Please stand by. We are about to begin. Good day and welcome to the Varonis Systems Incorporated Third Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time I'd 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's third 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 fourth quarter, 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 market, competitive factors including increased sales cycle time, changes in the competitive environment, pricing changes, and increased competition, the risks that we might not be able to attract or retain employees including engineers and sales personnel, general economic and industry conditions including expenditure transfer data governance and data security software, risks associated with the closing of large transactions including our ability to close large transactions consistently on a quarterly basis, our ability to build and expand our direct sales efforts and reseller channels distribution, new product introductions and our ability to develop and deliver innovative products, risks associated with international operations, and our ability to provide high-quality services and support offerings, could cause actual results to differ materially from those contained in forward-looking statements. These factors are addressed in the earnings press release that we issued today under the section captioned forward-looking statements and these and other important risk factors are described more fully on our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our view only as of today and should not be replied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation of the most directly comparable GAAP financial measures are also available in our third quarter 2015 earnings press release which can be found at www.varonis.com in the Investor Relation section. Also please note that a webcast of today's call will be available on our website in the Investor Relations section. With that I'd like to turn the call over to our Chief Executive Officer Yaki Faitelson

Thanks, Staci, and good afternoon, everyone. This is third quarter for Varonis the revenue and non-GAAP EPS coming year for guidance. Total revenue was $31.2 million, an increase of 22% year-over-year and an increase of 25% on a constant currency basis. Our results were driven by broad based growth across geographies, as well as strong adoption from both new and existing customers. During the quarter we added 241 new customers and so year-over-year increase in the percentage of customers who purchased more than one product. During the third quarter, we continue to establish those sales as an important partner for organization around the world as they address two significant challenges; defending against the insiders threat and managing and protecting unstructured data. We have differentiated ourselves in both markets position and increased awareness on the void of solution field in a large part due to our experience and expertise in data protection and data center user behavior analytics. While user behavior analytics is an industry scale the parties has been around for several years and something we have been doing with data advantage since it's creation. We are monitoring and analyzing the activity of users, data, and systems to create a baseline of what is considered normal and highlighting the abnormal. This approach provides meaningful insight into user and data partner, security risk, social connection, and the wealth of other valuable information. Our news release that we just announced adds more analytics-based on user behavior, identity, and quantitative metadata to DatAdvantage and DatAlert so that we can help customers to get timing meaningful insights. Varonis's monitoring and analyzing, how user interact with data and file systems for 10 years now. We believe that our products capture more information about how users can and do interact with data and file systems than…

Thank you, Yaki. Total revenues for the third quarter were $31.2 million, an increase of 22% as compared to the third quarter 2014 and 25% on a constant currency basis. We continue to see strength in both new customer signings as well as expansion across our existing customer base. And our maintenance renewal rates remain above 90%. License revenues were $16.9 million. This represents an 18% increase from the third quarter of 2014 and 22% on a constant currency basis. Our maintenance and services revenues were $14.4 million increasing 27% compared to the third quarter of 2014. Looking at the business geographically, US revenues increased 17% to $17.7 million or 57% of total revenues. EMEA increased 29% to $11 million or 35% of total revenue and rest of world increased 31% to $2.5 million or 8% of total revenues. At our size and scale we think it's important to look at geographic trends over several quarters, as this gives you a better picture of the true health of the business. For the third quarter, existing customer license and first year maintenance revenue contribution was 37% versus 36% in the third quarter of 2014. Our land and expand model is delivering results and we will continue making investments to broaden our relationships with existing customers, as well as increase new customer additions. As of September 30, 2015, 44% of customers had purchased more than one product family, up from 41% as of September 30, 2014, further validating our focus in 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 third quarter of 2015 exclude the total of $2.1 million in stock-based…

[Operator Instructions] We’ll pause for just a moment to allow everyone an opportunity to signal for question. We’ll take our first question from John DiFucci with Jefferies.

