Greetings, and welcome to the Varonis Systems, Inc. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Perz, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter 2023 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis. After preliminary remarks, we will open the call to a question-and-answer session. During this call, we may make statements related to our business that will be considered forward-looking statements under federal securities laws, including projections of future operating results for our third quarter and full year ending December 31, 2023. Due to a number of factors, actual results may differ materially from those set forth in such statements. These factors are set forth 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 power 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 2023 earnings press release and investor presentation, which can be found at www.varonis.com in the Investor Relations section. Lastly, please note that a webcast of today's call is 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, Tim, and good afternoon, everyone. Thank you for joining us today. Our second quarter results reflect the strong adoption of Varonis SaaS and provide further validation that our strategy to transition our model to SaaS is working. Customers are adopting SaaS at a rapid pace, which benefits our ARR performance and cash flow generation. I’m proud to announce that our SaaS business now represents approximately 10% of total company ARR. Our second quarter SaaS mix came in at 58%, well ahead of our guidance of 35%, ARR grew 17% year-over-year to $497 million and we have generated $40 million of free cash flow year-to-date, up from $3.9 million through the same period last year. This strong execution and the pipeline we see ahead, is allowing us to raise our full-year SaaS mix, ARR and free cash flow guidance. Guy will review our Q2 results and our updated guidance in more detail. We continue to see the economy impact customer purchasing patterns with high levels of deal scrutiny and longer sales cycles, but we are encouraged by our second quarter performance against these headwinds. I feel increasingly confident about the trajectory of our SaaS platform and the overall trajectory of our company. Today, I would like to focus my time on why our offering is a must-have and why Varonis SaaS continues to resonate with our customers and our internal teams. The recent Pentagon breach, in which Jack Teixeira, a 21-year-old guardsman, allegedly leaked sensitive intelligence on social media sites, is the perfect example of why organizations need Varonis. The incident highlights why insider threats are the most difficult risk to defend against and can do the most damage. It appears that the Pentagon did everything right with its perimeter controls. Teixeira worked in a sensitive isolated information facility that…

Thanks, Yaki. Good afternoon, everyone. Thank you for joining us today. We are pleased with the team’s execution in the second quarter against a challenging macro backdrop. As compared to 90 days ago, we are increasingly confident as we look to the back-half of the year with the performance we’ve seen so far in transitioning to selling SaaS. Although the macro remains a headwind, when we consider our momentum-to-date and our visibility in the pipeline ahead, we are confident in raising our guidance for full-year SaaS mix, ARR and free cash flow. It is clear that the transition is gaining momentum and is evidence that we can deliver numerous benefits to our customers while also achieving strong ARR and cash flow benefits. As I have discussed at length since we introduced Varonis SaaS last fall, ARR, free cash flow, and ARR contribution margin are the leading indicators for our business during this transition. The shift from on-prem subscription licenses where approximately 80% of the deal’s value is recognized upfront, to a SaaS model with fully ratable revenue recognition will cause initial headwinds on the traditional income statement metrics as the SaaS mix and conversions of existing customers to SaaS increases. And this quarter the impact was the largest we have seen to-date, especially as a considerable number of our existing customers showed a desire to convert to SaaS. However, these headwinds are a function of accounting treatment and are not indicative of the health of our business. In fact, the greater these accounting-related headwinds are, the better it is for our business as it means the transition is progressing at a faster pace. As a result of the rapid pace at which our customers are adopting SaaS, we are adjusting our ARR guidance higher and we are adjusting our full-year…

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Matt Hedberg from RBC Capital Markets.

Congrats on the faster transition here. I'm curious for other -- Yaki or Guy. Of the $6 million of SaaS conversion that you saw this quarter, do you have a sense for what the incremental spending was on those conversions versus had they been sort of on-premise subscriptions and maybe the inverse of that is do you know what the headwind to revenue was on that sort of that incremental conversion that you saw this quarter?

