look for a data security platform that can protect all their sensitive data, both in the cloud and on premises with their monitoring on-premises systems, infrastructure deployed in AWS through Azure, cloud applications like Office 365 or all of the above. Our Data Security Platforms deliver comprehensive and unified data security solution and become most strategical organization target to manage and secure so much sensitive data across so many data stores. Varonis technology analyze data content, access control and usage across all relevant on-premises and cloud systems to prioritize and reduce risk and to detect abnormal behavior that signals potential data breach. You can't keep sensitive data safe without understanding where it is and who has access. And you can't detect cyber-attacks without something far more powerful than basics auditing you can get with most data stores. But this is how many organizations try and fail to protect data. And they fail one system and one breach at a time. In Q3, a suburban government on the East Coast with approximately 250,000 residents and 1,500 government employees purchase additional users for the existing licenses as well as extending its Varonis deployment to the cloud to monitor its Office 365 environment.

After evaluating multiple security solutions, these customers choose Varonis because it's enabled them to use one interface to control and protect data, provides users management controls and allow them to jump between on-premises and cloud quickly and easily.

Finally, we are excited to announce a new solution, Varonis Edge. Varonis Edge build on the success we've had with DatAlert. DatAlert power starts with its focus on data instead of system and networks in real-time to protect data with data first mindset give you a big advantage of added technologies and approaches that starts with network and system. The alerts are conclusive, impactful, clear and easy to understand. With Varonis Edge, we affirm we can extend our data first mindset to its advantages -- to the perimeter. Varonis Edge pulls telemetry or meta-data from devices on the edges of your network like VPNs, work proxies in DNS servers. By analyzing this meta-data, it spots signs of malware advance persistence threat and other attacks and puts them next to the alerts about your data. Our customers will see the whole picture of an attack, how it first get in, how they move around, how they -- what data they are after and how they are planning to sneak out. Varonis Edge is a new license and we are all very happy to be introducing it this quarter. This was another strong quarter for Varonis, with our continued innovation, building on more comprehensive Data Security Platform, strong support for our customer base and our highly scalable and expand model, we believe we are building global business that can reach $0.5 billion and then $1 billion in sales.

With that, I will turn the call over to our CFO, Guy Melamed. Guy?

Thank you, Yaki, and good afternoon, everyone. I'll begin by reviewing our quarterly results and then move on to discussing our outlook for Q4 and the full year 2017. Total revenues for Q3 were strong at $53.6 million, an increase of 31% year-over-year and above our guidance. License revenues were $29.4 million, representing a 30% increase from Q3 '16. Maintenance and service revenues were $24.2 million, increasing 32% compared to the same period last year. These results were supported by our consistently high maintenance renewal rate which, again, came in at over 90%.

Looking at the business geographically, we saw balanced growth in both our major regions. U.S. revenues increased 36% to $34.1 million, or 64% of total revenue. EMEA revenues increased 31% to $16.5 million, representing 31% of total revenues. Rest of world revenues were $3 million or 5% of our total revenues. For the third quarter, existing customer license and first year maintenance revenue contribution was 49%, up from 46% in Q3 '16. This reflects our continued focus on expanding our relationship with existing customers as well as increasing the number of new customers.

During the quarter, we added 215 new customers. New customers continue to make larger initial commitments to us, supporting our strategy to target companies with 1,000 or more employees. As of September 30, 2017, 51% of our customers had 2 or more product families, up from 47% as of the same date last year. This positive trend validates our platform approach to security with product families that detect, prevent and sustain. It further reinforces the significant opportunity we still have to sell into our existing customer base. Before moving on to the profit and loss items, I would like to point out that I'll be discussing non-GAAP results going forward, unless otherwise stated. For Q3 '17, that excludes the total of $4.8 million in stock-based compensation expense and $273,000 of payroll tax expense related to stock-based compensation. We report non-GAAP results in addition to and not as a substitute to financial measures calculated in accordance with GAAP. Please note that a 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 third quarter was $48.5 million, representing a gross margin of 90.4%, consistent with the gross margin in Q3 '16.

