Varonis Systems, Inc. (VRNS) Q2 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Varonis' second quarter 2018 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Staci Mortenson, Investor Relations for Varonis. Please go ahead..

Thank you operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter 2018 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer and Guy Melamed, Chief Financial Officer and Chief Operating 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 the Federal Securities Laws, including projections of future operating results for our third quarter and fiscal year ending December 31, 2018. Actual results may differ materially from those set forth in such statements. Important factors such as risks associated with the 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 and cybersecurity 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 second quarter 2018 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 would like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Yaki?

Thanks Staci and good afternoon everyone. Total revenues for the second quarter were $62.2 million, an increase of 26% year-over-year. During the quarter, EMEA revenues increased 60% and North America revenues increased 12%. Our growth in North America was impacted by underperformance in the West Coast region. We have moved top sales leadership into the region to help ensure we more effectively capture the demand in the region as we are doing across the business. We feel confident that these changes will help in improvements in the second half of the year and we remain on track to deliver our goals for 2018. We are at a meaningful number of new customers and sold more to our existing ones with the percentage of clients who purchased most two and three or more products increasing again this quarter. We are also having success with customers who have 1,000 or more employees and greater lifetime value. This speaks directly to the increasing need for companies to track and protect their data wherever it is stored, reducing risk, preventing breaches and meeting compliance requirements. Our platform approach driven by ongoing focus on innovation is making Varonis a partner of choice in driving a land and expand strategy. During the second quarter, we continued to make investments to increase awareness and demand. We hosted 27 Varonis Connect Events worldwide, attended key conferences such as RSA, Gartner Security and Risk Management Summit and we met with an increasing number of prospects and customers. These events reinforced that the demand for our solution is strong and that our platform addresses critical challenges. For both new and existing customers, risk assessment continued to be the most effective way to show senior level executive that they have to take ownership and control of their data. Too many organizations have overexposed and unprotected files and emails on corporate networks worldwide. In addition to using risk assessment in the new business opportunities, regular risk assessments [indiscernible] have proven to be a very powerful tool for upsell. When we review with existing customers how they made progress using our solutions, we get a chance to talk about how we can take them further. We discuss all the innovations we have been working on that will help address their remaining security or compliance needs which is helping to drive upsell and cross-sell. And customers who purchase two or more products increased from 67% a year ago to 71% this quarter. 38% of customers have purchased three or more products, up from 32% in the year ago period. For example, one of the largest credit union in the U.S. relied on DatAdvantage identification engine, but they need to help fixing security issues, external threats and Cryptolocker were a big concern and global group access and shared data that they amassed over years were invulnerable to outside attackers, malware and insider. Varonis did a risk assessment to show them [indiscernible] automation engine to find and secure overexposed files could help them accelerate a cleanup work from two years to one week. In Q2, the customer added Automation Engine and DatAlert. With Varonis, they are deriving real measurable value with unified security approach, working smarter to protect their sensitive data. This example also speaks to why we made the strong Automation Engine and how we believe it is a key differentiator for us. The Automation Engine was build to fix exposures and inconsistencies automatically, meaningfully reducing the amount of time it takes to lock down access to huge amount of data. With our solutions, customers significantly decreased the likelihood of the breach and reduced the scope of potential damage. During the quarter, we added 227 new customers across a broad set of industries and company sizes. As data continues to grow on premises and in the cloud, companies realize they must implement a strategy to manage and protect their data and looking to partner that can serve evolving needs. While we still have customers that came to us and started with just one product in one division, increasingly customers are seeing the value in our platform and taking a thoughtful approach to data security. For example, in the second quarter, Varonis data risk assessments with largely regional law firms revealed that more than 90% of the files were open to everyone within the firm raising ethical issues as well as security concern. At many companies, the firm tried to manage permissions using native Microsoft tools but could not keep up. In Q2, they decided on a better approach with the Varonis data security platform. DatAdvantage will monitor the file activity and user behavior, Classification Engine will give them visibility into sensitive files, Automation Engine will find and fix all those exposed files, Data Transport Engine will automatically migrate archives or delete files and DatAlert will notify them of suspicious behavior that could indicate internal or external threats. Additionally, DataPrivilege will handle permissions, management for sensitive folders without burdening the IT staff. With Varonis, the law firm discovered how vulnerable they were and took action to reduce risk and secure their critical data. Another great new customer example is a large real estate firm based in Germany who contacted Varonis for data risk assessment in advance of GDPR. The data risk assessment revealed more than 100,000 folders open to everyone in the company and that 86% of these folders contains stale data. Now DatAdvantage for Windows and Exchange are helping them cleanup and maintain permissions. Data Classification Engine and GDPR Patterns helped them locate sensitive data. DatAnswers make it easy for them to search for web related data and fulfill right to be forgotten requests and DatAlert notify them of unusual activity. With Varonis, the company gained visibility into its data and the CIO can demonstrate to the leadership team how the company's sensitive and regulated information is kept safe. As I have mentioned before, GDPR helped with awareness and present opportunity that we believed we are well positioned to capture. We don't lean on compliance alone, because we focus on the broader value that comes with adopting a comprehensive data security platform. [Indiscernible] for business is the adoption of our Office365 solution which again serves acceleration allows U.S. transportation company that had been relying on Varonis for two years to protect their on-premises data, stored with DatAdvantage, Data Classification Engine and DatAlert. They recently migrated to Office365 and looked once again to Varonis to secure their sensitive documents and emails in the cloud. Varonis risk assessment in their live SharePoint, OneDrive and Exchange environment revealed critical vulnerabilities including mailbox from top company executives opening to everyone within the organization. In Q2, they extended their Varonis investment and purchased DatAdvantage for SharePoint Online, OneDrive and Exchange Online and Data Classification Engine for OneDrive and SharePoint Online. With Varonis, they are reducing risk profile in the cloud, getting valuable context to realize greater value from this investment in meeting the rigorous compliance and data governance demands. We believe that we remain well positioned to capture what we think is a large and growing opportunity. More and more of our existing customer are invoicing our data security platform which is driving the land and expand strategy and growing of customer lifetime value. This is all underpinned by our innovation that help us solve more and more of our customer data security needs. I remain confident that we have the strategy and team to build a $1 billion revenue business. With that, let me turn the call over to Guy.

