Q1 2021 Varonis Systems Inc Earnings Call
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Greetings and welcome to ever on our systems, Inc. First quarter of 2021 earnings Conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
And now I'll turn the conference over to your host Jim and the rest of your director of Investor Relations you may begin.
Thank you operator good afternoon. Thank you for joining us today to review Verona since first quarter 2021 financial results with me on the call today are Yoki finals, and Chief Executive Officer, and Guy Melamed, Chief Financial Officer, and Chief operating officer of Verizon and <unk>.
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 second quarter and full year ending December 31 2021.
Due to a number of factors actual results may differ materially from those set forth and such statements.
These factors are set forth and your earnings press release that we issued today under the section captioned forward looking statements and these and other important risk factors are described more fully on our reports filed with the Securities and Exchange Commission.
We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date or on its expressly disclaims any obligation 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 on our first quarter of 2021 earnings press release, which can be found at www Dot felonious Dot com and the Investor Relations section also please note that all common stock and per share data had been retroactively.
Adjusted for the impact of the three for one stock split effective March 15th 2021 Lastly, please note that and updated investor presentation as well as a webcast of today's call are available on our website and the Investor Relations section with that I'd like to turn the call over to our Chief Executive Officer Yoki vital yockey.
Thanks, Jamie and good afternoon, everyone. Thank you for joining us to discuss the first quarter of 2021 of the results.
All of Q1 performance was strong.
Continuing the positive trajectory of 'twenty, and 'twenty and highlighting the ongoing critical need for companies around the globe to protect the sensitive data you have.
<unk> me say many times before that our platform is relevant and now more than ever.
This quarter of demonstrates the momentum and the business is a result of a significant value we provide our customers.
And our subscription offering and allow us to deliver on their immediate requirements and long term needs and when taken together the results is substantially higher customer lifetime value.
Let me take a step back and talk to you about the trends we have been seeing.
Over the last few years and especially in 2027 of 10.
We have accelerated and converged.
Putting the focus on complex data security challenges, which have been of emission sort of since inception.
Whether companies are reacting to breaches compete.
Complying with regulation or simply being responsible of approach protecting sensitive data from the inside out and resonates with NUPLAZID with new prospects and existing customers more than ever.
The digital transformation gains touch and it costs almost all industries around the globe.
It changes the way, we live and work and impact how data is stored manage and axis.
This transformation has fueled and we expect we will continue to fuel the secular trends that drive demand for our products including debt.
The shift of the cloud, which highlights the need for with zero trust approach protecting sensitive data.
Cyber crime, where hockey's and inside of targeting sensitive data on most sophisticated and they've and compliance with data driven regulation, which is a serious challenge that creates enormous risks to companies all over the world. We've always believed the perimeter defense is not enough and lean.
It did.
And Bleaches and the news yet again bypass the perimeter of and endpoint protection by design.
We've attacked surface louder and more opened and it'll be full we believe new way to address these risks and protect sensitive data is through the data related insights and automation and the therapy.
Platform is uniquely positioned to provide.
Our subscription model makes it easier for customers to see greater of automated value by making louder and initial purchases, while leaving room full of meaningful expansion over time.
As a result of cash.
Customer lifetime value has increased significantly.
Looking ahead we.
We expect the continued expansion with our customer as well as ongoing innovation will further extend our reach and increase of addressable market.
Let me provide a few examples.
Key customer wins from the first quarter.
One example of a new customer is allowed U S financial company within hours of for risk assessment, we detected the Booth force attack in progress and found sensitive data open.
A large percentage of employees after.
After showing them how they will at least most on climate in the cloud. They purchased data advantage data classification engine of license, there's day dilemma automation engine and.
More.
While we've seen meaningful increases and adoption rates, but new customers on existing customer base continue to represent a substantial growth opportunity for the company.
A prime example.
As of nationwide professional services company with over 5000 users, but first purchase to perpetual licenses in 2015.
And 2019, the added subscriptions for data classification engine and support for Sharepoint online in.
In Q1 of this year, the again expanded their deployment and ease the focus on privacy and compliance heading policy tactful GDP out and CPA automation engine to find and fix book in auctions controls and data transport engine to enforce the beta of government policies.
In total these customer and now has nine licenses and like many of our customers that goes through stimuli of out of purchasing overtime. We are already discussing with this customer and the additional voice licenses that will further and further strengthen their data protection and take them to the next level of the on.
Operational jury.
These are just few examples of on every day and we are helping our customers sort of some of the biggest state of protection problems, which will only continue to become more urgent.
In summary, we are extremely well positioned to continue our momentum and further expand our market leadership and we believe we're just scratching the surface of of very large growing opportunity with that let me turn the call over to Guy Guy.