Turning to operating expenses. During the third quarter, in line with our strategy, we expanded our sales and marketing teams in Europe to drive growth, and we provided ongoing support for our growth in the U.S. In R&D, we remain focused on increasing our strategic investments to both enhance our value to our customers and enable delivery of additional products and features. This, in turn, extends our security Data Analytics Platform, widening our ability to differentiate and expand use cases. Operating expenses totaled $46.7 million in the third quarter compared to $37.4 million last year, an increase of 25%. We saw significant improvement in our margins moving from negative 1% in Q3 '16 to positive 3.4% in Q3 '17. This success in driving growth in line with our strategy of investing in the business while realizing leverage. As you know, foreign exchange gains and losses can fluctuate. During the quarter, we had financial income of $622,000 compared to financial expense of $187,000 in Q3 '16, primarily due to foreign exchange gains this quarter. Our guidance does not consider any additional potential impact of financial and other income and expense associated with foreign-exchange gains or losses as we do not estimate movement in foreign currency rates. Net income was $1.7 million for the third quarter of 2017 or $0.06 per diluted share compared to net loss of $877,000 or a loss of $0.03 per basic and diluted share for the third quarter of 2016. This is based on $30.8 million diluted common shares outstanding for Q3 '17 and $26.5 million basic and diluted common shares outstanding for Q3 '16.

Looking at the balance sheet, we ended the quarter with approximately $128.4 million in cash, cash equivalents and short-term investments. Year-to-date, we generated positive operating cash flow of $10.8 million compared to $4.5 million in the same period last year. During the quarter, we added 28 net additional employees, ending the quarter with 1,199 employees, a 15% increase from 1,042 at the end of the third quarter of 2016.

Moving to guidance. For the fourth quarter of 2017, we expect total revenues of $65.5 million to $67 million. We expect our non-GAAP operating income to range between $9.3 million and $9.8 million and non-GAAP net income per diluted share of $0.28 to $0.29. This assumes a tax provision of $500,000 to $700,000 and 31 million diluted common shares outstanding.

For the full year 2017, we are, again, raising both our revenue and profit guidance. We now expect total revenues in the range of $209.5 million to $211 million, representing year-over-year growth of approximately 27.2% to 28%. We expect our non-GAAP operating income to be in the range of $5 million to $5.5 million and non-GAAP net income per diluted share of $0.16 to $0.17. This assumes a tax provision of $2.1 million to $2.4 million and $30.7 million diluted common shares outstanding. In addition, we now expect our cash flow from operations for the full year 2017 to be greater than 2016.

In closing, we are pleased with our performance in Q3. The success of our Data Security Platform and the stronger trend of our investments enables us to raise our 2017 guidance, deliver high level of growth and improve our profit profile.

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

(Operator Instructions) Our first question comes from the line of Matt Hedberg with RBC Capital Markets.

In your prepared remarks, I think, we continue to be impressed with the number of customers that take 2 or more products. That continues to move higher. Yaki, could you talk about some of the products that are seeing the greatest attach? And I guess, maybe if you could also comment on DatAlert there. That seems to be a real game changer product for you guys. Would be helpful to kind of hear a little bit more color on that.

So still, thankfully, we see a very good attach rates from all the products and you also know there are many licenses under the DatAdvantage product family. And what we see is exactly what you said, that DatAlert is today in terms of data and file systems, it's extremely valuable product. And without any effort, customers get very, very valuable information. So it's easy for us to attach other product to it and really standardize. And it's working very well. And the other thing that we're starting to see, so this obviously in the detection and analytics, is we're starting to see very good momentum. It's still early stages with the Automation Engine. So the Automation Engine -- customers want to do 2 things. They want to detect what is going on, but before that, they want to do remediation. The ability to do quantum leap remediation to remediate things automatically without breaking business processes is big. And the third thing is really what is happening in the world. Everybody invested a lot in security and there is very little effect. We need to start with a data-centric mindset. There is the critical assets. And from there, to protect everything and in the overall value chain when you look at it, you look at the overall security stock and you're installing Varonis, which has got a lot of value. I know slowly but surely people will understand it. We see a lot of very good attach rates, and we believe that data -- we believe that we also can get a lot of momentum in remediation the same way as we saw with analytics, analytics and auditing.