Thank you Yaki. Before I begin, I would like to remind you that our Q2 results are in accordance with the new 606 accounting standard which we adopt according to the full retrospective method. Total revenues for the second quarter was $62.2 million, an increase of 26% year-over-year. License revenues were $33.5 million. This represents a 23% increase from the second quarter of 2017. Our maintenance and revenues were $28.7 million, increasing 30% compared to the second quarter of 2017. For the three months ended June 30, 2018, our maintenance renewal rates was once again over 90%. Over the last several quarter, we have seen our maintenance renewal rate increase, which is a great validation of our products, support and renewal teams. Looking at the business geographically, North America revenues increased 12% to $38.4 million or 62% of total revenue. EMEA revenues came in at 35% of total revenues or $21.5 million, an increase of 60%. Rest of the World revenues represent 4% of total revenue or $2.3 million, an increase of 42%. For the second quarter, new customer license and first year maintenance revenue contribution was 58%, up from 56% in the second quarter 2017. During the quarter, we added 227 new customers compared to 242 in Q2 2017. Validating our strategy to focus on larger customers, we see our new customers continuing to make larger initial commitments to us as we continue to focus on attracting companies with 1,000 or more employees while at the same time increasing revenues from our existing customer base. We ended the second quarter with approximately 6,200 customers. As of June 30, 2018, 71% of our customers had purchased two or more product families, up from 67% as of June 30, 2017. 38% of our customers had purchased three or more product families compared with 32% in Q2 of 2017. These trends validate our investments in R&D and our platform approach which helps our customers track and protect their data wherever its stored, driving our land and expand strategy. 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 quarter of 2018 excludes a total of $8.8 million in stock-based compensation expense and $1.4 million of payroll tax expense related to stock-based compensation. We report non-GAAP results in addition to and not as a substitute for 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 second quarter was $56.3 million, representing a gross margin of 90.5%, in line with our gross margin in the second quarter of 2017. Turning to operating expenses. In line with our strategy, we increased our investments in our go-to-market initiative to drive global growth as well as in R&D to continually improve our products and expand the number of use cases we deliver to our customers. As you remember, when we initially provided our 2018 yearly guidance, we emphasized our desire to continue to grow revenues while improving our non-GAAP operating margin excluding the 300 basis points headwind related to FX. We continue to execute against our plan. Operating expenses totaled $57.3 million in the second quarter compared to $45.5 million in the second quarter of 2017. As a result, our operating loss was $1 million or an operating margin of negative 1.6% for the second quarter compared to an operating loss of $650,000 or an operating margin of negative 1.3% in the same period last year. During the quarter, we had financial expense of $811,000 primarily due to foreign exchange losses, compared to financial income of $950,000 in the second quarter of 2017, primarily due to foreign exchange gain. As you know, foreign exchange gains and losses can fluctuate. Our guidance does not consider any additional potential impact to financial and other income and expense associated with foreign exchange gains or losses as we do not estimate movement in foreign currency rate. Our net loss was $2.4 million for the second quarter of 2018, or a loss of $0.08 per basic and diluted share, compared to a net loss of $300,000 or $0.01 per basic and diluted share for the second quarter of 2017. This is based on 28.9 million and 27.3 million basic and diluted shares outstanding for Q2 2018 and Q2 2017, respectively. If we look at the balance sheet, we ended the quarter with approximately $158.7 million in cash, cash equivalents and short-term investments. During the first six months of 2018, we generated positive operating cash flow of $20.4 million, compared to cash flow provided by operations of $7.4 million in the first six months of 2017. This year-over-year improvement is in keeping with our strategy to scale our business, delivering increasing levels of cash flow from operation. We ended the quarter with 1,364 employees, a 16% increase from 1,171 at the end of the second quarter of 2017. From the previous quarter, this is an addition of 46 people. We continue to increase our headcount to grow the business and realize productivity improvements as we scale. Moving to guidance. For the third quarter of 2018, we expect total revenues of $64 million to $65million, representing year-over-year growth of approximately 20% to 22%. We expect our non-GAAP operating profit to range of breakeven and $1 million and non-GAAP loss per basic and diluted share of $0.02 to non-GAAP net income per diluted share of $0.01. This assumes a tax provision of $500,000 to $700,000 and 29.3 million basic and 32.6 million diluted shares outstanding. For the full year 2018, we now expect total revenues in the range of $265 million to $268.5 million, representing year-over-year growth of approximately 23% to 25%. WE now expect our non-GAAP operating income to be in the range of $2.5 million to $4.5 million and non-GAAP income per diluted share of $0.00 to $0.05. This assumes a tax provision of $2.7 million to $3.2 million and 32.4 million diluted shares outstanding. In closing, the demand for our solutions is strong and we made good progress towards the 2018 goal of delivering solid profits and improving cash flow from operation. We continue to see benefits of our investment in R&D and the customer journey as we increase the attach rate across our customer base driving lifetime value. With that, we would be happy to take questions you have. Operator?

