Greetings, and welcome to the Varonis' Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yun Kim, Director of Investor Relations for Varonis. Thank you, Mr. Kim, you may begin.

Thank you, Doug. Good afternoon. Thank you for joining us today to review Varonis' second 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 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 third quarter and fiscal year ending December 31, 2017. 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 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; risk 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 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 to the most directly comparable GAAP financial measures is also available in our second 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 our Chief Executive Officer, Yaki Faitelson. Yaki?

Thanks Yun. We're very pleased to welcome Yun, our Director of Investor Relations. Good afternoon, everyone, Q2 was another strong quarter for Varonis, the license revenues increasing 31% year-over-year to $28.4 million in total revenues increasing 30% year-over-year to $50.2 million. We continue to experience strong demand drivers for our business and are executing well on our key goals of increasing awareness and adoption of our solutions, more effectively targeting companies with 1,000 or more employees with larger customer lifetime values, and innovating to expand the value we deliver to our customers and extend now differentiation. I need to look further the ransomware attack is [indiscernible] to know that organizations large and smaller exposed, files and e-mails are most at risk and often breached because they are high value assets and usually vulnerable to misuse by insiders and outsiders that breach the perimeter. Varonis state a security platform not only protects enterprise data from cyber-attacks, but also from insider thereat and data breaches. Our platform analyze content, accessibility of data and then behavior of the people and machine that access data to alert on misbehavior, enforce list privileged model and automate data management functions. DatAlert continue to be an important arrival for our business and hook for vision, our message in our operational approach to security, detect, prevent and sustain. As you know DatAlert is one of the newer products in many customers have only had it for short time still a recent survey with TechValidate show that approximately 80% of respondent have detected critical security issues with DatAlert, such as ransomware, hijacked accounts, employees stealing data, and administrators violating policy. I'll illustrate two things; one, the dangerous threat that we detect across frequently; and two the DatAlert is very effective at detecting and stopping them. In Q2, we saw…

Thanks Yaki, and good afternoon everyone. I'll begin by reviewing the quarterly results and then I will discuss our outlook for Q3 and the full year 2017. Total revenues for Q2 were strong at $50.2 million, an increase of 30% year-over-year and above our guidance. License revenues were $28.4 million. This represents a 31% increase from Q2 2016. Our maintenance and service revenues were $21.8 million increasing 29% 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, U.S. revenues increased 36% to $33.1 million or 66% of total revenues. EMEA revenues were 28% of total revenues or $13.9 million, an increase of 17%, Rest of World revenues increased to $3.2 million or 29% which is 6% of total revenues. To the second quarter existing customer license and first year maintenance revenue contribution was 45% up considerably from 41% in Q2 2016. We maintain our focus on expanding our relationship with existing customers as well as increasing the number of new customers. During the quarter, we added 254 customers compared to 285 new customers in Q2 2016. We are pleased to see our new customers again making larger initial commitments to us as we continue to focus on attracting companies with 1000 or more employees. As of June 30, 2017, 50% of our customers had two or more product families up from 46% as of June 30, 2016. This positive trend validates the success of our innovation to our data security platform together with our growing customer lifetime value; it also illustrates the significant opportunity we still have to sell to our existing customer base. Before moving on to the profit and loss items, I would like to point out…

Thank you. [Operator Instructions] Our first question comes on the line of John DiFucci from Jefferies. Please proceed with your question.

Thank you. I think this question is probably for both Guy and Yaki, and then I'll have a follow up, which you probably be more for Yaki, but listen this quarter nice growth and execution on the part of your team, one of the things in this quarter that sort of made us look again, and it was you're also demonstrating the leverage in this model, in both earnings, but even more importantly in cash flow. I guess given what seems like an outsized opportunity here, can you just refresh us or talk a little bit about your philosophy regarding the balance between growth and profit going forward?

Hi John, it's Yaki. You know the philosophy was always to improve - just improve the economics of the business gradually, it's an enormous market opportunity, we're virtually alone and we end the company possible for long time. So we went upfront investment and then we sell more licenses and we are very [indiscernible] just comes, you know it's scale growing the business selling more licenses and the profitability just going hand in hand in our business. So we're really doing exactly what we said that we will do. You know we put some upfront investment, we have a good coverage in a very methodical way we are increasing sales capacity, very good linen expand, we are going up market, because the market is coming to us, and this is really what you see in the overall profitability KPI. But this is exactly what we say that we will do. It's the part of the model when you scale that the business you sell more licenses your profitability is to some extend is almost should in sometimes we're doing upfront investment in just increasing the sales force and the engineering in a very meticulous way, and we have just ROI analysis on everything that we are doing and this is exactly part of the plan.

