Q2 2021 Varonis Systems Inc Earnings Call
Greetings and welcome to the Verona Systems, Inc. Second quarter of 2021 earnings conference call. At this time all participants are in a listen only mode of question and answer session will follow the formal presentation and if anyone should require operator assistance during the conference and please press star zero on your telephone keypad.
Note. This conference is being recorded and will now turn the conference over to your host Jamie Our STS V. P of Investor Relations. Thank you you may begin.
Thank you operator good afternoon. Thank you for joining us today to review Verona for second quarter 2021 financial results with me on the call today are yoki vital and Chief Executive Officer, and Guy Melamed, Chief Financial Officer, and Chief operating officer of around it after.
And after preliminary remarks, we will open the calls for a question and answer session.
During this call we may make statements related to our business that would be considered forward looking statements under federal securities laws, including projections of future operating results for our third quarter and 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 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 for.
And its 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 and our second quarter 2020.1 earnings press release, which can be found at www dot for owners Dot com and the Investor Relations section.
Also please note that all common stock and per share data has been retroactively adjusted for the impact of the free for 1 stock split effective March 15th 2021 Lastly, please note that and updated investor presentation as well as the 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.
Jackie vital yockey.
Thank you Jeremy and good afternoon, everyone. Thanks for joining us to discuss and another strong quarter because.
As we continue building on the momentum from Q1, and the end of 2020 with the box of all of the current environment I wanted to focus today on 2 topics first buoy data protection, such a hard problem for organizations to sort of but is only becoming a holiday on the digital transformation and second well.
Platform and technology for for durable competitive advantage.
And we'll then turn the call to Guy to discuss on Q2 results and guidance.
Let's start with the threat landscape.
Simply put companies of all sizes and industries are facing high port for like talks on a daily basis, and she's not surprising as organizations put sensitive data and more places and occupancy and.
I'm always making it harder to lock down data analytics for it.
Our kids on taking advantage of this new environment, and we use their eyes of script of Cowen and see the theft of data has never been easier to monetize.
Companies also face going Greece from Logan side is advanced and way of giving that the average employee has access to 17 of media and files on the very first day of employment and most of which are relevant for them.
And as we have been saying for many of you security of the perimeter and endpoint is critical but and sufficient cause limiters.
Oh, how to define and even harder to monitor and point of interchangeable and the.
Let me most data is moving to centralized function because it daily and is cyber security risk Serge companies all of them.
Thinking more strategically about data protection and all of them.
Increasingly turning to vote on is to help for tech data where it lives.
Data protection is and immensely difficult problem to solve and in conversations with our customers and prospects. We ask 3 simple questions..1 do you know where the all important data store.
2.
And you know that the only the right people half of Oxford Street, and free do you know the day ever using it correctly.
So keep data space you have to be able to answer yes to all of these questions, but most of the organization.
Let me drill into this a bit more first identifying important data.
Take sophistication given the complexities of data storage second.
And those tend accessibility most companies don't realize just how many millions of for those 5 that comes and groups need to be analyzed to discern permissions.
And how many functional relationship between.
And between them.
And lastly in terms of data usage every system is different many like fidelity of granularity and all of our important context without the significant enrichment that we all feel of companies can't build baseline of normal user behavior.
All of them all when we show a customer of a bed by integrating data important axis and usage. They can finally understand and safely reduce risk and holistic way.
And that can't be achieved with only 1 of these day mention the uniqueness of our solutions become clear.
For data to be sick, you need to be able to answer yes to all 3 questions all the time.
This is why our platform and underlying technology provides such a durable competitive advantage and why we believe we have a 50 new head start data has always been the primary focus and we started by building context around it well it stalled.
What it contains.
Who can access it and phone will automation and machine learning connect these dots to build visualization of risks and profile of normal usage.
When we show companies, how our platform provides best in class for detection, while automatically fixing the damage that the single company might use those systems can do with 3 of the film is reducing the blast radius will become a top priority.
Subscription offering which aligns perfectly with customer demand for our platform is why we say that I'm always more of its below on these customers.
Customers buy a louder and the number of licenses upfront and under the perpetual model and realize greater automated value and in turn not only new but expand their deployments.
Let me provide a few examples of some key customer wins from this quarter.