That's helpful. And then within our coverage universe, you guys seem to have, I would say an outsized opportunity within GDPR, and I know you addressed that in your prepared remarks. I just wanted to put may be a finer point on that. Are you actually seeing it drive demand now? Are you able to sort of pinpoint deals that were because of GDPR?

So what I can say the GDPR -- is really GDPR is here. So how it's going to translate it to revenues in the short-term is hard to say it. But we're starting to sell a module for the GDPR platforms. And it's definitely driving a lot of big business conversation around where is the critical data, how we want to protect it, how we're going to demonstrate that it's protected, what we need to do first. So we saw a lot of noise. But after the noise when a software process is starting and it need to really operationalize your infrastructure, your business processes, we definitely see that we are benefiting from it. And we also see that it's outside of Europe. Any multinational that has business in Europe is take it very seriously, including companies like Varonis. So we believe that it's definitely have a tailwind and it's a long-term secular plan.

Our next question comes from the line of John DiFucci with Jefferies.

Yaki, you've mentioned federal government contributing this quarter and that's great. It sounds like some traction. We've heard you talk about other governments in the past, and even the opportunity with the U.S. federal government. But can you tell us, I don't know if you talked about actual deals? Can you tell us where you stand -- where Varonis stands as far as the opportunity with the federal government? The maturity of how that's being addressed by Varonis and how the federal government is looking to solve this issue, which is obviously an issue for them, too?

Yes, so the federal government, in all its branches there's a lot of unstructured data and a lot of critical data. So we're definitely a high value software for them. And in the last -- on the last year, with both very strong leadership and very strong teams for federal, and they did all the right things. Just hiring the team, building the pipeline, closing the deals, focusing the right distribution, and we saw the fruits of it. So we had a very good business with the federal market this quarter. But more so, what it did is actually validate everything -- validate in terms of volumes and build size and the absolute opportunity. And we believe that it can be a tremendous growth engine for us. And we also believe that what happened in Q3 really validate how big it can be and that we have the right program when we think about scaling it in the right way, and we are very bullish about the opportunity in the federal market. We believe that we're doing the right thing. We have the right team, and without a doubt, we have the right product.

Okay. Great. And if I might follow up to one of Matt's questions. We saw a meaningful acceleration this quarter in EMEA and realized you've been working to replicate the execution here that you've seen the success here in the U.S. But GDPR conversations you say have started to have an effect. But as far as revenue goes, is what we're seeing here more about just sort of blocking and tackling in that region and showing improvement? Is the GDPR opportunity that you've talked about more on the calm as far as revenue, not as far as conversations and getting in there and talking to people but as far as actual business being signed? Or did we see that this quarter?