Thank you, thanks. Yaki, guidance for the fourth quarter implies license is going to accelerate again after accelerating this quarter and I guess it was nice to – it was good to see that and it was also nice to see the international business rebound in both EMEA and the rest of world; but growth did moderate some in the U.S. So I guess my question is, and it's good to see this confidence in the fourth quarter, but its also – listen on getting pinged with some emails too. It also raises people's a little bit concerns that it could raise the risk profile of the fourth quarter, so I guess if you can talk to us a little more about what gives you the confidence for the fourth quarter and how we should think about the US especially showing a little bit of moderation in the growth this quarter?

Hi John, so regarding the growth we have massive opportunity in U.S. I mean, in our size and scale and the dynamics of our market it shouldn't direct terms from one quarter. You need look at these in several quarters and on an annual basis and you can see our European business how it's bouncing back and how it is performing, so we have very good pipeline entering the fourth quarter and feel very, very, very comfortable with the guidance we gave.

Nothing really changed in our outlook, in fact, we just brought up the low-end of our guidance beat and we expect a very annual ALT, annual guidance of 22 to 25 in the pipeline continue to build, especially the run rate business. If you remember Q4 last year, it was, we didn't have any large deals just run rate businesses, so we don't believe we have the difficult to compare.

Okay that’s great, that’s really helpful. Thank you, Yaki and Gili. And Gili if I might, just sort of follow-up, just looking at the balance sheet your current deferred revenue is sort of creeped up a bit faster than we’ve been modeling for last couple of quarters and it’s not dramatic but it is something we watch. I guess is there anything to read into that, I don’t know is it – I mean I normally just think of that as just positive thing, but I am not quite sure what it means, if anything?

No the vast majority of the deferred revenue is maintenance, the renewal rates continue to be over 90%, so nothing out of the ordinary, very normal trends as we usually see.

Okay, great. Thanks a lot. Nice job guys.

And we’ll take our next question from Matt Hedberg with RBC Capital Markets.

This is Matt Swanson on for Matt, congratulations on the quarter guys – you talked earlier in the year about focusing a little bit more on sales force efficiency maybe slowering hiring while you kind of took account of what you had. This was a big quarter for adding head count, you said 42. Is this response to demand or are you kind of filling in from maybe some slower hiring at the beginning of the year?

We need to hire, we need to hire the right people, so we have a very effective programs to screen the people and make sure that they are fit to the business model, they were fit for the culture. We have massive opportunity in front of us and many great products we can build on our platform. The cloud is a huge opportunity for us to really to fulfill the potential of Varonis and its sales capacity and you need engineers. So we just stay but we are hiring and – we are hiring highly measured way and sometimes hiring fluctuate a bit from quarter-to-quarter we need to find the right people, so this is very timing what you see here.

All right. That’s great. And then it was another good quarter for the year-over-year increase in customers in multiple products, could you talk a little bit about the data transport engine, it seems like there’s a lot of nice synergies for that across your portfolio, maybe whose adopting it and what has been the customer feedback?

Yes. Thanks for the question. We’re starting now to see very good adoption of the data transport engine, there are really two main use cases, one is operational, every customer out there is doing data migration and it’s very hard to do it effectively, so this is one. But the other one is related to security and governance so there’s a lot of data retention requirements, where you need to find critical data and then you need to continue it and get it you need to put it in the right places, and we just see a very good use for data transport engine around this two things of use cases. But in the last quarter we really saw more adoption and use of the data transport engine.

All right. Thanks. Congratulations again on the quarter.

Thank you.

We’ll take our next question from Srini Nandury with Summit Research.

All right. Thank you for taking my call, and congratulations, sir, as well. I just wanted to get some more color on your EMEA particularly what’s happening in UK and then update issues been fixed or are they on the mend and also in Russia have you seen any changes there?

Yes. So, first thing regarding the UK, we make good progress we bought some quality middle managers and did some changes in our inside sales and make sure that we’re really executing the programs well and the contributed nicely in the third quarter. We are making good progress, I can’t say that we still solved all the problems, but we have very good business there, very good customers, very good sales teams and we just have a very strong business in the UK and overall we’re very proud of the team. How the team is just stepping up and fixing the problem. And just regarding Russia, there is no change, very odd economy and there is no change in the market.