Absolutely. So first of all, when we look at the price list, the price list of SaaS is 25%, 30% higher. And when we compare the actual sales, apples-to-apples, the same number of licenses and the same number of users we're actually seeing that. So the pricing is working very well for us. What is important to remember is that when you see existing customers move from on-prem to SaaS with our SaaS offering, where we're selling the actual platform, they're actually consuming more licenses, and they don't have the ability to buy licenses individually. So we're seeing customers consuming more of the product, and that's working very well. When you look at the headwind, the actual headwind to revenue was approximately 15%. And on the operating margin, we saw that headwind at 12%.

Our next question comes from the line of Joel Fishbein with Truist.

Thanks for taking the question and also great execution on the SaaS transition. I just wanted you to talk a little bit about any -- the changes in go-to-market? And any color you can give us on the adoption of the bundled Silver, Gold, Platinum, that would be really helpful.

Overall, there is no fundamental change. We're trying to do everything in a risk assessment. This is our customer buying. But fundamentally, the changes that with our SaaS offering with 10% of the effort, you can get orders of magnitude more valued. So the reality is that we are the first and last ones here. The damage happened in breaches and cyberattacks from the data level. And if you can protect your data, really, nothing will help you. So what we see is that our customer is almost doing nothing, are able to find critical data for immediate excessive access control, which is the holy grail of data protection, and reliably alert on any abnormal behavior and get to the root cause of every problem. So it's just the overall what customers are experiencing, it's something that is completely different. And because of the fact that it has so much such tremendous automation, it's much easier for them to get value. They want more licenses. It's much easier for us to expand. And this is most innovative year we ever had and there is so much meat on the bone in terms of the overall content in this data protection platform, and it's easier for us to expand.

Joel, I just want to touch on the question about bundles. In 2022, we offered bundles on our on-prem subscription offering. And that was an attempt to try and simplify the conversation with the customer. We also know that the more licenses the customer consumes, the higher the customer satisfaction, and that was very clear in 2022. So we doubled down on that. And when we offer the SaaS platform, we no longer have bundles. We're selling it as one SKU. So you can have seven, eight licenses that appear as one SKU. We don't have the option to buy that individually. That's actually working very well in conversations, simplifying the discussion with customers providing more value because we're selling outcomes. We're selling the actual platform itself and that's been working very well with the SaaS transition.

Our next question comes from the line of Andrew Nowinski with Wells Fargo. Please proceed with your question.

So I wanted to ask maybe a higher-level question. I guess I'm kind of surprised you aren't talking about AI yet because I would think as organizations start training their LMs with their corporate data, it would seem like the need for data protection increases and the need for visibility into where that data resides, also increases. So I guess, are you seeing any customers come to Varonis as part of their AI initiatives and looking at your SaaS platform?

You're 100% right. So it's - what you said, it's very, very accurate. There are really two dimensions. One is that when you look at these large language models, primarily what they are doing, they are mining massive amount of data and now that customers have their own open AI instances and will start to see adoption of these -- all these copilots. What will happen is that we take all your unstructured data and will make it succinctly a very valuable information product that they can be run out completely outside of the regular policies or using your current active control permissions which are broken and you don’t know that there exist a whole package. So this is super critical. And we definitely in the last few weeks are starting to see a lot of interest. And I think that once people will understand how they can -- how end users will use it in their organization, this can be a massive, massive driver for us. The other thing is it's very easy for layman with these new AI technologies to build malware and APTs and for sophisticated actors to up their game and inflict tremendous damage in organization. So what will happen is that it's becoming much easier to buy a perimeter security and do a lot, a lot of damage on the data layer, and this is the main objective of CSO. So this is definitely a driver. And there is a third driver is the ability of our platform to integrate these kind of solutions to provide value -- it's also something that we believe that potentially can be a game changer. So yes, the AI is a massive driver primarily because of the nature of the lion's share of the data we are protecting and the exposure that it's bringing.

Our next question comes from the line of Shaul Eyal with Cowen.

Congrats on the ongoing successful transition. So this transition, Yaki or Guy, is accelerating better than expected. How should we be thinking about your 2027 ARR metrics and guidance that you shared with us back in March, wouldn't that target will be achieved sooner? And maybe I'm front-running myself here.