I think that there are 2 parts for the answer. One is what's happening in EMEA this quarter is not a surprise for us. I'm always telling you that you need to take a multi-quarter view regarding the business. That we have amazing customers in the region. We're operating there for a long time. We have very good teams and very good distribution. But if you look at it, I think that we are always do exactly what we said we're doing. And we also investing in a very measured way. So we had some changes that we needed to do in the U.K. both very strong leadership to Germany. Number one, we want to make sure that we -- before we're increasing sales capacity that we have the program, we have the management capacity, and we always -- we've have a fairly good visibility with the way that we are doing everything with POCs, how is going to translate into revenues. The other thing we saw is definitely we saw a market that is much more mature in the U.S. and we invested here. But this same maturity levels slowly but surely, it's very hard to measure it on a quarter-by-quarter basis, but every 6 months, 9 months is something that we can see. So the same heightened awareness regarding cyber-security and data protection works very well there. And we started to say GDPR, stated that GDPR's is big part of the growth, no. But what GDPR is doing, so when you have something like GDPR, everybody is raising their hands and said "I can solve you the GDPR problem." Now the organizations are seeing is that what GDPR did is if you look at the article it's where is the critical data? Who is touching it? Where are they most exposed? The right to be frugal. All of this stuff is really cater to the Varonis code. So what it does, it take us to seeing many C-level people to sell, co-offering and GDPR is part of the discussion. But this is not what bring the revenues. What it does is bring C-level people into the conversations. So we believe that we have a very good opportunity in Europe, and for the long run, we can do very well there. But again, always it's Varonis to meet towards a multi-quarter view.

Our next question comes from the line of Melissa Franchi with Morgan Stanley.

Yaki, I just wanted to drill into the initial conversations that you're having with your customers, and whether it's changed recently. I'm particularly curious as the kind of leading product in which you're engaging with your customers is changing, whether that shifted from DatAdvantage to maybe DatAlert or some other products? And if you're seeing any kind of meaningful difference in the average deal size of the initial deal?

No. It's the same core message. The one thing that we see that security people and business people understand very well what we are doing. And they also understand where are we in the value chain. And once we are doing the POC and we get them in the room, there is much higher probability to win. The other thing I think that's happening is that the sales motion became more strategic and most simple. We don't need to demonstrate ROI. We need to meet relatively less people in this sales campaign. It's still an enterprise sales cycle, which is -- you always need to get all the approvals and have all the checks and balances and demonstrate the value.

The third thing that we are seeing is that there are lot of budget. It's still not like legacy and traditional security in an Air Mac into an anti-virus and IDS or a firewall, but we see a lot of buckets for insider, say, data protection, remediation, and good sales teams know very effectively how to steer these budgets to Varonis and it's working very well. DatAlert is helping and all the other products are helping but everything stems from the DatAdvantage platform and visibility to hooking up the data with actually accessing the data, who should access the data is the basis of everything. So it's the same sales motion. But just more simple, with a market that is significantly more receptive and understanding of what we're doing and a customer base that get a lot of value from our product. And thankfully, talking about it when you have close to 6,000 customers that almost all of them are happy, it's very good marketing. So just a gradual process of the market. The data growth and risk collided. A lot of the breaches are around unstructured data. You can do a lot of analytics and get nothing. People need very comprehensive clear alerts. Very few security people need to really protect very large organizations with data all over the place, on-premise and in the cloud, and this is a very good environment for long.

Okay. That's helpful. And just one more on the roadmap kind of product perspective. So we've seen a lot of new products that you all have released over the past year, few years. I'm just wondering moving forward, your philosophy on kind of executing to the suite that you have today and focusing on extend or extending into your existing customer base versus continuing to expand the product portfolio.

It's both. Look who we are and what we're doing every year. We're innovators. This is what we are doing. And thankfully, we're innovators that are blessed just to have a platform that many very good use cases are stemming from it. So what's happening is that we have very logical product extension with a lot of value that our big engineering undertaking. But it's -- they are coming organically from our platform and we can add a lot of value to our customers and thankfully, they are willing to pay for it. So this is what we are doing. There is -- in everything that we are paying, there is tremendous opportunity, tremendous opportunity in analytics, tremendous opportunity in remediation, tremendous opportunity in content discovery and tremendous opportunity in the cloud. And we believe that there is more innovation ahead of us and behind us. But these are product extension but really happening in the last 2 years that we can really innovate is a lot of visibility of how it's going to play out. What is the value? How the value is tied organically in our sales motion? What is the price that customers were willing to be pay? How they are going to use it? And how they are going to realize value and appreciate the value? So it's both. Thankfully, we have a lot of product. But even the products that we bring are just natural extensions. So Edge, natural extension to our DatAlert discussion; the GDPR model, natural extension to the Data Specification Framework; and the Automation Engine is just natural to our conversation regarding remediation. So we feel that it's a very good place to be.