I see. Okay. Thanks. And I have one more question on the secular spending in fact there’s a concern that the security spending has been slowing so what have you been hearing from your customers, have there been any changes in the deal cycles and what are you seeing out there?

So, I think that regarding the security spending, it’s very interesting. So there was some people that rushed to buy some security product and we were never been part of this, but what I see around security that is very interesting is much most thoughtful strategic buying process from the customers. It’s front and center in every board, in every management discussion and what I see that management is starting to do is really, what is my security risk? The Perimeter is – there is no perimeter anymore, and I think that what they understand is, is just all about the data. We’re doing this security to protect the data, and there are risks that we need to take and there are risks that we shouldn’t take. An unstructured data is more than 50% of the data of most of the organizations out there and think about it, it was in WikiLeaks, and Snowden, and Sony. This is what we took unstructured data and they understand what we really should do in order to solve the problem, to be protected, to make sure that it’s effecting our topline that customer, our customer, will do business with us. The bottom line that all the investors in security and security analytics will be meaningful and then the overall risk but we really protect their intellectual property, this is key. And we’re benefiting – we are really benefiting from it, so we want to protect the data. And with data alerts what is happening is, that they have now budgets to spend on the risk, and you don’t need a lot of resources with this meaningful alert with this adoptive data sections, all the machine learning. You know, we’re doing this for more than 10 years. We immediately give meaningful insight into the data and I will tell you, we are solving so many critical problems every day, day -after day. So we really benefit from it and we benefit from the secular trend, we benefit from the structural, the fundamental change involved in management regarding security. So I think that security in the right way is going to stay top priority for a long-time; this is a digital world and digital economy.

All right, thank you so much for your comprehensive answer.

And we will take our next question from Melissa Gorham with Morgan Stanley.

Great, thank you, just following up on your point previously Yaki, about the priority of security. Can you maybe just talk about what you’re seeing in terms of sales cycle and if you’re seeing any change in the velocity of deals getting closed? And then, are you seeing enterprises actually making budget for user behavior analysis and is that different then what you have seen previously?

So regarding sales cycle, at the end of the day, these are enterprise sales cycles. Someone needs to justify them and they need to buy what we see there in massive increase in our inbound rates; we see many more, and many more RSPs and we also see that it’s becoming slowly but surely easier to get to sea levels in these organizations is a top priority. No one can say that it’s not a priority – it’s not a priority for them. I think in terms of user behavior analytics, what really is happening is insider threats. Think about what is happening even if it comes from outside the form of malware or phishing, someone will take your credentials or take your computer and will try to take data and usually the long hanging fruit. And the long hanging fruit is the unstructured data on file share, Internet, and email, and many think privileged accounts on file systems, all the configuration files on file systems. This is what you are, this is what your trying to take. So it’s critical to understand how users behaving regarding the data and what is happening with that because of our metadata we give clear insights. We are very low first positives and you really can react intelligently and solve problems if you are looking at our, at what we’re doing. So definitely in the security analytics domain we see that data and user behavior analytics, how users are using the data, what privileged accounts are using with the data, where I’ve critical data and what people are doing with it. I think that more, more organizations understand that this is the way to go about it. The thing that happened here is there is a lot of noise in the security space and now the whole thing is starting to make sense. People understand what we need to do, how we are going to really solve problems, what are the resources that we needing now to solve problems, what are the places that we can protect the data, and I believe Varonis is going to benefit from it in a big way.

Okay thanks, and I’m wondering if you can just maybe talk about how your federal business did this quarter and is this some particular area of investment for you?

Yes we believe it’s a huge market, it still the beginning for us, but the team performed well and we are doing well, we are investing in this market, and believe that we have rich opportunity there.

Okay, great. Thank you.

We’ll take our next question from Greg McDowell with JMP Securities.

Hi this is Rishi Jaluria dialing in for Greg. Thank you for taking my questions. So, first just looking at the operating income line, it looks you have some pretty solid out performance here, both just on margin and basically keeping that loss down, is this a function of discipline with your costs, or just doing cost controlling are you starting to see some more early signs of leveraging your model?