[Operator Instructions]. Our first question today is coming from that Matt Hedberg from RBC Capital Markets. Your line is now live.

Hi guys. Thanks for the questions. Yaki, thanks for the color on the West Coast. I am wondering though, could you give us a little bit more there? What happened there? And then may be a little bit more specifics on the changes on the West Coast? Did you lose any deals? Or maybe how the pipeline feels? And I guess, may be from a high-level, can you help us quantify perhaps the impact on the quarter for the West Coast?

Yes. Of course. So this quarter, the West Coast really didn't meet the overall Varonis standards. As you well know, we have a very methodical way that we are going to market and just very proven. And we injected a very successful Varonis sales leader to help us just fix the overall region. In terms of demand, demand in North America is very strong. The overall demand is very strong. This is why we always stressed that you need to take a multi-quarter view on the business. it is not a company that you can assess on a quarter-by-quarter basis. And we believe, Matt, that we are well positioned to execute very well in North America in the second half of the year.

That's great. And then maybe a quick one for Guy. Since your last guide, can you help us with the FX impact on both the revenue and OpEx? I am curious, if you can help us both on the quarter but also your outlook? That would be helpful.

Sure. Hi Matt. So FX wasn't material for this quarter and isn't material in terms of the H2 portion. As you know, in terms of the guidance we exclude the FX portion, but it didn't have a material impact. It was a headwind of approximately 1% for H2 on the revenue side, but not maybe too material for us.