Thanks, Jackie and good afternoon, everyone. Thank you for joining us today.
We're extremely pleased with our first quarter results. Our continued execution on our go to market strategy powers, our ability to capitalize on both the short and longer term opportunities available to us.
First quarter highlights include 38% total revenue growth of 120 per cent subscription revenue growth.
And our growing 39% and record operating cash flow generation of $24 million.
Demand for our platform continues to be driven by both new customer acquisition and existing customers expanding their licenses spanning diverse industry.
We are seeing meaningful customer engagement is new customers continued to purchase on average more than five licenses.
And these larger upfront commitments and turn lead to greater license adoption overtime and increased customer lifetime value.
As of March 31st.
2021, 66 per cent of our total customers with 500 or more employees purchased four or more licenses up.
From 55 per cent a year ago.
At the same time 32 per cent of these customers purchase six or more licenses up from 21 per cent a year ago.
This rapid increase validates that we are delivering on the growing demand to consume more of our platform.
We also see this reflected and AOR growth of 39% year over year to $306 $9 million at the end of Q1.
Turning now to our first quarter results in more detail.
Total revenues grew 38% to $74 8 million.
Subscription revenues grew 120% to $44 8 million.
Maintenance and services revenues were $29 $7 million, driven by strong renewal rates, which once again exceeded 90%.
Looking at the business geographically, we again saw strong performance across North America and EMEA.
In North America revenues grew 39% to $52 $8 million or <unk> 71 per cent of total revenue.
In EMEA revenues grew 38 per cent to $22 million or 27 per cent of total revenues.
Rest of World revenues were $1 $7 million or 2% of total revenues.
Turning back to the income statement I'll be discussing non-GAAP results going forward.
<unk> profit for the first quarter was $63 8 million.
Representing a gross margin of $85 four per cent compared to 83, 2% in the first quarter of 2000 and twin.
Operating expenses and the first quarter totaled $70 1 million as a result operating loss was $6 $3 million per the first quarter or and operating margin of negative $8 four per se.
This compares to an operating loss of $17 $4 million or and operating margin of negative 32, 2% in the same period last year as our strong execution and subscription model continues to drive operating margin leverage.
During the quarter, we had financial expense of approximately $897000, primarily due to interest expense on our convertible note.
Net loss for the first quarter of 2021 was $7 7 million or a loss of eight cents per basic and diluted share compared to a net loss of $17 4 million or a loss of 19 cents per basic and diluted share for the first quarter of 2000 and twin there.
This is based on 100.2 million and $92 7 million basic and diluted shares outstanding for Q1, 2021 and Q1, 2020 respectively.
We ended Q1 with $824 million and cash and cash equivalents marketable securities and short term deposits.
Our cash balance reflects the successful $500 million follow on offering that we closed in February.
For the three months ended March 31, 2021 we generated a record $24 million of cash them operation compared to $3 9 million and the same period last year.
We ended the quarter with 1000, and 794 employees, a 12% increase from a year ago and an increase of 75 net new employees from the fourth quarter of 2000 and twin.
With the opportunities, we see and the market we plan to continue hiring mostly and sales and R&D to develop both mature and underpenetrated territories and to fuel continued innovation.
Moving to our guidance from.
The second quarter of 2021 we expect total revenue of $82 5 million to $84 million representing growth of 24% to 26%.
We expect non-GAAP operating loss to range between $2 5 million to $1 5 million and non-GAAP net loss per basic and diluted share in the range of force them to three things.
This assumes $106 4 million basic and diluted shares outstanding.
For the full year, we're raising our guidance and now expect total revenues of 365 million to $370 million representing growth of 25% to 26%.
We expect non-GAAP operating income to range between $4 5 million to $8 5 million and non-GAAP net loss per basic and diluted share in the range of one thing to non-GAAP net income per diluted share of Doosan.
This assumes a $105 3 million basic and diluted shares outstanding and $116 5 million diluted shares outstanding respectively.
In summary.
As we continue to execute on our go to market strategy, we see a clear path to revenue growth margin expansion and cash flow generation capitalizing on the longer term opportunity available to us.
Thanks for joining us today and with that we would be happy to take questions operator.
Yeah.
And at this time and we'll be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment and may be necessary to pick up your handset before Christmas Darkies.
One moment, please while we pull for questions.
Our first question is from Sterling Auty with J P. Morgan. Please proceed with your question.
Yeah, Thanks, Hi, guys, Yeah I'm sorry.
I'm curious in terms of.
A number of security companies have announced new products acquisitions et cetera. So I'm wondering if anything is changing and the competitive landscape and if youre seeing any other vendors that are starting to move towards the Verona solution set at this point.
No at this point, we don't see any change we are uniquely positioned in the marketplace.