We have more sales people here that are longer and they are becoming productive, but this is a business with massive earning power and you also can see when you stop investing it, how you just starting to move very fast though all possibility. But we are the dominant force in this market, we are this market, and it’s coming to us. People understand more and more, it’s based on a very complex intellectual property and we are going to fulfil the potential of this opportunity and we need to invest. But the way that we are investing, we are investing in a very measured way. It can change from quarter-to-quarter, but we are always very discipline in the way that we are investing and with time our sales people are becoming more productive.

Okay, great. Thank you. And you’ve been talking about some of your non-DatAdvantage products, so DTE data anywhere, just want to get an idea for what sort of reception are you getting from your channel partners in either cross-selling are outselling these products?

It depends on the channel partner, the channel partner that was asked for long enough and they have received systems engineers, they understand the product very well, they are adopting the product. Like colourful products they are pretty easy to install and they are – they can create a good services opportunities, primarily around DTE. So you know it’s a – mainly with DTE we starting to really see an uptick in the adoption. Usually takes us around the year to start and see a reception from our customers, our sales force and our channel partners, revenue products that we are releasing, and we see just enormous success with DatAlert, the module DatAlert, this is – we’ve seen adoption that is very, very strong.

Okay, great, helpful. And one more question and I will jump off. So I know you’re not giving out 2016 guidance yet – just yet, but again I just wanted to see if you could help give us an idea of what can we expect in next year especially if you start bringing your models out?

We are not providing guidance at this time. And I think it’s important to say this, we are building a long-term sustainable model and we expect to continue to balance investments with growth and we continue along the path to profitability. The pipeline continues to grow and the business is performing very well and we expect it to continue.

Greg we will inch forward to all possibility but we are going to do it slow. And you can see – you can look that we generated cash from operations this quarter and we know how to do this very well. But just again, big opportunity we are the owners of this market and you know, I think that it’s rare that you bring in a position the companies starting to be a scale and they are the owners of the market with a lot engineers, and so many years behind the very, very unique architecture and we need to take, we need sides we need capacity, so regarding the possibility we will invest in very measured way, but we are going to keep on investing in the business.

Okay, great. Thank you and congrats on the quarter, guys.

We’ll take our next question from Gur Talpaz with Stifel.

Hi guys, this is Chris Speros on for Gur. We were wondering you guys added 241 new customers during the quarter are you guys seeing a pickup in security based purchases and by that we mean customers buying your solutions specifically for the security functionality?

You know, they always, from the beginning security was a core use case for us, but sometimes it was hard to quantify the risk, so we’re building now around operational efficiencies, but what is happening today that everybody understands recognize the risk. And the risk is coming from all over we have security people but the business understanding is very well and a lot of the security demands coming from the people that managing the infrastructure and the data itself, so what we see is that you can get a lot of buying and a lot of budgets from everybody around security use case alone.

All right. Thank you, guys.

Thank you.

We’ll take our next question from Scott Zeller with Needham & Company.

Hi, thanks good afternoon. I wanted to ask another question about security, we happen to catch one of your online video clips Yaki, and it was clearly focused on security, but as you think about the way you sell you know you’ve shared with the analysts how you build the use cases as part of your sales process. How do you ensure that you see all the security specific deals and can you tell us a little bit more if you’re running into any competition head-to-head for security right now?

We rarely see competition very, very rare that we see competition. Regarding the security itself it is exactly what I said, it’s security risk in the right way is top of mind for infrastructure people, obviously for security people, and for management, I think that this understanding of risk and the understanding that you can’t neglect the risk and you need to calculate but that has let us simplify the message and we need less to show operational ROI. The other thing is DatAlert, is the real time alerting no one, we call it no touch value, could come put the product and start to show you, you know if administrator were changing permission and trying to take data if you have access to a mailbox from three computers at once if somebody put data with personal information in the wrong place and we give meaningful alert to the owners of the infrastructure, the owners of the data, and the security operations people what it does it just simplifies the sales cycle.