And John to add on that, this is Guy, in this quarter we flew down from approximately 70% to the bottom line, and like Yaki said, we're extremely focused on both growing market share, but also in the bottom line, and with the earning power we have in the model, we're really the opportunity is out there for us to increase market share, bring in new logos, but also up sell and cross sell to the existing customer base and that's exactly what we're doing.

Well, it's working nicely and then my follow up really has something to do with that in the existing base and expansion that land and expand. And you've pointed out that the percentage of license and for sure maintenance from the existing customers jump to I think 55%, it was in the 40s so last four quarters before that in the 30s. And the number of customers is growing nicely, but the number of new customers sign to the quarter has been coming down a bit, and I mean to kick on something, because frankly these results look really good, and they continue to be really strong here, everything seems to be working well. But are there things you can do to improve the land part of the strategy, because expand is working really well, but do I have that wrong, I mean should I just assume that going forward you just get more and more from your existing customers along as you continue to had a good number of new customers things should be fine, how should I be thinking about that?

Yes, all company we went up market, what happened is that our sales campaigns just became so much more predictable and the numbers that not telling the story, because if you look at our customer of 2000 and customers we have very strong growth there. And the other thing we bought so many customers in the last two years, and we have so many skews to sell them we also see big uptick in this ability of the product, so our sales people need to cater to debate our marketing team is doing a very, very good job and there is an effort economy. How much time you spend and what you get in return, and you see how everything is working. So from our point of view we see very good market expansion in the 1000 and in many 2000 and above this is working, this is exactly our strategy and 254 customers it's a lot of customers and these are the right customers, the right side and will be right in this.

And just add to that John, the aggregate sales that came from new customers this quarter was greater than the aggregate sales to new customers in Q2 2016. So it's in line with our strategy, and we're extremely happy with that.

Okay, so it's actually your new customers are actually larger customers, are they're able to spend more on Varonis. This is nice job here guys, this is nice. Thank you.

Thank you.

Our next question comes from the line of Matt Hedberg from RBC Capital Markets. Please proceed with your question.

Hey guys, thanks for taking my questions. First one is about new automation engine interest appears quite strong, I know it's still early Yaki, but could you talk about the potential uplift to customer spend, if it's cross sold into a customer, I guess theoretically could you see the same uplift that you're seeing when data alert is cross sold?

I don't want to compare it to, but it really doing two things, one is security analytics, just to make sure that if there is anything bad is happening in the other one is remediation, and remediation something that is very hard, but the world is going in just reduction of risk, making sure that the right people will access their data it just most important component, and it just automates the whole process, and you can quantify the ROI, so we believe that it has a massive potential on all the platform like with DatAlert, everything takes time, but the initial interest is great and we'll bullish by this opportunity.

That's great. And then maybe as a follow up. U.S. growth was quite impressive, I believe I heard it was 36%. I think Europe grew little bit slower, is that largely a function of just the size of the U.S. market where you're diverting most of your spend, just when Rest of World grew a little bit faster than Europe, just kind of trying to get a sense for geographic growth rates?

Yeah, Europe is a very, very good market for us. You need to understand that we are very measured with the way that we're investing in the business and in the last two years just maturity in the U.S. market was extremely good for us, so after the all day trade spending in security, everything came to us, it was very thoughtful process in the U.S. just people understand that recognized brand, it just it's a top priority, and we invested more in sales capacity here, that in Europe is really we put a good leadership in the UK, now we hire someone the right person in Germany, and now under these people we are increasing capacity. We also starting to see the initial same trend that we saw in the U.S., we're starting to see in Europe. Don't forget Matt that we really build this market. So deposit of interest into demand, into revenues very familiar to us and we know very well how to, we know very well how to analyze it, and if you look up the prices walking, the sales cycles we run them, the predictability of sales cycles in Europe, it's very good in the first half of the year is 21% and we believe Europe can be very strong going and very strong contributor for us. We have long history in the region and we know very well how to operate, we also have the foundation to scale effectively. We want always to scale in the most effective way, so firstly really the upfront investment and then capacity and we believe that the investment will come to fruition.

Great, thanks Yaki, super helpful. Congrats again on the results.

Thank you.

Our next question comes from the line of Melissa Gorham from Morgan Stanley. Please proceed with your question.

Great, thank you for taking my question. So Yaki, DatAlert obviously is a product that's going well for you all, but I'm wondering if you could provide any additional metrics in or around how penetrated that solution is within your customer base and just trying to get you an idea of how much more runway you have in terms of selling out into the existing days.