Our next question comes from the line of Gur Talpaz with Stifel.

So Yaki, I wanted to start off by asking about Varonis Edge. Specifically, I was hoping you could elaborate a bit about the go to market. How the solution is deployed? How it's priced? And then I think, most importantly, how it's sold there in relation to DatAdvantage and DatAlert? As a separate license is it required? DatAdvantage going to be sold separately? Additional color there would be great.

Thanks for the question, Gur. So what we saw with DatAlert, we really starting to catch a lot of malware and a lot of APTs. So really if you want to look at the market, you need to draw a line in the sense so there is perimeter security, want to make sure that nothing will come in. And once it's in, then it's a different boarding. As everybody knows, it's coming in all the time. And then, we are maybe the most valuable software that you can have. And with DatAlert on a daily basis. We are catching a lot of malware and APTs and administrator doing wrong things. And the inside of that prime very low and slow way to do a lot of damage in a sophisticated way. These are people that are aware of this kind of technologies and we fine so much success and its tremendous value to our customer base. The other thing we understood, by understanding meta-data and analyzing this file system activity that result in mastering completely a data stream, it's very hard to bring value. And then we understood that there was -- we call Edge systems. There are 3 main systems in DNS, web proxy and VPN, that you can really have a tremendous force multiplier. So if you see on a DNS that a client, that a laptop or a user trying to reach out to a command and control center, you know to flag its access. And when you see that someone did massive downloads, you need to look at them and see that they are not exfiltrating it and trying to get it out via your proxy. And then with identity theft you want to make sure that if somebody's accessing a data from New York, the same identity from New York and then London within 1 hour, then you know that something's wrong and maybe you have an identity theft. Or you have just devices that are in the wrong hand.

Now nearly everything to DatAlert, and you have a second-to-none analytical product that really see everything around -- everything around the network. So we have a lot of -- so we show that our customers have a lot of things and they're trying to do many things regarding analytics and they can do it.

So we know very well how to capture this meta-data and how to analyze it. And with everything that we have regarding the data, active directory and file system, we have a tremendous post multiplier to be extremely, extremely accurate. So this is just an extension. You need DatAdvantage and this is extension of DatAlert. You have DatAlert for all your file systems, and all your unstructured data stored on the plan and a lot of them in the cloud. And now, we'll have it for your system, and with that, you'll be able to see things when they are in before they touch the data. And you'll be able to flag things -- better to flag behavior, devices, users and IP address in a very accurate way, when they are in the network and they're doing something suspicious. And we believe that it's going to be the most efficient way to capture APTs and malware, and insiders once obviously they're in and trying to do damage.

That's helpful. And Guy, maybe one for you. Recognizing that you did benefit a little bit from FX this quarter. But you still flow through a decent amount of upside down to the bottom line from the top line. How should we think about the end of balance of growth and profitability? And what the appropriate sort of flow through of potential top lineup upside is to the bottom line as we look forward here?

So a little philosophy. Our philosophy hasn't and we're executing against everything we said. We're very conscious about increasing market share. But we also are very focused on our profitability. So we do both. And we have done both, and we plan to continue to do the same thing. And the real profitability comes from the maintenance portion. So we're really conscious about bringing new customers, new logos in, but also upselling additional licenses and additional products to those existing customers. And through that, we can increase the component of the maintenance and really drive profitability on a much larger scale.