So there's two aspects to this. There's the ARR and there's kind of the transition itself. We've made a lot of progress in the past two quarters, which really likely requires us to revisit our guidance for the time line at year-end. Just to remind you, we assumed completing the transition for us would mean SaaS reaching anywhere between 70% to 90% of our total ARR. The transition has moved fast. We're very happy to have 10% of our total ARR coming from SaaS, and that's only in really just two quarters. It's moving fast because the reception from our customers and our salesforce has been really positive. So we look forward to providing more color at year-end on that time line. And in terms of the ARR, we are seeing significant benefits with the move to SaaS, you can see that with the ARR this quarter. We're also seeing benefits on the free cash flow and also leverage in the model.

Our next question comes from the line of Rob Owens with Piper Sandler.

Curious if you could comment on kind of top of the funnel activity given your SaaS approach is more frictionless than just what you're seeing in terms of customer interest and how that might compare with, say, where you were a year ago?

We definitely see that customers understanding that they need to protect data. We also see that customers understand that they invested massively in security solutions that are not protecting the data and are very hard to manage. So it's just -- it's -- on one hand, it's a hard economy. But on the other hand, we definitely see that organizations are thinking what will be the biggest bank for their back and what they need to do. And would just gradually because they're realizing the benefits of the overall platform and what we can do and things that we can repair and mainly the automated outcome. Like when they see the outcome, it’s solid, it’s classifying automatically, remediate automatically, you can roll back. You have any indicator of abnormal behavior, we can do it with a proactive IR from the cloud. It's a game changer. So we definitely see a lot of interest across the board. There's a lot of -- you also have scrutiny in deals, and we're just in the beginning of the transition, but there are a lot of positive signs and definitely transitioning so far growing significantly faster than we anticipated.

Our next question comes from the line of Roger Boyd with UBS.

Great. Thanks for the question and congrats on another nice quarter of execution. Just wondering on the possibility of pent-up demand. You now have $50 million in SaaS ARR, which is up pretty significantly over the last two quarters. Can you just talk about how you're thinking about the pipeline for the rest of the year? And as you think about 3Q in particular, the 45% mix, any considerations there around SaaS other than just the Federal fiscal year-end.

No. The overall SaaS, it's going very well. One is the team really built a very, very good SaaS product. And all the regular benefits of SaaS, the total cost of ownership, ease of operations and upgrades. But the beauty is that we really rebuild the company in a sense of these automated outcomes, which is night and day from the salesforces solutions. So -- and if you think about it, I think what happened now, we MOVEit or OPSH era, everything that happens, happens on the data level, you can't unbreach data. When data is in the wrong hands, it's a huge problem. The other thing we saw, we are not trying to simply convert the base. But once they see it, mainly because of these benefits, these outcomes in the SaaS, customers wants to move. So we feel very good with the fast transition and....

And just to add to that, when we look at kind of the SaaS mix we're raising it to 50% from 35%. Just remember, we started the year with a 15% expectation. And if you kind of break down Q3, the answer is really simple. You kind of asked about it. It's -- we're not yet FedRAMP certified, which means that we plan to sell on-prem subscription to that market, and that will be a headwind to the mix in Q3. And then kind of the other factor to keep in mind is that Q4 is our largest quarter, and it's on a much larger denominator. But overall, we're really happy with the momentum that we're seeing with our SaaS business. And we take our commitments to the Street very seriously. So we wanted to put numbers out there that we feel good about.

Our next question comes from the line of Jason Ader with William Blair.

Guy, I wanted to ask you about gross margins. You mentioned greater efficiencies than expected. Can you just elaborate on that?

Yes. We're -- when you look at kind of the fact that we're only very early in the transition, we're seeing a lot of benefits, and we think we can see more benefits going forward. The benefits could be with kind of the way handling the customer when we kind of do the risk assessment. But also it allows us to be more efficient with dealing with any questions that the customer has. So overall, when you look at kind of the margins, we're very happy to kind of have the margins we have as we just started, and we feel very good about our ability to generate leverage in the model going forward.

Our next question comes from the line of Saket Kalia with Barclays.

Okay. Great. Hey, Yaki. Hey, Guy. Thanks for taking my questions here. Yaki, maybe for you. I was wondering if you could just go one level deeper into just some of the details on the bundles. What differentiates Silver from Gold from Platinum? And what are sort of the rough differences in pricing across those three bundles, again, high level?