The only change that we really see that day.
And the marketplace and organizations from Willie.
Every industry and and.
And the Victor understand and starting to understand very well.
Data first and inside out approach.
I think that day, they understand that we are extremely relevant to older contemporary risks of cyber security.
And inside sales and without a solution like ours is something that is very hard to protect book at this point, we don't see any change and the competitive landscape and we just.
Slowly, but surely the market is coming to us and once we will and the customer just buying more and more.
Alright, It makes sense and then guy one follow up for you it.
It might be helpful for us for you to put into context, the maintenance renewal rates still above 90 per se, but seeing the maintenance revenue maintenance and services revenue down sequentially and down year over year, how much of that might be customers that are maybe converting fully to subscription.
Versus some other factors that would drive that dynamic.
Thanks for the question So you know.
The renewal rates are strong and very much in line with what we've seen our renewal rate has been greater than 90% and that really hasn't changed what we have been talking about for.
Pretty long time now is the professional services and I just want to remind everyone professional services. We've been we've been pushing many of those to be done by channel partners and our newer of licenses are providing more value through automation and so P. S. Professional services is not a large component of our business it's low.
Single digits out of total revenue, but we've still seen kind of a significant day decline in the quarter and that's really as planned. So that was no surprise to us we're not really converting customers.
Customers from maintenance of perpetual to and.
And to subscription, we're seeing existing customers buying more and more of licenses and expanding through the subscriptions. So that's really what you're seeing there.
Excellent. Thank you.
Thank you.
Our next question is from Matt Hedberg with RBC capital markets. Please proceed with your question.
Oh, Hey, guys, great. Thanks for taking my questions.
And I, obviously, it was really good of <unk> accelerate versus what was what was a very strong Q4 and still off difficult compares I.
I guess Guy and my question is on the 2021 outlook, you're raising the full year by about the Q1 beat which it might look a little conservative given really how strong Q1 was I wonder if you could talk a little bit about the macro expectations that you're building into your 2021 revenue outlook.
Well when you when we look at the philosophy of guidance that really hasn't changed I think we the results of Q1, we're very pleased with them and I think the kind of the reflection.
All of our Q2 guidance shows.
And how good we feel about the business. We raised like you said, we raised our full year guidance to.
And to 25% to 26%.
We increased the low end.
Bye bye kind of more than the beat and kind of move that be a $6 million beat to that midpoint.
And so I think when we when we look at that 2021 outlook.
On one thing to remember is that Q1 is still from a seasonality perspective kind of the lowest quarter in dollar terms for the full year.
So I think that was also taken into consideration and the guidance, but overall, we've never felt felt so a strong and positive about the business as we do now.
That's really good to hear and then yockey.
And the Guy noted that you guys are investing heavily in sales and marketing I'm wondering if you reflect back on the business and how old you altered where you're targeting net spend today versus maybe pre COVID-19 are you are you looking at security partners, maybe maybe partners that are associated with the Microsoft ecosystem, because you seem to be up and a lot of success, there just kind of cure.
On the philosophy on sales and marketing investments.
It sort of everything you know it's from.
And our inside sales to the field reps. Obviously, you know we are going to 1000, and mainly 2000 and plus organizations I think two things that are very interesting. If you look at the overall AOR growth that we are growing that we're going up market and to be customer of low buying more and more but also the smaller customers that are big enough.
Becoming very significant for us.
And it's primarily the security partner and you know the move to.
Scripture and it would.
We are becoming much more important to them, but it's the mission is very simple is just to make sure. We're covering all of these critical platforms and then we are doing all of the on display from data protection threat detection and response and compliance customers understand very well that they need everything from the just the.
And one platform and in order to do that we just you know creating.
Products that are really usable and all customers thankfully ill just buying you know, we're saying to you and volume that Morgans mall by mall and get more automated value and then you buy additional products and then we just need to make sure that we have coverage in the market because of.
Potentially everybody. We use these digital assets is a potential customer, but you still need to cultivate and to build to sell tools and the right way. So we want to make sure that we of the management in place and we are enabling.
Oh.
Sales and a six but just expanding the organization to keep innovating supporting customers and make sure that we have good coverage in the marketplace, which you know this is just a big market.
Thanks, a lot and congrats on the continued success.
Thank you.
Our next question is from.
Brian and Sue with Jefferies. Please proceed with your question.
Hey, guys. This is Joe on for Brent really appreciate the question I have two follow ups to Sterling's question Yoki can you talk about the competitive differentiation, particularly on the cloud and given you guys have $750 million and cash are there any tangential areas you need to build out there.
I think net.
What we are doing a few really looking at the data itself will the window of disappointing when you were talking about the 365.
And support that can go to this massive amount of data that in terms of the.