1 of the country's largest fortune 500 insurance company and financial services provider became the only customer and Q2 will initially boarding after and internal audit and cover the risk of fines for regulatory and compliance, but the risk assessment also found 65.
For Saint of default of a little open to all 40000 employees.
And 40% of their sensitive data was exposed of.
To moving that we could classify those sensitive data for multiple regulation and and immediate open access issues and free weeks. They purchased 10 licenses and we are already discussing additional data advantage licenses as well as edge to father strength thing they're deploying.
And the same time, we remain underpenetrated and he's our existing customer base and the team had another strong quarter of closing substantial expansion opportunities.
A great example of this is in no similar kind of health care company, which was concerned with the potential leakage of patient data is being migrated to the cloud while there has been long time of only customers.
We are focused on protecting their on Prem data and Q2, the purchase of the entire office 365 suite edge and automation engine doubling the number of licenses from 8 to 16.
Moving to us doesn't happen overnight and expansion examples like this 1 reflect the confidence we have instilled and other customary I'll still helping sort of the most urgent data protection problems over the last 15 years.
In summary.
And we found advantage because we recognize that enterprise capacity to create and share data for all exceeded its capacity to protecting these have never been told that it is today.
Because we have aim to keep pace each day.
This growth and complexity of data, we believe that our platform is uniquely positioned to address the data protection and challenges facing all companies.
Providing voice and enormous opportunity to capitalize on the market opportunity we see while.
And while deepening our competitive mode with that let me turn the call over to Guy right.
Thanks, Jackie good afternoon, everyone. Thank you for joining us today.
We are once again extremely pleased with our second quarter results as we continue to capitalize on both the short and longer term opportunities we see.
Financial highlights in Q2 include 33% total revenue growth year over year, driven by strong <unk> growth of 39% for $328.2 million.
Demand for our platform continues to be driven by both new customer acquisition, where the average new customer is now buying approximately 5 to 6 licenses and continued expansion from our base of existing customers as.
As we discussed last quarter. These trends continue to dramatically increase customer lifetime value.
As of June 30th 'twenty, 'twenty, 168% of our total customers with 500 of more employees purchased 4 or more of licenses up from 58% of year ago, and 48% 2 years ago.
At the same time, 35% of our total customers with 500 on more employees purchased 6 or more licenses up from 24% of year ago and more than double the 16% we had 2 years ago.
The strong growth of these kpis and validates the demands of consume more of our platform. While also illustrating the continued opportunity we see to get every verona and customer to a double digit number of licenses much like the customer examples of Yaqui just provide.
The path of this number has never been clearer than it is today as we know that customers, who land with a higher number of licenses, which is exactly what our subscription model allows for seemed more of value upfront through automation and leading them to consume even more of the platform with additional purchases.
All of this significantly increases our customer lifetime value of compared to the perpetual model.
Turning now to our second quarter results in more detail.
Total revenues grew 33% to $88.4 million subscription.
Revenues grew 70% of $58.1 many millions of dollars maintenance and services revenues were $30 million is our renewal rate remained strong at over 90%.
Looking at the business geographically, we again saw strong revenue growth across North America, and EMEA and.
In North America revenues grew 34% for $61.6 million or 70% of total revenue.
And EMEA revenues grew 31% to $24.5 million with 28% of total revenue.
Rest of World revenues were $2.3 million or 3% of total revenue.
Turning back to the income statement I'll be discussing non-GAAP results going forward.
Gross profit for the second quarter was $76.9 million, representing a gross margin of 86, 9% compared to 86, 5% in the second quarter of 'twenty twin.
Operating expenses and the second quarter totaled $75.8 million and.
As a result second quarter operating income was $1.1 million or and operating margin of 1.2%.
This compares to an operating loss of $4 million or and operating margin of negative 6% and the same period last year as we continue to drive operating margin leverage.
During the quarter, we had financial expenses of approximately $918000, primarily due to interest expense on our convertible notes net.
Net loss for the second quarter of 2021 was $771000 or a loss of 1 cents per basic and diluted share compared to a net loss of $4.7 million or a loss of 5 cents per basic and diluted share for the second quarter of 2020.