Saket. A similar question was asked before, so I'll just try and kind of emphasize. In 2022, we actually had an offering which was Gold, Silver and Platinum but that was for the on-prem subscription offering. And because we saw that, that was working very well. When we announced the SaaS transition, we're not offering those bundles anymore. We're just selling the platform. So you see a situation where a customer in the on-prem subscription would buy seven licenses. This today appears as one SKU under the SaaS offering. So it allows us to sell more of the platform and we've talked a lot over the last couple of years about the fact that Varonis more is more. The more licenses a customer has, the higher the customer satisfaction, the more automated results they receive. And because of that, we're seeing in that SaaS transition, how customers are embracing it. It simplifies the conversation for the rep and the customers, and that's something that is working very well for us.

Our next question comes from the line of Brian Essex with JPMorgan.

Yaki, I was wondering if I could follow up to Rob's question actually. If we think about the sales cycle and the pipeline process, could you maybe comment on where you're seeing better performance versus where you might be seeing friction. And what I mean is if you kind of carve it in the buckets, I'm thinking about this in terms of starting off with lead generation from channel and marketing going to assessment, going to tech win and then approval, then the closing and deployment, where are things maybe better than they were last quarter? And where might you have the friction say, for example, with what you've highlighted in the salesforce where a deal might get delayed slightly because of the shifting from maybe a term license to a SaaS deal.

I think we need to distinguish between doing a transition to be very committed to do the transition very effectively to the overall salesforces. In the overall salesforces, everything is easier with SaaS. And primarily, it's much easier for the customers to get value. As I said, it's 10% of the effort, 10x more value. Like this north star is working very well and our mantra is, you just need to pay it, we are protecting your data. It is starting to work very well. So if you really want to break it down, the all sales motion and the salesforces, it just works very well. The challenge, if you will, in a hard economy, everything is scrutinized and there is just the friction of this nature. We need to make sure that people understand what we do every time we are doing something that is such a profound change. You need to make sure that all the customers see it and there is a big difference between during the sales pitch seeing the demo and test it. So we need to make sure that the marketplace understands what we do. But overall, upwards in the sales motion, everything is much, much easier with SaaS and the customers, just night and day, in the way that they realize value and the value is ongoing value.

And 1 thing we talked a lot about is kind of the first six months of the transition. And when you look at where we are today, that we're past that part, which really was the riskiest part, the Varonis SaaS is working the adoption of our customers and the excitement of our salesforce are really at levels we've never seen before even more compared to the previous transition and I just want to add in terms of the macro, Q2 was very similar to Q1 in terms of the macro, but our guidance assumes continued worsening of economic conditions across the board. And just to point that out.

Our next question comes from the line of Rudy Kessinger with D.A. Davidson.

Thanks for taking my question and congrats again on the phenomenal execution on the fast transition. Guy, certainly, a number of callouts on this call on existing customer migrations. You gave some figures about migrations or conversions you expect in the second half a number of your customers, existing customers that I've spoken with have messages and interest in converting to your SaaS product at some point in near term. So I guess you're not incentivizing the sales support yet for conversions. But I guess given the natural kind of interest that you're seeing, you envision incentivizing the salesforce at some point maybe sooner than you previously expected to convert existing customers at renewal to SaaS.

Great question. Phase 2, which we defined is converting our installed base to SaaS really hasn't started yet. And when you look at kind of H2 assumptions we took into consideration $8 million and $10 million of conversions in Q3 and Q4, respectively, which is really higher than the Q2 number, but still a very small percentage of our existing customer base. . So although we're seeing existing customers convert this asset, it really hasn't been our main priority yet. We expect that to be more of a focus next year, and then we'll take everything into consideration and decide what's the best thing. But as of now, it's happening in a natural way.

Our next question comes from the line of Joshua Tilton with Wolfe Research.

And congrats on a solid quarter. Lots of good questions have been asked so far. I'm going to ask kind of an easy one. 10% of ARR coming from SaaS seems awesome. Could you maybe just help us understand directionally from last quarter, like how that's progressing? Was that a double on a percentage basis from last quarter? Just kind of help us understand maybe the rate of change you're seeing in the business from a quarter ago outside of just SaaS as a percentage of the new business mix.

