Greetings, ladies and gentlemen and welcome to the Varonis' Third Quarter 2017 Earnings Conference Call. [Operator Instructions] I will now turn the call over to your host Mr. Yun Kim [ph] 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 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 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 for the 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 our Chief Executive Officer, Yaki Faitelson. Yaki?

Thank you 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 revenue grew 31% year over year to $53.6 million. In the third quarter, we saw continued strength in the US, with revenues increasing 76%. 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 provides visibility into file and email system, revealing that users can and do access and analyzing activity to detect any abnormal or harmful behavior that could signal a potential breach. In our view, this data centric approach to security is becoming essential and a new industry standard. In Q3, we saw high profile data breaches through organizations, which stole most sensitive data in those, we should expect to have the highest level of protection of 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 leads to data breaches, but also fixes many of them automatically. We believe that our new solutions continue to increase our advantage. The automation engine with its exposure inflection of the time it takes out of the technology and our GDPR partners reveal of course personal information. In regards to GDPR, as we have said before, we expect GDPR adoption to have long term and we believe that we are well…

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. US 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 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 1000 or more employees. As of September 30, 2017, 51% of our customers had two or more product families, up from 47% as of the same date last year. This positive trend validates a platform approach to security with product families that text prevention is sustained. 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…

[Operator Instructions] Our first question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.

In your prepared remarks, I think we continue to be impressed with the number of customers that take two 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 data alert there that seems to be a real game changer product for you guys? It would be helpful to kind of hear a little bit more color on that.

Hi, Matt. So essentially, we see a very good attach rate from all the products and also, there are many licenses under the data advantage product family and what we see is exactly what you said. The data alert is today in terms of data and file systems, extremely vital product. And without any effort, customers get very, very valuable information. So it’s easy for us to attach other products 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 is analytics is we’re starting to see very good momentum. It’s still early stages with the automation engine. So the automation engine, customer wanted two things. They want to detect what’s going on, but before that, they want to do remediation. The ability to do quantum leap in remediation to remediate things automatically is out breaking, business process is big. And the searching is really what is happening in the world. Everybody invested a lot in security and it’s very little effect. You need to start with data centric mindset, where is the critical assets and from there to protect and saving the overall value chain, when you look -- you look at the overall security stock and you’re installing Varonis to just get a lot of value. So slowly but surely, people understand it. We see a lot of very good attach rates and we believe that we also can get a lot of momentum in remediation the same way we saw with 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 maybe a final 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, really the GDPR is here. So how it’s going to translate it to revenues in the short term is hard to say, but we’re starting to sell our modules for the GDPR and it’s definitely driving a lot of deep business conversation around where is the critical data, how we want to protect it, how are we going to demonstrate this protected, what we need to do first. So we saw a lot of noise, but after the noise when a thoughtful process is starting and you 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 and in multinational, that is, business in Europe is take it very seriously, including companies like Varonis. So we believe that it’s definitely a tailwind and it’s a long term cycle.

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

Yaki, you mentioned federal government contributing this quarter and it’s great. It sounds like some traction, we’ve heard you talk about other governments in the past and even the opportunity with the US federal government, but can you tell us, I don’t know if you’ve 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. The federal government in all its branches, there is a lot of unstructured data, a lot of critical data. So definitely a high value software for them. And in the last year, we brought very strong leadership and very strong team for federal and we did all the right things. Just hiring the team, building the pipeline, closing the deal, focusing the right distribution and we saw the force of it. So we had very good business with federal market this quarter. But more so, what it did it really validated everything; validate in terms of volumes and deal size and the opportunity. And we believe that it can be a tremendous growth engine for us. And we also believe that what happened in the Q3 really validate how big it can be and that we have the right programs and we thing about scaling in the right way and we are very bullish about the opportunity in the federal market. We believe that we are doing the right thing, we have the right team and without a doubt we have the right product.

And if I might a follow-up to one of Matt’s questions. We saw 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 US. But GDPR conversations you say have started to have an effect, but is that - 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 con -- 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 there are two parts for the answer. One is, what happened 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, but 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’re always doing exactly what we said that we’re doing. And we’re also investing in a very measured way. So we had some changes that we needed to do in the UK. We bought very strong leadership to Germany. So number one, we want to make sure that before we’re increasing sales capacity that we have the program, we have the management capacity. We are always - we have a fairly good visibility with the way that we’re doing everything with POCs, how the business - how it’s going to translate into revenues. The other thing we saw is definitely we saw a market that is much more mature in the US and we invested here. But the same maturity level slowly but surely - it’s very hard to measure it on a quarter by quarter basis, but every six months, nine 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 sell GDPR, GDPR is big part of the growth, no, but what GDPR is doing. So when you have something like GDPR, everybody is raising their hand and saying, I can solve you the GDPR problem. What the organizations are seeing is that what GDPR did is, if you look at the article, where is the critical data, who is touching it, where are the most exposed, the right to be focused, all of this stuff is really catered to the Varonis score. So what it does is it take us to see many c-level people to [indiscernible] GDPR is part of the discussion, but this is not what bring the revenues. What it does, it bring c-level people into the conversation. 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 with Varonis, your need to have a multi-quarter view.