The commission structure because of collaboration and the way that the chalk and.
The problem is much bigger.
And the cloud and on and on Prem and just to visualize it.
And to be able to remediate the problem.
And then to understand any abnormal behavior.
And regarding the data and just a very difficult undertaking that we are doing very well.
We invested and poly is we believe that the the big success that we saw with 365, we can see with several other critical SaaS application and this is something of a technologically very hard to do and we.
We believe that there is massive massive opportunity zone and in terms of our cash you know we have a very clear broad and wide roadmap and.
And if we see something that can accelerate.
And the time to market, we can we will consider to value primarily tuck in acquisitions, but you know, we we know very well, where we want to go you know we believe that there is so much more ahead of us of them behind us we've seen that the digital transformation and everything that is happening you know and.
And the cloud primarily with SaaS platforms.
It's the volume can you just keep expanding and adding a lot of value and ease of lot of this platform you can really do what we have done with <unk>.
65, and Windows and Unix.
To build the whole suite of around it and as I said before I think that this is well where you have most of most of lease and if you really take a step back and looking at all security solution, the Ulster acuity, VIX Victoza and <unk> to date.
Data and.
And they are essential, but but they are limited and protecting the data. They are of very very important but limited and many times and protecting the data and we believe that our platform and our approach on.
Critical to every organization.
The unstructured data and the <unk>.
Simplification and this is really a vision that is very clear and this is how we execute.
Thanks, very helpful. And then Guy I appreciate the color on the renewal rates for maintenance and that youre, not converting and but I think last quarter. You said it would be down low single digits. This year. It was down 11% that line and I know it includes professional services and the first quarter just kind of curious how if you can give some guardrails on how to think about it for 'twenty one.
Absolutely I think the the Delta when you look at kind of the actual decline is coming from the professional services like I said before it's not a large component of the business. It's low single digit percentages out of total revenue.
But we've still seen as we plan really kind of pushed to partners to perform on many of those days and and also the fact that the license that we come out with our geared towards us towards automation really allow us on.
And to do less of those professional service days.
Compare compared to what we had to do and the path so when.
When you look at kind of the the renewal rates overall were not getting any new maintenance revenue because we're because of the move to subscription and that happened. So quickly. So there's really no fuel coming in.
And that's and the Delta is really coming from the professional services.
Okay is it fair that that line would go down a little bit more than low single digits. This year.
We expect it to go down single digits, yes.
Okay. Thanks, I appreciate the color.
Thank you.
Okay.
Okay.
Our next question is from Sac Italia with Barclays. Please proceed with your question.
Hey, guys. Thanks for taking my questions here.
Yoki, maybe for you just to start off.
Can you just talk about what products and of platform you feel like are seeing the most incremental demand.
And as the pandemic starts to abate.
And there was a great example that you gave of a professional services firm and all the all of the products that eventually got them to I think nine.
But if you look broadly across of the culture the customer base, what's the one of those one or two incremental products that are taking a customer from say five to up to six or seven on average.
Hi socket sales.
Really almost everything is working in terms of the way that a customer of consuming the platform. What they told me for the movies more of its something that is very consistent if you get to five licenses.
And there is much higher predictability debt in a reliable way youre going to get to 15 and this is something that you know it.
We are very very excited about but in general and we see a lot of success with 65.
And you know that we add tremendous value there and when you put a lot of data and onedrive Sharepoint and on top of it you have teams data protection problems, just growing exponentially and because customers getting to the security called mass of data.
See a lot of a lot of gross debt.
But it is very interesting also to see and the customer base. While you see these very strong adoption in the cloud and with 365 and the on Prem data is not going to anyone's data on Prem and still going and going and everything is interconnected.
Which is really expanding the attack surface.
Our customers and perspective, but you know everything is working and so.
Also very interesting to see how you know data protection and cyber security collide and there is also a very strong understanding that you need to comply with all of the regulations at all really.
<unk> two data so there is it really.
Organic understanding in within the customer base that they really need to.
Expand the platform.
For these sort of use cases.
Got it that's very helpful.
Guy and maybe maybe for my follow up for you of nice acceleration and in AOR This quarter.
I think I think the growth was was was 39% up from about 37% last quarter.
Is there any COVID-19 you would call out as.
As a driver beyond.
Clearly good execution and strong demand.
Whether that's timing or FX or just anything very open ended anything we need to keep in mind around.
What drove that acceleration and and maybe related to this how should we sort of be thinking about Iraq going forward broadly does that does that makes sense.
Absolutely I think there was nothing really abnormal in Q1 apart from the execution and apart from the market really coming to US we talked a lot of about the three pillars, new customers buying more of licenses and you see that the number of licenses and.
Almost doubles doubled and.