So we really provided a lot of the data points when you look at kind of the actual conversions. The conversions in Q2 were significantly higher than the conversions that we had in Q1. If you remember, we actually called out in our prepared remarks last quarter, the fact that we're seeing an increased pipeline, but we didn't assume those would convert. We've actually -- in Q2, we saw that happen. And the other thing that has increased is actually the percentage of the SaaS mix, which went from 37% to 58% and that's obviously from a much larger denominator. So overall, the progression of the SaaS offering and the conversations has been much better in Q2. You also need to remember that, that's kind of a natural evolution when you have quotes that are provided to customers and they're provided initially as on-prem subscription, every time you introduce a new concept during a sales conversation with a customer, you're adding turbulence. And that's why we talked a lot about kind of the six months. Obviously, there's some of that, that would be in the second part of the year, but the majority happened in the first six months, and we did see SaaS progressing and improving both on the new customer side and the existing customer side, significantly improving from Q1 to Q2.

We are still very early in the journey for SaaS. But so far, the overall adoption, given the reaction from current customers and the ability of the salesforce to adapt to the transition, we have some experience with transition, is well ahead of our initial expectations.

Our next question comes from the line of Chad Bennett with Craig Hallum.

So just on the ARR side, I know you guys didn't anticipate much in terms of conversions when you started the year, but they seem to be accelerating in a big way. Just if you kind of look at net new ARR in the quarter, with $6 million of conversion, obviously, in the conversion assumption you have for the second half I'm just curious to kind of get your insight into what the non-conversion SaaS business and how that performed in the quarter and the expectation for the second half of the year. Because if you back out the six versions, net new ARR was kind of flattish sequentially. And if you kind of do the same exercise in the second half, there's not a lot of net new ARR growth.

No problem. I think it's a great question. And I think you need to kind of split between what we feel about the business and the way we've guided. We feel very good about the business going into the second half. I think that when you look at kind of the way we treat our commitments to the Street, we take them very seriously. So we wanted to put numbers out there that we feel good about. When you look at the progression of the business, which Phase 1 is what we're focusing on right now, we're trying to sell SaaS to our new customers, which is working very well with the SaaS mix that we're in. But the on-prem subscription is working just as good. When you look at kind of the evolution, we want to convert our existing customers when we get to Phase 2. We're seeing some of that happening now. But overall, you should look at the guidance in kind of the same way we've guided in the past, we feel very good going into the second part of the year.

Our next question comes from the line of Joseph Gallo with Jefferies.

This is Annick Baumann on for Joe Gallo. Maybe just taking a high level again, when you kicked off the SaaS transition, you spoke of learnings from your subscription transition and using that knowledge here, what have been some of the biggest surprises to the upside this time around and your expectations? And then maybe what's the biggest difference versus last time that you've seen so far in this transition?

I think that there are many. One is that it's -- when you are doing this thing and you're committing, just many times a little of friction with the salesforce costs that are out there, people that want to convert and a lot of delays. We saw that but less than we expected. I think the difference is that it's completely in a different business, the value that customers are getting and how fast we are getting the value, the ease that we can bring them to value and how relatively little support we need to provide to the system relatively to the on-prem, how the benefits of the metadata that we have in the cloud is just working for us and we can really transform in P2, clear customer value and the speed at the engineering is working. As Guy said, it's still early stages, but overall, the gross margin and all the moving parts that we see that we can really get a lot of leverage from the model. So this is overall what we see. So it's -- as I said, still early, but way ahead of expectation.

I think that one important takeaway when we look at this transition versus the previous transition and kind of what we've learned and what we're trying to implement is that the transition as a whole is standing on three pillars. That's the technology, the commission and our commitment to actually making the change. And when you look at the technology, -- we're very happy with where we are today and the fact that it's working so well, as Yaki mentioned, and that's the first pillar. And without it, nothing else matters. The second pillar is coming of the comp plan, making sure that the team and the salesforce understands what's the right way to make money. And I think from our previous transition and in this transition, we set a comp plan that works very well hand-in-hand with our desire to make the change. And the third pillar is really the management commitment of making that change. If you kind of make an announcement that you want to move, but you're not fully committed, then the first and second pillar don't really help. So when you look at kind of where we are today, I think those three pillars are standing very strong.