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

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

It’s the same core message, the one thing that we see is 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’re doing a POC and we get them in the room, there is much higher probability to win. The other thing I think that’s happened is, the sales motion become more strategic and more simple, we don’t need to demonstrate ROI, we need to meet relatively less people in the sales company. It’s still an enterprise search cycle, which is, you know, you always need to get all the approval and have all the checks and balances and demonstrate the value. The other thing that we are seeing is that there are a lot of budget. It’s still not like legacy and traditional security and earmarked to an antivirus and IDS sort of firewall. But we see a lot of buckets for insider thereat, data protection, remediation and good sales teams know very effectively how to stay with this budget to Varonis and it’s working very well. DatAlert is helping and all the other products are helping, but everything is stemming from the DatAdvantage platform and visibility to who can access the data, who is actually accessing the data, who should access the data is the basis of everything. So it’s just the same sales motion, but it’s just more simple with a market that is significantly more receptive and understanding what we are doing and a customer base that gets a lot of value from our products and thankfully talking about it when you 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. We can do a lot of analytics and get nothing, people need very comprehensive clear alert, very few security people need to really protect very large organizations with detail over the place, on premise and in the cloud, and this is a very good environment for Varonis.

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

It’s both. Look who we are and what we are doing every year, we are innovators. This is what we are doing. And thankfully, we are innovator that is blessed is to have a platform that many very good use cases of 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 they’re coming organically from a 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. So there is - in every theme that we are playing 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 two years that we can really innovate with a lot of visibility of how it’s going to play out. What is the value? How the value is tied organically in a sales motion. What is the price that customers willing to 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 products, but even the products that we bring that are just natural extensions. So edge natural extension to our DatAlert discussion. The GDPR model natural extension to the Data Classification Framework. And the automation engine is natural to our conversation regarding remediation. So it’s - we feel that it’s a very good place to be.

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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 in relation to DatAdvantage and DatAlert, has a separate license, is the required DatAdvantage going to be sold separately. Additional color there would be great. Thank you.

So what we saw with DatAlert, we’re really starting to catch a lot of malware and a lot of apps. So really if you want to look the market, you need to go align in the sense, so there is parental security, you want to make sure that nothing will come in. And once it’s in, then it’s a different ballgame. 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 apps, and administrators are doing wrong things. And inside of the time is very low and slow way to do a lot of damage in a sophisticated way. These are people that are aware that these kinds of technologies and we find so much success and it’s a tremendous value to our customer base. The other thing we understood, but understanding metadata and analyzing this file system activities that result not completely a data spin, it’s very hard to bring value. Then we understood that they are what, you know, we call edge systems, there are three main systems in DNS, web, proxy, and VPN, but you really add a tremendous force multiplier. So if you see on a DNS that a client - that a laptop or user trying to reach out a command and control center, you know to flag its access. When you see that someone did massive downloads, you need to look at them and see that they are not [indiscernible] and trying to get out via your proxy. And then with identity sets you want to make sure that if somebody is accessing a data from New York, the same identify from New York and then London within…

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

I think the philosophy - my philosophy hasn’t unchanged and now 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 up-selling additional licenses and additional products to those existing customers. And through that we can increase the component of the maintenance and really drive profitably on a much larger scale.

Good philosophy, just growing the business, investing back in the business and gradually improving portability and this is exactly - we are doing exactly what we said. The total available market is huge. The crowd increases our total available market, the new products increasing our total available market. Then we need sales capacity to cover the opportunity. With product extension and upsell, it’s a 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 a business to be billion dollars in sales. By doing that, building - gradually improving our profitability and investing back in the business. And it’s just a balance that we’re starting very well, but we never losing the eye of the tiger for where we want to 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 and Company. Please proceed with your question.

I was hoping you could talk a little bit more about the automation engine and what the uptick is looking like. I know it was a little too early last quarter to really get too much of a gauge on it. I was hoping to get a little bit more granularity on the reaction to it at this point.

It's still very early, so I don't like to comment of it early. But so far it's 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. When you can come in, and take everybody in the organization and make sure that only the right people can access it and do it in a fraction of a time you can do it before without breaking any business process, it’s extremely value. 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 that also the Automation Engine give us what we call the no-touch value, that you can come to an organization, you put it on the system and then you’re starting to get a lot of extremely valuable alerts 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 is a very - customers like a lot and it’s producing a lot of friction in the overall sales motion. So we believe that so far our strategy is working very well. And with this product we can add a lot of value. DatAlert and the Automation Engine are elevating the value that our other products brining and everything works well. We are happy with the growth in the customer of 1000 plus and we are happy with the attach rates and the value our customers are 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 UK environment, any sense of differentiation between those two geographies.

No, 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 our UK is executing and what the UK team is doing.

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

Alex, it’s really hard to find talent, but thankfully we can find 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 very talented people in the company and we have a lot of upward mobility. I think we are in a good place. It’s always hard to find talented people, but we manage to do it. Our 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. Please proceed with your question.

Just one quick question on pipeline visibility, are you starting to acceleration in risk assessments this year. Any change in the conversion rate and especially around customers with more than 1,000 employees? Thanks.

We never break it down like that. Overall 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 department, it’s very rewarding to see that it’s becoming a real business enabler and organizations all over the world are taking it very seriously. We are pleased with the quality of our sales company.

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 it a percentage of overall risk assessment, we see less competition.

Thank you. 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 of our employees for their contribution to our success this past quarter, all of our customers and partners for their continued support. Thanks everyone for joining us today and we are looking forward to speaking with you soon.

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