And in number of licenses compared to what they buy under perpetual we've talked about the second pillar being existing customers theyre, expanding and not only of the expanding but the fact that we're selling more of licenses to new customers and allow us to sell even more and in the following years and kind of the past of double digit licenses on.
On average per customer has never been clearer to us. So that's kind of the the second pillar and the third pillar is the renewals and they were very strong. So there was really nothing there wasn't any FX or any.
Anything abnormal there.
It was really kind of the strength of the business and the market really coming to us as we look at <unk> for the year, we really don't guide on a R. R. Well, we talked a lot about the fact that this year is kind of the first year that we're apples to apples.
In terms of the percentage of subscription and therefore.
Should be somewhat converged in the in the percentages to the top line growth.
Very helpful guys. Thanks, a lot of thanks a lot.
Thank you.
And our next question is from the T mobile and <unk> with UBS. Please proceed with your question.
Good afternoon, and thank you for taking my questions and Jackie I'll start with you I wanted to double click into the competitive environment and maybe asking more specifically there's been some consolidation in your end market mix and specific vendors. So I'm curious of thoughts opened up incremental opportunities for you to become more of a.
And then secondarily as it relates to competition and.
And certainly other vendors and the cyber security umbrella, whether their identity providers, or perhaps and point or device security providers.
Turning to talk a lot more about contextual data access and so I'm wondering where some of your capability start and stop and if you can compare and contrast, what.
Nor platform and abilities can do relative to some of these other players who were talking about you got these adjacencies and contextual data access and then I have a follow up for Guy.
Mhm.
I think that sometimes what's happening day acuity molecule is that and.
And many things sounds of the same and materiality the fundamentals of discipline and.
And with that as I said you know it's.
And we don't see any change today.
The competitive landscape.
And what is happening in reality, we've only seen that we are the only vendor that can take a lot of data.
And really you know digested and visualize the potential potential of access in this and do it and an ever changing environment. This is massive amount of data and then have these automated remediation and understanding of normal behavior to data. So we are starting with the data and then we are going more to.
But we call it.
H telemetry like DNS and book fee and VPN and we're also doing a lot of these active directory and Azure and other ended up with positive things, but everything philosophy, starting from the data and then we also see abnormal behavior like use of we see.
And we will of devices.
And we just didn't of situations.
All of the cyber security vendor on the identity vendor, we coexist with them. So you know we together with them usually one plus one equals three but in Inc. In the cold coffee and competency of what we are doing in terms of data protection threat detection and response to wall of data classroom classifying the data and and in.
Actionable way you know we always do.
And usually along the only thing that you see just confusion and in terms of consolidation. When you have these small players that have the day.
The same messaging of times. So you know the not creating the market and when they are consolidating and they are moving they are also you know also not creating a lot of a lot of opportunity you know at this point is just the market understand much better on what we're doing there is a very as you said there is just a very good and.
Understanding that everything we are doing is protecting data when data is going to the cloud and you know many times traditional securities not really walking there. So just making sure that the right people can access their data and understand what is important you can have these high fidelity alerts on any abnormal behavior with the right signal to them.
Noise ratio of something happen and.
He spoke and Diovan and immediately understand what's happened and this is what volume is doing so we have you know gradual process of just the market that the shaping and this day.
Problem that every business needs to solve and so I hope that day was clear, but this is what we see no and the marketplace.
This really I think.
These are really the dynamics of.
The market really shaping and with it also you see more and more budgets.
I appreciate that detail, thank you and and Guy and needed for you I wanted to drill and you're on the subscription gross performance and the quarter as well as the IRR of performance. So if I take a step back.
The magnitude of acceleration, we saw and a subscription business and from the fourth quarter that magnitude of acceleration is quite of bit healthier than the acceleration. We saw in E. R. R of metrics. So I'm wondering if there is any observations or any items that we should be mindful of.
I didn't actually net of subscription revenue growth performance would have.
Directionally and in terms of magnitude of the upside with tracks of the subscription line items, but if there's anything there to help us better understand and some of that divergence that would be helpful. Thank you.
Absolutely well <unk> is really comprised of the subscription the ACB annual amount and of the subscription plus the.
And maintenance portion of the of the.
Perpetual so obviously when you kind of combine those together and that's part of the reason that we talked about the fact that as we move through the transition and get to the 2021, where its truly apples to apples.
<unk> should match much closer to the revenue top line growth and that's actually what we've seen this quarter.
Very helpful. Thank you.
And our next question is from Rob Owens with Piper Sandler. Please proceed with your question.
Great and thank you guys for taking my question I think you've spoken around it but if we look at the era of outperformance and the acceleration can.
Can you give us some color whether that was driven more by lands and expands and.
Any comments around pipeline and be appreciate and things.