Okay, maybe I could just ask again, could you give us your thoughts around anyone else that you are seeing competitively if that’s changed at all?

It didn’t change, you know, at times we see Symmantic and Quest measuring diligently and we very early see competition against us in the valuation we are doing.

Thank you.

We’ll take our next question from Michael Kim with Imperial Capital.

Hi good afternoon guys. With regards to the SIM platform customers for HPR, Exciding, FireEye, Tapp, just given the inter operative in DatAdvantage and DatAlert, are you seeing an opportunity to leverage into that installed base, what kind of marketing programs or channel are you putting around that?

So what is happening is that many time security operations people looking at the things in order to understand what is going on, so we are real-time alerting we make sure that we can bring all the benefits, resolve them, needed to open another group. So it works very well. They can capitalize on the investments that they already have and it talks very well for us. And with companies like FireEye and others what is happening is that if you ever have malware and if you want to know what attached, or what is host, and user did, and it’s working very well with all these companies. But looking after malware and antivirus and what is happening with the APIs and real-time alerting is that we’re just integrating it in a complete way in the security ecosystem and security processing.

Great and then just a specific to the DatAlert module are you seeing acceleration add-ons to DatAdvantage and then any update on express risk assessment?

So the expressed risk assessment just talks very well because you're not doing it – you are doing – as I said, people understand the risk and they can't ignore it, so it's definitely simplifying a bit. The sales campaign and regarding DatAlert we see very good adoption of DatAlert and the other thing that we see is that it helps us sell the other modules. So if you sell DatAdvantage for Windows to several operations then you need to sell DatAdvantage for UNIX to the UNIX people you almost managing to self campaign; but once security is front and center this is what is important this is the core. So people say I just want to understand what's going on with the system just give me the metadata and we will look at, so what is happening the byproduct is they are buying DatAlert module and it's much easier to sell the DatAdvantage and data specification framework module so the course from one transaction is increasing because of it.

And other if I missed this, but any large $1 million plus deals or large deal activities in the quarter?

We had good volume of large deals, larger deals of several hundred thousand but we didn't have any deal over $1 million.

And how would that compare with the maybe the large activity a year ago or last quarter?

We have some large deals for several quarters, but really don't have many years over $1 million so no change in the trend, in the overall trends.

Okay, very good. Thank you very much.

And we’ll take our final question from Raimo Lenschow with Barclays.

Hi guys, this is actually Stefan in for Raimo. Quick question for me, you've brought a couple of new solutions to market over the past few years, you've talked about DatAlert a lot on this call. I just wanted to touch a little bit upon some of the other solutions that you brought to market such as the Data Anywhere, the enterprise search platform, can you talk a little bit about the adoption of those solutions? And then has the fact that you have more products has that impacted ASP's at all and are customers buying more modules at one time? And if you could touch a little bit on that, that would be helpful thanks.

So good adoption of data anywhere but this is much smaller regarding data answers, it's a customers that are buying it, realizing a lot of value, but still usually we need full year cycle like the data transport engine that it will kick off. So when you have a deal with many licenses, obviously it's increasing the HP drastically, but on the other side if somebody will buy just one module then upsell it can skew things a bit. What it is doing primarily, it's increasing drastically the customer lifetime value. So it's system organization play, so you have wonderful product, you can, you're a candidate for all of them, and with time our customers buying more and more. So it's about security, governance, and unlocking the potential of unstructured data just think about how many use cases and how much potential, at the same time how much enormous risk you have with this unstructured data asset.

Got it and just as a follow-up is the adoption rate of those pretty consistent to, if you were to compare some of the earlier versions of products that you have, or is it faster or slower?

DatAlert is very fast, it is the fastest in history and all the other products they regular and no more after a year.

Got it, super helpful. Thanks a lot.

And that concludes the question-and-answer session. I’d like to turn the call back over to Yaki Faitelson for any additional or closing remarks.

I would like to thank all our wonderful employees, customers, and partners for their continued support. Thank you for joining us today and we are looking forward to seeing you all again soon.

And that does conclude today’s conference, thank you for your participation.