We're not giving these metrics, but we you know there is a lot of meat on the bone. We can do so much with this product, but it just not only DatAlert, it's everything, DatAlert in a sense of the no touch value, that coming in, what happen is Melissa, if you look at this all of this really this is what is happening, and I think that's something that is very, very important to understand. If you have like a line in the sense there are perimeter security the thing of getting but once the getting and you see how often they get in. We have the best solution that you can have these very sophisticated delivered and everything related to remediation. So the events and the way that everything is working very well for us. The other thing is DatAlert once you've seen, it's pulled a lot of additional Data Advantage and Data Classification Framework and other products and help a lot with the cloud. So it's not just the DatAlert once DatAlert is in, it's much easier for us to sale the additional platform. So it's really it's takes a life to fix on to some degree.

Okay. That's helpful. And question for Guy, so you've been able to sustain 30% plus growth year-to-date on license revenue, but and I'm looking at guidance for the full year, it does assume a deceleration in the second half of the year. Aside from just typical conservatism is there anything to that would drive that magnitude of deceleration?

So this is the second quarter that we beater raise so we obviously feel extremely confident about the business and we feel very strong about the second half of the year. The philosophy of our guidance hasn't changed, we want to guide in a very responsible way and we do feel very strong about the business.

Okay. Thank you so much.

Thank you.

Our next question comes from the line of Greg McDowell from JMP. Securities. Please proceed with your question.

Oh, great. Thank you very much, and I apologize if this is already been asked on timing in a little late here. But I was wonder if you could give us some commentary on the geographical performance I just noticed that there is quite the acceleration in Rest of World year-over-year revenue out there is deceleration and in EMEA and I was just hoping you can give us a little more color on sort of what transpired in those geographies? And then have one follow up.

Hi, Greg, it's Yaki. I just mentioned it before when the market in the U.S. became much more mature, more investment in capacity and in marketing were here. And what we have done we perform well totally we are performing very, very well in Europe. So what we did really put the right management in place invested very gradually in the right teams and now we are accelerating these investments and behind very strong infrastructure, very strong channel infrastructure and a very strong management. But when the market presented itself in such a way here, we put more investment in the U.S. make sure the infrastructure is there in Europe and now we are investing and we have we strongly believe that Europe can perform very well for us for a long time. The price works very well, the sales cycles are working very well. Then extend works very well we just need to increase EBITDA volume in term of the Rest of the World it is small region for us. And in the U.S. the market is really prime here and there is so much opportunity in this so much understanding of what we do, a lot of recognition of a lot of recognition of the brand, good ability to do a large deal - good ability to do large deals with the smaller customers. So we're really pleased with the investment what we did across all the region and we are very way that the external conditions of the markets are playing up.

That's helpful. Thank you and I apologize, if you had to answer that same question twice. I guess one follow-up is just on the on the cross sell it certainly one product were product cycle we're going to be tracking is automation engine and I know it's the DataAlert product cycle certainly exceeded our initial expectation. And I was just wondering if you could comment and I know it's a very new product still, but if you could just comment on sort of the level of excitement for the for the automation engine product compared to this level of excitement for DataAlert at similar stages in the product cycle? Thanks.

I'm not an excitement expert. But…

You're not?

But there is definitely a lot of massive interest in the automation engine, because all of our customers remediation is in the call of a - what we were doing the data work well even with DataAlert it took before it really [indiscernible] but we believe the bill is too many of opportunity is two minutes opportunity with the automation engine and we also believe that our customers that the understand to fulfill the value that everybody expects.

Great. Thanks, Yaki. Thanks everybody.

Thank you.

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

Okay. Thanks for taking my questions. So Yaki, I was hoping you could talk about your push up stream here. You know this thing greater traction with organization with that with more than 2000 users. Can you give us some color with regard to what's driving that is it better understanding of security used cases and then I guess going forward how do you think about the balance of your high velocity sales model with this pushup stream?

.: And what happen is that this we're starting to have simpler sales people and at a much more strategic with security officers, we CIO, so we can go to these organizations and know that we have when we demonstrate value in the right way we've high probability to win do in the business. And we still it's not that we are going to be monsters organization a lot of the focus is 2000 to 20,000 user shops and even in more than 1000 is one we are doing very nice deals, larger deal in smaller user accounts which is very, very exciting. And it's still it is still very it's still transactional. Sales people becoming much more productive with less user accounts and more targeted approach and there's a market we believe the market is keep coming to us and this eventually will become a mainstream so we will be able to do more with the smaller territories for sales people. So this is really what you see and understanding of the value, see and we are sending sometimes more skews or we penetrating smaller and then we are expanding within the organization. And you see a security landscape that this is one of the most high value offering that you can have, if you want to be protected, if you want to make sure that your unstructured data is protected, your active directory is protected, big part of your critical infrastructure and to do it with the fine entry resources that you have an IT unit Varonis.