So I think when you look at kind of the IRR and and are kind of performance this quarter obviously.
There's the land, which we've seen customers consume more of the platform and that's been very very helpful for us and obviously helpful for the customers as well because they're they're consuming the platform.
And therefore, the ability for them to get to get value and come back and buy more increases significantly now obviously, we have a large base of customers and we've talked a lot about the fact that we are underpenetrated, so existing customers should contribute more and that's obviously better for us because it costs less the gen.
<unk> revenue from our existing customers. So they they kind of drive, but we were happy with both new customers and the existing customers consuming and buying more of the platform.
And maybe a little bit of around your confidence and the use case of Poland lives and how that's evolving and should be coming out of the pandemic and changes interest of transformation and cloud acceleration.
Okay.
We are happy with the way that the development is progressing but we believe that.
Everything we experience with 365.
And then translate into the <unk>.
Platforms, the Portola and support and we believe there is tremendous opportunity, though if you think about rather of the SaaS application sales.
<unk> two <unk>.
<unk> and others and.
No.
Bulks and Github and these are the platforms that you and your organization on and.
Access control is very hard and understanding abnormal behavior, what data is important.
Just to demonstrate compliance. These of these things are very challenging and we just believe that day.
We can add tremendous value there and to be uniquely positioned the way we are positioned and the on Prem data and everything that we're doing for all of the 365 platform. So you know we all of a very excited about it.
And as we are moving forward with the development and talking about with customers.
And just think that day.
And this is just a tremendous opportunity and a lot.
And the value to our customers and.
And to increase drastically.
On his customer.
Thank you.
And our next question is from Alex Henderson with Needham and company. Please proceed with your question.
Hi team yet, but she goes to the line here for Alex Henderson, and congratulations on the strong quarter, and a strong subscription and a or growth.
And I'm just curious can you comment on this growth in the context of the this greater market awareness from this collision of data collection and cyber security you're talking to.
Just because it really sounds like the market is increasingly aware of these issues and the value props youre delivering and then building on that can you also talk to whether youre seeing any uptick.
And spending or or demand.
And we're maybe budget is finally coming to the market following the solar wind sort of Microsoft Exchange server, Hence we were talking about earlier this year.
I think that if you really and.
I'm going to dissect the anatomy of a lot of attacks. So when you have just sophisticated malware.
It's using the use of the credential and trying to go after data and.
And you see this as more of an Moe so custom.
And understand that something like that can happen and you really need to think about how they are protecting the data and once you have these kind of conversation and a realization.
You understand that you need a platform like ours.
Regarding the awareness you know, it's hot by Hawk and a lot of it is just the inside of if you want to go all the way back to Snowdon and wiki leaks. The biggest damage of Hoffman and when you have and inside of that is deciding to do who you know you have of wogan bleed of deciding to do something that these malicious and and this kind of.
Situation you know we are uniquely positioned to win.
The customers. So it's everything just every day something is happening and you see the digital transformation and.
Ceases, becoming you know very strong and the organization and they also get a responsibility to protect data boards and management departments legal departments understand that.
You know day need to protect the data and when you really evaluate your digital assets you understand that you need to protect.
Textual data and critical information and the way that you can really.
Yeah.
And in a way that the organization can digest and what's happening today and the world is that organization's capacity to create and share critical information.
Significantly increasing the capacity to protect it and I just think that in order to be able to protect these data and you need something like voice. So just every day you know we just inching forward and what is happening is that you have these big market and we have a lot of technological moat and massive feature set on.
On top of of platform and you're just benefiting our customers. So it's everything you know bleach is a problem with inside of regulation is coming and you have another platform you'll get to critical mass of data. So this is really what you see with volume.
And so very gradual.
And this but you know every three four months you just raised and go ahead and do a walk you are usually much favorable market.
Thank you that's very helpful. And then for my follow up question I did want to touch on the of.
And the investments that you guys are making so I am.
I understand we called out about 1800 employees, who is the head count figure exiting the quarter of 12% year on year on book to the extent you can with these investments.
How are you guys planning on exiting calendar 'twenty, one from a head count perspective, and and for those investments youre, making and both R&D and sales and marketing.
Can you provide any additional detail for the split.
And within those different investment line items. Thank you very much.
So we don't really guide on head count.
And we don't really kind of guide on the breakdown of of the different departments, but I'll give you some color of that.
And we'll show how strong we feel about the business and.
And of how where we're thinking about this.
And acting really.
When you look at kind of the growth of the head count.
Most of it has been in the R&D and sales and marketing department sales really to develop kind of of the mature and underpenetrated territories and iron.