And then anything on the OpEx line?

On the OpEx line, as you remember, when we provided the full year guidance, we closed the hedging for the Israeli shekel versus the U.S. dollar and we basically said at the beginning of the year that we will have 300 basis points headwind in each of the quarter because of that.

Got it. Thanks.

Thank you.

And our next question is coming from John DiFucci from Jefferies. Your line is now live.

Thank you. I guess I just know I am going to get you guys and I can ask this all day tomorrow. But on the West Coast and otherwise, the numbers look pretty good guys, with just like a little bit of weakness out of one region is fine. Yaki, I am going to ask a math question. Sorry to be repetitive but if you can give us any more detail on that just because we know you do have a very methodical go-to-market strategy, but I mean the people on the West Coast, they are not all new and they know the strategy. So is there something you know, what else, can you give us a little more that? Sorry to ask the same question but I would really appreciate a little more.

It's okay. So regarding just the overall West Coast, you need to be very disciplined. You know how it's sold. You are doing a POC and then you need to pull in C-level people and present and do enough POCs and just present the business case in the right way and we have very high conversion rates. And we just need leadership to know how to do it at scale and this is something that we are fixing. It is something structural. We have very good teams. We just need to make sure that we have the high discipline and resource allocation and people doing everything at the right time. Having said that, on a trailing 12-month basis, including this quarter, North America had 23% growth. We grow this quarter more than 200 customers and we did hundreds of transactions. Had we closed several more mid-sized deals in West Coast is where we are delivering, we will not be having this conversation. And you know, it's a license business. This is why we always tell you to take a multi-quarter view on the business. In our history as a public company, we never missed a quarter. We have very good visibility into the pipeline. We know how things will play out several quarters ahead because the way that it's working, we have these POCs, we barely have any competition. So once we are dong the right things and there are so many budget, nothing is stopping us in the sales process. The cloud is big. The Automation Engine is working. Really, everything that we are doing in security analytics is working very well. Things like that will happen from time to time. We are addressing it and we are addressing it with lot of visibility and a lot of control.

That's great. Thank you. That's helpful. And then if I could, a follow-up that sort of dovetails into this and you talked a little bit on your prepared remarks on the risk assessment your team goes in and does. And I wonder if you could perhaps just give a little more information? I know we have been hearing about it for a little while and it makes a ton of sense, especially for something that a lot of companies don't have, to sort of open their eyes. Maybe give us a little more about what, like when you started this approach started in earnest? What's the conversion per sale once you are able to do that? Because I can imagine that becomes very high once you get into do it. And then maybe even what's the trend in customers engaging at that level saying, yes, sure, go ahead and do a risk assessment?

This came from Ken Spinner, our head of field engineering, that he came to me and said, you know Yaki, this is not a POC that's so valuable for the customer to see what's going on, what critical data they have, how it's exposed. With the security analytics, we can bring a real team, penetration testing and show you how we are catching these APTs. It's just something that is very valuable for the customer. And once you are doing risk assessment and you can bring the C-level people, it's something that you can really present to the Board. And these days, it's just a high priority across the business. And we are doing the risk assessment and we are doing the reporting in its format that the business can understand easily, we are at the risk against what processes, what data and how to remediate them. And if the things are following the same methodology of convincing the customer to do a risk assessment and then delivering the value, we are converting a lot of them. It's becoming just a very sales campaign.

Okay. And then has that become the norm, just going to market that way with every customer?

It's the only way.

Okay. Great. Thank you.

Thank you. Our next question is from Saket Kalia from Barclays. Your line is now live.

Hi guys. Thanks for taking my questions here. One question for you, Guy. And then a follow-up for you, Yaki. Maybe for you, Guy, can you just talk about the mix of overall business from new customers versus existing? I know that we have the 58% of first year license from existing versus new. But I guess the question is, was there anything significant in your result versus your expectation in either of those categories, new versus existing?

Thanks Saket, for the question. First of all, you have heard us in the last couple of quarters talk about how new customers are making larger initial commitments to us. I think this quarter was a great indication of those new customers making those initial commitments and it's aligned with our strategy and we were very happy with that. With that said, over time and on the long-term, we definitely see on our existing customers buying more and more licenses. We have more than 20 licenses to sell and we see more and more of our existing customer want more and more licenses. So over time, the license and first year maintenance coming from existing customers should continue to go up. But in this specific quarter and it can fluctuate from one quarter to another, we saw those larger initial commitments made by the new customers.