Definitely, our experience from the first transition is helping us further. It's very different in terms of the value proposition and tremendous asset and technological assets that we have. But understanding how transitions are working, how you need to be committed to it, to understand how this usually plays out. But in the near term, you are staying. But in the long term, you really get a lot of great reward. This help us a lot, and it's the leadership team already experienced that. So it's much easier to get everybody committed to the transition.

Our next question comes from the line of Shrenik Kothari with Robert W. Baird.

So Yaki, Guy, I mean, you mentioned about the second phase of transition, which is, of course, converting your installed base over to SaaS, and it's becoming a bigger driver and you have provided some numbers. But you also mentioned, of course, it's still not a priority this year from the two pillars that you just highlighted, management commitment comp plans. So just since you guys highlighted the longer deal cycles to continue along with budget with scrutiny. I'm just curious, like in terms of the impact from these longer cycles, like is it more upsized on the newer logos versus the conversion mix? Like typically, of course, the newer logos are tougher, but in your case, of course, it's -- I'm just trying to understand like the impact of these longer sales cycles and more budget scrutiny, how does it kind of affect both the new logos as well as your conversions right now?

I think that regarding the overall scrutiny, the scrutiny is there. But when people really think about what they need to do and how they need to protect data and what they are getting for their money and what they can do with limited security professionals, the ROI works very well for us. So when people are scrutinizing our value proposition, it works well for us. It can take sometimes more time. You need to expand it to justify it. But the whole process of where you are going to put -- how you're going to allocate your resources, what you need to do and what you need to protect, this is something that works well for us. It's not fun, the scrutiny but it works very well for us.

Our next question comes from the line of Brian Colley with Stephens.

Could you provide an update on where you stand in terms of bringing the SaaS platform to feature parity with the on-prem platform? I'm just curious if you think getting to that feature parity level will be an additional catalyst to spur more SaaS conversions?

We are moving very fast with the parties. For new customers, it's a no-brainer. And just there are so many features in the SaaS that are -- it's just completely different universe than the self-hosted on-prem platform for most of our customers, for 80% of them, we are already in party. And for the 20%, we move fast. But at the right time we'll discuss the migration as Guy told you that it's in phases. We want to make sure that it's frictionless, it's automated. This is not a priority -- a top priority for us now. We have which is a very detailed plan how to go after new business, customers and there are customers that want a part of the solution in SaaS, part on-prem and then they will convert. There are many options here.

Our last question comes from the line of Matt Saltzman with Morgan Stanley.

Thanks for taking the question and very much appreciate the level of disclosure you guys have given on the transition makes it lot easier on our side. You've spoken a lot about the operating leverage that you should drive through the transition. I'm just curious with everything progressing faster than expected, when should we expect to see some of that operating leverage come through via the P&L. I mean I'd imagine that this should probably precede the ARR and revenue convergence, just especially with more existing customers converting and the inherent leverage there. But I'm curious if there's kind of any guidepost that you guys can give us in terms of when we should expect at least some offset to the upfront headwinds associated with the SaaS transition.

I think that's a great question. And if you kind of go back to the three north stars, we talked about ARR and free cash flow, but we also talked about the ARR contribution margin. Because the operating margin is really impacted by the revenue headwinds. So when you look at kind of the ARR contribution margin, you're already seeing some of the leverage in the model. We ended the quarter with 8.2%. That's 450 basis points of improvement year-over-year. And when you kind of look at the expectation going forward, we feel very good about our ability to generate leverage through the SaaS offering, but you're already seeing it now. So I think overall, we're very happy with the fact that even in the early stages of our transition not only are we keeping kind of the cost structure as a whole intact, but we're actually showing pretty significant leverage year-over-year.

That is all the time we have for questions. I'd like to hand it back to management for closing remarks.

Thanks for your interest in Varonis. Have a nice night.

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