And really to continue to feel of the innovation nothing has change apart from the fact that we also we talked a lot of about the fact that we want to continue to put the foot on the gas when we feel good about the business. So when you look at kind of of net new growth in head Count. We grew 75, net new and Q1 and we grew 90.
In Q4, so of 165 net new employees and the last six months and that's really an indication of.
What we've seen from a market perspective, and our desire to capitalize on the long term opportunity. So we always try to tie the level of expenses to the level of revenues, we planned to achieve and that philosophy hasn't changed.
That makes a lot of sense terrific. Thank you guys.
And.
And just and the interest of time, we do ask that everyone who to ask your questions and I only asked and limit themselves to only one question again, please limit yourself to one question.
And our next questions come from Amgen and firewall and with Morgan Stanley. Please proceed with your question.
Hey, guys. Thank you for taking my question.
And for Yoki.
And around sort of the investments.
Investments and pipeline that you're seeing on the federal side of the business.
Going into the back half and know that you had some announcements recently.
Particularly on sort of Microsoft government community cloud I'm curious if you could give us some more color there and you know what the pipeline looks like going into the back half as we go into the.
Federal budget flush thank you.
And we feel that day.
For the company on and feel that the pipeline is very healthy for the federal specifically there is a lot of need for a solution like ours and.
Feel comfortable with.
And we feel comfortable with the pipeline.
But overall for full set of earnings for the company.
Good with the pipeline and feel very good with the conversion rates and we also feel it.
And if we spend the lifetime customer value.
Very high probability that they will but this is another thing.
Changing of significant way because of you know.
So you're getting a lot of value and they'll buy more and get.
And more automated volume and Dubai.
<unk> licenses and we have.
Such a deep and wide platform. It makes it for us and makes sense for our partners to spend a lot of time zone.
Customers, it's not just the pipe and in terms of opportunities just the way that day.
And converting the pipeline. So this is something that we also feel that day.
Gradually and it's getting better on debt.
Thank you.
Yeah.
And our next question is from Nick Maniaci with Craig Hallum and please proceed with your question.
Hi, This is Nick on for Chad and thanks for taking our questions.
I'm just curious there and the other third party cloud applications.
Currently on the pipeline.
Microsoft ecosystem. Thanks.
Can you repeat the question. Please we just couldn't hear.
Are there any other third party cloud applications outside of it.
Microsoft ecosystem.
Growing in terms of pilots and pipeline.
Two day to day in the cloud.
With Microsoft we have a lot and the.
And from <unk> to <unk> change and the Sharepoint and onedrive.
And the.
Teams, but as you know we book polarized in order to expand our footprint for mainly a SaaS application. So you know we have it.
We are of very good clarity of the critical SaaS application form of Ascension the weighted into.
Connect and we are going to release in the second half of deal of.
Support to many additional SaaS applications and we believe it can be a really good opportunity for the company.
Thank you.
Our next question is from from Jason matter of weeks William Blair. Please proceed with your question.
Yeah. Thank you Hey, guys do you expect a reopening to be of catalyst for the business and that when people are back on the office it will reduce friction and the selling process and maybe allow you to meet more new customers.
No definitely opening will help you know.
And to price.
Selling enterprise software is ease of full contact sport is always that we will able to be very productive.
Working remotely, but you know what.
We believe that.
Relied human interaction you know can benefit.
And in many ways, but and.
And we also feel that if we will need to function remotely fully while we're still positioned to do it.
And it has there been any disparity across geographies, where there has been some economic reopening.
And in the sense of.
Those that have had more reopening have performed better.
No, it's a bit out of debt.
<unk> situation you need to take it.
Every day as it comes.
But you know overall thankfully.
Well to do very well and there was some things and COVID-19 with all of these digital transformation really benefiting <unk> and we also believe that for US These are stationary trends.
So this is you know.
The only thing I can say and the way that it's going to develop.
It's hard to say, but we believe ease of wave, we're going to open very fast or God forbid we ever going to have more of a delay from the overall world and the economy.
We will be able to do very well and also we see the Tulsa organizations that got hit by COVID-19 and they have clinical information and buying voice and Mike The only thing of Big way. So you know we have.
We have high level of confidence and we really believe that we can do well.
And then if the situation with state of desperately want.
Thank you.
And our next question is from Shelby.
So you're asking me would be on Securities. Please proceed with your question.
Yes, thank you very much.
So I believe that you said the professional services line within maintenance and services was the big driver of the year to year decline. So my question is if you exclude professional services did that segment grow and secondly, I think you said that segment is going to decline this year.
Do you think it will grow starting next year.
So maintenance and services line item is really comprised of maintenance of perpetual and the professional services.
Because we move to subscriptions, so quickly and we're not going back to our existing customers and trying to convert the maintenance of perpetual to subscription licenses. We're just selling additional licenses with those existing customers on top of we're really not getting any new fuel on that maintenance line is.