Got it. So is it fair to say that maybe the existing fees, it seems like you did a little bit better on new perhaps than you were existing maybe was pushed out a bit? Is that the right way to think about it? I don't want to put words in your mouth, but I just want to clarify.

So I think over the long term, you will continue to see the trend where the existing customers are increasing their percentage over time out of total revenues that's part of our ability to grow and bring down profitability levels to the bottom line. In this specific quarter, we were happy with the initial commitments made by those new customers.

And it's very hard, in Varonis' case, to draw a trend in a 90-day window.

No. That's totally fair. And actually that's maybe just, I think you hinted at this earlier, Yaki, this is my follow-up for you. Just to make sure the question is asked, can you just talk about the competitive landscape a bit? I know you touched on it before but has anything changed in terms of win rates or anything else that you track internally when evaluating your relatively limited competition?

No. At this point, we are competing against ourselves. The competitive situation was stronger than ever. We are hitting scale. We are measuring everything, every POC and every meeting and we know if we see any competition. And at this point, we are the dominant force in our market.

Very helpful. Thanks guys.

Thank you.

Thank you. Our next question is coming from Alex Henderson from Needham & Company. Your line is now live.

Great. I realize the West Coast is going to get beat up on here a little bit. But if you were to look at the right of the North American operations excluding that region, would it have been a much higher growth rate in the 20s, excluding the West Coast region from it? And within the West Coast, is it a matter of the volume of POCs? Is it the volume of C-level meetings? Is it the volume of deal closures? Is it win rates versus competition? What is it specifically that you are going to change and how do you get comfort that you are going to change it within a very short period as you are indicating into the back half of the year? Or is this something that could take multiple quarters to fit?

First when we are looking at the business, remember, everything in Varonis is POCs. We know what customers are aiming to do upsells and we just have the right people on the ground and the right leadership. And we know with this leader, these are proven leaders, these are veterans in the company, so relatively what are their close rates to make sure that we have enough senior leadership coverage to get into the deal. We also see the overall North American business and you need to understand also that in our business we see the pipeline but it's expanding and contracting. Within 90 days, some times it is hard to predict it like that. The overall business we can predict, but this is something that is hard. Remember that last year this time, if I remember correctly, EMEA was around 17%and everybody asked me the same questions and we said, we have a very good pipeline, we see maturity in the business. And this is something that we definitely see in North America. It's just a very good business. We didn't scratch the surface in terms of our penetration in the market. We can move from one quarter to the other and then we had hiccup in the West and it looks like atypical growth for Varonis. But when we are talking about the visibility, we are talking about pipeline and coverage. You know the upsell and you know what are the use cases and we know by individual, who are the individuals within Varonis that are holding this pipeline and how we are going to translate it into revenues. So we have a very good visibility and just very good control.

That's all great information, but it doesn't answer the question that was asked which is, what specifically was it in the West Coast region that caused you to be off of Varonis way, whether it was the number of POCs, the volume of C-level meetings, the volume of deal closures, something within the mix didn't do the Varonis path. So what was it?

Well, it's dependent on the individual, but it was everything. It's just the way the people were running the meetings, the follow-ups, the C-level presentation. We have methodology that depends on the sales team, but this is what we saw. We saw that we just have a playbook, part of the playbook they didn't execute. But these are very good teams. That's now why they are doing big market with strong demand and we can fix it.

All right. So could you answer that last question of how you get confidence that you can close this in a short amount of period of time if you got "missed this is on all of the above within that sales region"?

It was all of the above not with the sales team individual. We know exactly what are the problems we have. We have a very good pipeline profile. The right people are involved in the deals abuse and we are doing this for a very long time. And in terms of the pipeline profile, the people, the use cases, the profile of the customer, the customer base, all the right mix, all the right indicators are in the right direction and we have more than a decade of history how this is playing out and we believe that it will play out the same way this time.

I will cede the floor. Thanks.

Thank you. Our next question is coming from Melissa Franchi from Morgan Stanley. Please proceed with your question.