That's helpful, Yaki. And then you touched upon GDPR prepared remarks. For me what would you help us here is could you talk about what you're seeing in terms of planning on the part of a customers and more importantly partners in Europe? Thank you.

What I think about GDPR, first I think that if we said before it's very important to understand because we really build this market. We have very good senses regarding the way sometimes something generate noise and then there is interest and then it's generally demand in many times late into sales. And what we see with GDPR everybody talking about it and each and everybody saying we can do things for GDPR out. But when you look at it you look at what you need to attack and you understand where we need to be security and how we demonstrated. The biggest risk and much need to do first and Varonis we believe going to benefit for me in a big way, but it just the poses, what we see now for sale out of noise, now what we see is just people calling us to come to the table and in the table we see different stakeholders. We see legal people and we see CEOs. And we are expanding our core offering not something else understand they need to do it in more in POCs that have very visible to the business side. And we believe that this pipeline together we the fact that GDPR it will come into effect will gradually generate a lot of demand for us. But we saw this movie before, it takes time, but eventually like you see in the U.S. most time it really translate into demand and really a secular trend tail wind that's stays with you and you can really capitalize on and reducing friction in the sales motion and elevating the overall value of the offering.

That's helpful, Yaki. Thank you very much.

Thank you.

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

Good afternoon guys. Just specifically regards to ransomware some of the high profile tax [indiscernible] did you see an escalation inbound queries and activities around POCs and just a general characterizations process it attacks?

Yeah, we definitely see, we definitely see a lot of interest, but what we see that is much more exciting for us, when you have these attacks again you have a lot of noise everybody talking about it, but now what we see few weeks after this thoughtful process this is generating. You know people looking even saying, I have my perimeter security, this thinking coming, once they come in and need to remediate this scope of the risk to make sure that you know I took your credentials, you can do a lot of damage, and I want to detect it, and to detect if fast, and to make sure to understand what is the original user and the machine this scope of damage but it is in the call to action, and this works extremely well for us. Deposit that is generate, the awareness not just for this any panic spent just the overall understanding that there is one fixing I need to treat it completely different and I need to invest in the right way and I need to look at remediation this is something that we this is what will the market for us, so this in GDPR and many other things just create the network of the market and they are strong.

Great. And then just switching gears on the government vertical as you see an opportunity in the federal side was working with some of the system integrators and other partners, and how you see that training in federal fiscal year and in September?

We invested a lot in federal, and we believe that our product offering is extremely valuable for the federal government. We enter this quarter with good pipeline and believe that we have very strong potential.

Are you seeing any contract awards in the fiscal year?

Say again.

Are you assuming some significant contract awards this year?

We think that the team will perform very well.

Great, thank you very much.

[Operator Instructions] Our next question comes from the line of Srini Nandury from Summit Redstone Partners. Please proceed with your question.

All right thank you for taking my question. Yaki, can you talk about cannibalizations you're having in AVR, EMEA for some reasons it's little lumpy last quarter you had nice security this quarter, it's 17% relatively underperformed your overall growth what work and what did not NGO of what working in EMEA please. And I have a follow up.

You always need to take a multi-quarter view, and as I just it was sales cycles and the way that we invested in sales capacity, look at the quality of the deals in the capacity that we have the overall we are pleased with the performance of the region and we believe that in the next few quarters it will start to work very well for us.

All right. My next question is on the sales cycle event, I know you've touched on this on the call little bit, you've been analyzing we're in a solution for last two or three years you know net of the large customers if you take out our large customers which you guys focused our last year or so, can you talk about sales cycles in general I think compressing and what are you seeing in the general trends? Thank you.

And we see the sales cycle you know they stay relatively the same what we see that much higher probability to win. When you're coming in, if you brining the right syllable people to the room and you demonstrate the value in the right way, it's very, very hard to ignore - very hard to ignore the fact that you need a solution and you need it relatively fast. It's still an enterprise sale, it takes time and in the budgets, but the budget other people understand that this is something that they need. The market is coming for us, and we have a very good ability to win a larger customer and much more importantly to win then just to make sure they are buying more for a long time.

Thank you.

There are no other questions in queue. I'd like to hand the call back over to management for closing comments.

Before we end the call, I would like to thank all of our employees for their contribution to our success this past quarter and all of our customers and partners for their continued support. Thank you so much for joining us today, and we're looking forward to speaking again soon.

Ladies and gentlemen this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.