And as I as I said before the professional services was really kind of the biggest impact.
Impact there because of the decline.
And the significant decline and professional services that is coming from.
As letting customer partners do more of the professional services and also the fact that the licenses are geared towards automation and so we.
We really don't expect that line item.
And to increase.
And.
There'll be obviously, some fluctuations with of professional services.
And to be clear even next year, you don't think it will increase right.
Correct, we're not we're not selling any new perpetual licenses.
Okay. Thank you.
Thank you.
Yeah.
Our next question is from Erik <unk> with JMP. Please proceed with your question.
Yeah. Thanks for taking the question wanted.
I wanted to come back to office 365.
Can you talk a little bit about how much of your business is associated with office 365 and did the did the exchange.
Heck.
Did that create and cash.
Catalyst for Europe.
Your products related to it or was that a impediment to them for your products that are.
Provided additional security there.
Hello.
Alright.
Our offering is mainly associated with data and there's a lot of critical data in a 365 applications and sales that are residing and agile and regarding the change of bleach.
Happening music change and solar wings and.
And and many items you know every week you have something.
And that organizations understand that you have these very sophisticated skills and today, we just keep to Cowen seen other of means the ability to really easily monetize cyber crime and if you have clinical data someone wants it and even the big company that protecting his.
Intellectual property, you know can they can get hacked and the.
<unk> is a really bad so I just think that what happens now is that.
Almost every organization is starting to realize that this is something that they need to do they need to protect their data and they need of predictive data and a very effective way and.
On the perimeter of security is essential but at the same time building.
Okay.
So it sounds as though the exchange hack was somewhat of a catalyst.
And you can you comment in terms of how much of your business with office 365 is.
Customers expanding the modules associated with a different applications within office 365 versus how much of it is customer instead of just migrating to office 365.
So we talked a lot when we announced the transition to subscription that a lot of it was driven by the fact that customers are consuming more of a platform and many of them.
Buying office 365 licenses that was really kind of of driver because of as you remember when we went public.
We had 10 licenses and between 2015 to 2018, and we came we came out with significantly more licenses and many of them geared geared towards automation and.
And really of the office 365 licenses have been a driver for us and the last couple of years, we're seeing customers that are buying many of those licenses.
It's still when you look at kind of the attach rates the data advantage and the data alert and the data classification already kind of the top three but office 365 has been a significant component and.
And we're very pleased with that.
Just in terms of of the breaches.
Also talked a lot about the fact that of breach doesn't necessarily generate a spike and our revenues immediately after that breach where much more of a of that thoughtful process, where our customers try and understand how they can better protect their data.
So I wouldn't say that any of the breaches is driving in the short term any of our revenue, but it's definitely part of that longer term discussion that we can benefit from.
Very good thank you.
And our next question is from Shaul Eyal with Cowen Force.
Which of your question.
Thank you Bill.
Afternoon, guys and congrats on the healthy performance.
Yoki your vision.
These are bonuses of 1 billion dollar revenue company, and our company actually and a number of years.
And we need and there are further accelerating we can run some assumptions that would get us to $1 billion, probably anywhere between five to seven years now I know you've never committed to a specific timeframe, but does that five to seven years.
Timeframe does that make sense.
Yeah.
No no I don't you know as your permission Charlotte I don't want to comment about.
Just.
To talk about relative timeline, but what do you want to talk about is just you know platform market feet and.
And the probability to get them on the hardest thing to get too lofty.
Golar is with products that you don't have customers, who never met and people that you haven't had the chance to higher and if you really see we as you know we can go so much within our customer base we have.
We have a substantial sales force and you just see what's going on with all.
Or the SaaS application that we can really run the volume playbook and all of them of interconnected and as I said before this is what this is will contemporary and cyber security risk resides and this is where we believe that the risk will go and if you want to protect your digital assets you need something.
Like volume from where we sit we strongly believe that it's inevitable. So you know and and the customers buy more and things of that.
And if there is one thing that I hope that the.
Folks can understand that with us more and more of these more when you get some critical mass of licenses you get these automated volume sort of use cases and customers are buying more. So you know we believe that division to get 2 billion of all.
And he is materializing and we also believe that everyday that goes by that we you know more licenses and bring additional customer of expanding debase.
Increased our probability to give you a lot of the investments to get to this billion dollar number and beyond are already in place.
Got it and gets so much.
Thank you.
Yeah.
Yeah.
And we have reached the end of the question and answer session and I'll now turn the call over to James and the rest of year for closing remarks.
So thank you everyone for joining today, we appreciate the interest and we look forward to speaking you this quarter. Thank you.
Yeah.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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And then.
Okay.
Yeah.
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