Okay. Thanks for taking my question. I guess one question for Guy to start. So when thinking about your revenue guidance for the second half of the year, are you assuming that the challenges you are seeing in the West Coast can improve? Or are you assuming that what you saw in Q2 sustain throughout the year?

We definitely see the West Coast improving for the second half of the year. Part of the reason for our guidance for Q3 has to do with the fact that Q3 is a large deal for federal and we have made a lot of investments in the federal market and with the federal team. But we still don't have enough history to predict and see how that closing takes place. So that's part of the reason for Q3 guidance, but we do feel very good about the pipeline for the second half of the year and that the West will be improving.

Okay. So just to clarify, so embedded in guidance is an assumption that the West Coast improves?

Correct.

But overall, we have a very good pipeline across all the North American region. As Guy said, this is a big quarter of federal. We invested a lot. And we have a very strong team, very strong pipeline. But the business is still new for us and we just a bit careful.

Okay. That makes sense. And then on the new customer adds down year-over-year, Yaki, you had helpful color on the concentration on maybe larger customers and initial deal sizes are going up, but at some point does that metric start to stabilize and you will start to see growth in new customer adds? Or do we expect this trend to continue?

We have growth in new customers in 1,000-plus, in the market that we want to play in. So we feel very comfortable with the way we are penetrating the market and the customer sizes. We are doing business with the customer that we want to do business with we strong lifetime value and customer that provide both volume but also very good productivity for our sales force and also this is the right customer account that the sellers can focus for upsell. So overall, in terms of the way that we penetrate in our new customers, we are very happy.

Makes sense. Thank you very much.

Thank you.

And your next question is coming from Gur Talpaz from Stifel. Your line is now live.

Great. Thanks for taking my question. So Yaki, if you look at the history, when you have had geospecific weakness and you just talked about this, but I think it's an important point, you have been able to bounce back pretty quickly, whether it was EMEA in Q4 2016 or Russia some years ago. So I guess, the question is, are you going to run the same playbook you ran when you saw weakness in those regions? And do you feel confident to just sort of get the same bounce back that you saw? And I know you keep saying, don't focus on one quarter, focus on multi-quarter, but I think it's an important point because you guys have been able to react and respond pretty quickly when you do face geospecific adversity?

Yes, without a doubt but one thing that is very important to remember, that this is not a structural change like we had in the U.K. and when you look at the region, the overall North America, we just have a lot of underlying strength within North America. So in terms of the scale of problem, this is significantly less than what we had in EMEA. This is not even close. This is something that is much easier for us to attack.

Make sense. And then you just talked about the U.S. fed opportunity, maybe being optimistic but also being cautiously optimistic. We saw some interesting deals this quarter. Can you talk about some of things you have put into place over there to drive that opportunity? What perhaps gives you some confidence around the North American fed opportunity? Are there specific programs that you feel you can play against, whether it's CDM or something else that's sort of why you perhaps feel cautiously optimistic here about the opportunity as you push into Q3?

We just see the discussions we have with customers. We see what is going for budget approvers. And also just the tremendous need in this market. We invested a lot. We have a very good team and we believe that it can be just a massive business for us. And just think about problem that we are solving for them and did everything right. We invested in the right teams. We invested in the right programs and the certification. Just big investment from Varonis and now it's the time to get it done.

Okay. Thank you.

Thank you. Our next question is coming from Greg McDowell from JMP Securities. Your line is now live.

Thank you. I want to go halfway around the world and talk about Europe a little bit. Obviously, one of the best performing regions, 60% growth, two quarters in a row. With GDPR coming into effect May 25, I just was hoping you could highlight a little bit why it's going so well in Europe? And how much of the growth in Europe is due to GDPR versus other things going on in Europe? Thanks very much.

It's everything. GDPR definitely, as I said before, just presented a very clear framework how to think about data protection, how to think about cybersecurity and about reporting. And once you go through this exercise, you always land on Varonis. It's just very easy to justify Varonis purchase, not to be in compliance with GDPR, but to really solve the problem. So it's something that is helping us. And so we just see good demand across the board.

And then Guy, one for you. I noticed you were talking about the renewal rate. For several quarters, the maintenance renewal rates have been increasing. I was just wondering if you could touch on what changes or tweaks have been made to start to increase that maintenance renewal rate and how you are doing it? Thanks.