Good philosophy is just growing the business, investing back in the business and gradually it improves in profitability. And this is exactly -- we're doing exactly what we said. The total available market is huge. The crowd increases a total available market, the new products increases the total available market. Then when it sells capacity to cover the opportunity, with product extensions and upsell, it's different productivity curve and very strong customer lifetime value. But we strongly believe that $0.5 billion is within our reach, and we know how to innovate and build the business to be $1 billion in sales. By doing that, building a gradually improving our profitability and investing back in the business and it's just a balance that we're striking very well. But we're never losing the eye of the tiger for where we want be and the potential of Varonis and this is what we are doing.

Our next question comes from the line of Alex Henderson with Needham & Company.

So I was hoping you could talk a little bit more about the Automation Engine and what the uptick's looking like. I know it was a little too early last quarter to really get too much of a gauge on it. And I was hoping you get a little bit more granularity on the reaction to it at this point?

So it's still very early and so it's still very early, so I don't like to comment when it's early. But so far, it exceeded our expectation. When we are going to every organization, Alex, around 90% of the data people can access not relevant for them and around 40%, 50% in the most critical data. And you can come in and take everybody in the organization and make sure that only the right people can access it, and move in a fraction of the time you can do it before without breaking any business process, it's extremely valuable. So, so far, it's doing very well and it's delivering on the promise.

Similarly, if you look at the upsell that you're experiencing off of DatAlert, it sounds like that may have accelerated somewhat in terms of the success rate you had during the quarter. Is that an accurate read?

No, we are not breaking it down like that. But an accurate read is to say that DatAlert is helping us with a lot of upsell. And DatAlert, and we believe because of the Automation Engine give us what we called the no touch value. That you can come to an organization, put it on the system and then you are starting to get a lot of extremely valuable alert with very clear call to action and you can do now remediation without breaking any business processes very clearly and you really need to invest very little. This is something that this is very -- that customers like a lot. And it's reducing a lot of friction in the overall sales motion. So we believe that so far our strategy is working very well and with these products we can add a lot of value in data and DatAlert, and the Automation Engine are elevating the value that our other products bring in and everything works well. We are happy with the growth in the customers of 1,000 plus and we're happy with their attach rates and the value our customers getting from our product.

One more question if I could. Can you give us any granularity on the difference in experience in continental Europe versus, say, what's going on in the U.K. environment? Any sense of differentiation between those 2 geographies?

Well, most of them -- both of them did very well for us. And we don't see any difference. We are very pleased with both of them and very pleased about how U.K. is executing and what the U.K. team is doing.

One last question if I could. Then from a hiring cost perspective, are you seeing any wage inflation? What's the availability of talent as you see it at this point?

Well, it's always hard to find talent but thankfully, we can find a talent -- the talent that we want. And more importantly, so we can enable when they are coming in and train the talent that we want. And we have many talented people in the company and we have a lot of upward mobility. I think we're in a good place. It's always hard to find talented people but we manage to do it, we're hiring managers. Our HR department is doing a very good job. And we believe that we can attract the right people.

Our next question comes from the line of Michael Kim with Imperial Capital.

Just one quick question on pipeline visibility. Are you started to see an acceleration in risk assessments this year? And any change in conversion rate and especially around customers with more than 1,000 employees?

We never break it down like that. Although we are pleased with what is going on with the pipeline development, and what we are very pleased is the people that are coming to see this risk assessment. When you go to risk assessment and you see C-level, very high-level people and you see Head of Legal Departments and CFOs and Head of HR departments. It's very rewarding to see that it's becoming a real business enabler and that organizations all over the world are taking it very seriously. We are pleased with the quality of our self-campaign.

Got it. And just on competition, any change there? Or increase in head-to-head evals? Especially as it relates to larger deals?

None whatsoever. So I think that we are measuring it diligently, and I think that as a percentage of overall risk assessment, we see less competition.

Ladies and gentlemen, at this time, there are no further questions. I'd like to turn the floor back to management for closing comments.

I would like to thank all the employees for their contribution for our success this past quarter. All of our customers and partners for their continued support. Thanks, everyone, for joining us today. We're looking forward to speaking with you soon.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.