Thanks for the question. I think it's a great indication of our product, our product that customers are using and seeing value. And also a great indication of our support team and the renewals team that are working on those renewals and directly with the customers. And we have seen the increase in the renewal rate over the last couple of quarters. We are very happy with that. And it's a great indication of our different departments at Varonis.

Okay. Thanks.

Thank you. Our next question is coming from Chad Bennett from Craig-Hallum. Your line is now live.

Great. Thanks for taking my questions. So I guess just kind of high level, you guys talk about not looking at Varonis on a 90-day time period or short-term outlook. I guess if we look at the license revenue growth, going from mid to high-30s three quarters ago to what, based on your guide could be now high teens in the current quarter, I guess since we should take a multi-quarter view, I am wondering from an investment standpoint in the business, are you investing in the business like it's a high 20%, 30% license growth business or a high teens 20% license growth business?

We always guide in a responsible way. We want to set forth a goal that we can execute well against. We just definitely see a clear opportunity to be $1 billion business in revenues. But you know, this is a different company. We invented this market. We go to market. This is something that we created and when we are investing in the business, we want to make sure that we are hiring people in a way that we can enable them, we can support them. So we are balancing everything between growth, profitability, investing back in the business, the ability to investing in the people that we hire. And in terms of the overall guidance, you can look at the history and see that we are always trying to guide in a very responsible way.

And then real quick follow-up for me. Just not to belabor the West Coast stuff, but was there any change in the North America sales force or go-to-market entering the new fiscal year, whether it's around cross-sell, upsell or new adds or focused on higher-end 1,000-plus employee businesses? Were any of those changes disruptive, I guess, in your opinion to the quarter?

No. I think that what we are doing in terms of any changes that we did with the 1,000-plus, a new product, it's always gradual. It's just everything a gradual process. We are not doing any revolutions here in that sense. And as I said before, we brought 227 customers. We did several hundred transactions. If we close several mid-size deals, we wouldn't have this conversation. So this is why we are always stressing to have a multi-quarter view because some times things like that can happen. And it happened to us in the time that we are public in North America and it happened to us in Europe and we always came back to a doable consistent goal. On a quarter-by-quarter basis, to try and analyze this asset, it just doesn't make any sense.

Understood. Thanks for taking my question.

Thank you.

Thank you. Our next question is coming from Rishi Jaluria from D. A. Davidson. Your line is now live.

Hi guys. Thanks for taking my questions. First, Yaki, let me start again on the West Coast issues. I mean it sounds to me like you are talking about leadership changes as kind of being the fix. Are there any other changes that need to happen in terms of either personnel or investments to fix this issue? Or is it purely leadership? And then I have a follow-up for Guy.

It's mainly leadership.

Okay. Got it. Thanks. And Guy, you talked about getting larger initial lands as part of the land and expand strategy. Is that driven by greater initial seat in the adoption phase or by more products initially purchased by customers? Can you help us understand what's driving that?

I think it's a little bit of both. We are definitely seeing customers wanting to buy more licenses. And as you remember, about two, two-and-a-half years ago, we started focusing on larger customers. So I think it's a combination where we are targeting the enterprises where we can generate customer lifetime value and extract more licenses of those customers over time, but also those customers seeing going through that risk assessment, seeing in their eyes how vulnerable they are and how exposed they are and how much sensitive data is open to everyone in the company and when they see that, we have over 20 licenses to help and those customers just want to buy more.

Okay. Got it. Thanks guys.

Thank you.

Thank you. Our next question is coming from Mark Schappel from The Benchmark Company. Your line is now live.

Hi. Thank you for taking my question. Most of my questions have actually been answered, but just one here, Yaki, for you. In the past, you have noted or talked about how you are beginning to have some conversations with customers around the enterprise license agreements or ELAs. I was wondering if and granted you haven't signed any yet, I understand that, but I was wondering if those decisions and thought processes you are your customers are still ongoing?

They are ongoing but it's still not just a common practice in Varonis and we are not closing the ELAs.

Great. Thank you.

Thank you.

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Before we end the call, I would like to thank to all of our employees for their hard work and contribution to our success in this past quarter. We also would like to thank to all our customers and partners for their continued support. Thank you for joining us today and we are looking forward to talk to you soon.

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