This is based on $106.4 million and $94.5 million basic and diluted shares outstanding for Q2, 2021 and Q2, 2020 respectively.
We ended Q2 with $813.7 million and cash cash equivalent marketable securities and short term deposits.
For the 6 months ended June 30 of 2021 we generated $11.1 million of cash from operations compared to negative $10.8 million and the same period last year.
We ended the second quarter with 1870 employees and increase of 76 net new employees from the first quarter of this year.
Consistent with the demand environment, our net hiring has been strong for the last 4 quarters triggered by the digital transformation, which we recognized mid last year.
We believe these continued investments and innovation and capacity will allow us to capture the opportunities, we see and the market.
Yeah.
Moving to our guidance for the third quarter of 'twenty 'twenty..1 we expect total revenues of 96 million for $98 million representing growth of 25% to 28%.
We expect non-GAAP operating income of $3.5 million to for $5 million and non-GAAP net income per diluted share in the range of 1 and the 2 since.
This assumes $118.9 million diluted shares outstanding.
For the full year, we're raising our guidance and now expect total revenues of 375 million for $379 million representing growth of 28% to 29%.
We now expect non-GAAP operating income of 10 million for $13 million and non-GAAP net income per diluted share in the range of 3 cents for 5 cents. This assumes $116.8 million diluted shares outstanding.
In summary.
We are extremely pleased with our results this quarter looking at the pipeline the demand environment and the market increasingly coming to US we are confident and our ability to capitalize on the opportunity we see as reflected in our guidance.
Thanks for joining us today and with that we would be happy to take questions operator.
Yeah.
At this time.
A question and answer session.
Ask a question. Please press star 1 on your telephone keypad and a confirmation tone will indicate your line is and the question queue.
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Yeah.
Please limit themselves to 1 question per person.
1 moment, please while we poll for questions.
Our first question is from Sterling Auty of J P. Morgan. Please state your question.
Yeah, Thanks, Hi, guys.
So this is the second straight quarter that are our growth was just over 39 per se and I think we talked about and the beginning of the year of the air our growth and revenue growth should normalize you know for for the full year, but I guess, what I'm asking is looking at the back half of the year It would indicate a pretty cigna.
<unk> slowdown and are our growth to get down to where where you're guiding revenue growth. So what is it that you're factoring into the guidance for that slowdown because it seems like theres a lot of momentum with government deals commercial deals and even and international.
So first of all we're really pleased with our Q2 results I think the contribution and the strong momentum, we're seeing and the last couple of quarter combined with the pipeline, we see and really the market coming to us.
Dave Us the confidence to raise full year guidance by approximately 10 million.
But the guidance philosophy really hasn't changed we want to continue to guide in a responsible way at.
At the same time, we feel very good about the second part of the year and we're we're very excited for for what we have ahead. So I think we feel very confident about the second part.
Our next question is from Matt Hedberg of RBC capital markets.
Please state your question.
Oh, Hey, guys. Thanks for taking my question and congrats really on a very strong quarter here.
Yoki I'm wondering you didn't talk about it I don't think in your prepared remarks, but I'm wondering if you could talk about the integration status on polarize and and remind us how you expect to monetize that is really your wire up additional cloud data stores.
Yeah, Hi, Matt it's still early stages, but we're really hitting on all the internal milestones and we are extremely happy with these day initial interest without a doubt of the initial interest. These you know buy.
By far exceeding our all of our expectations regarding actually on all the platform to the support we got on the team significantly we put massive investment in this part of the business you know almost say a senior executive and technology side, David Barstow, CTO and head of engineering. He is personally responsible and towards <unk>.
Just and organic part of our roadmap. We just we just saw that the 2 very interesting dynamic to understand regarding the market would you sort of the data is keep exploding on prem, but the lot of these assumption repository of is what we call of lot of applications going to going to the cloud and they're in the cloud. What you see is a lot of the data protection that you see with <unk>.
File system, obviously, we have <unk>.
Huge success with office 365, and you see the same we use of books with Google.
You know where you have obviously a booked a zoom sales flow sees it is huge.
<unk> seen a AWS just stay.
Big Big Big challenges and this is a big blind spot for D. C. So you would think about it. This is 1 of the critical data usage and the free use cases of big there, it's very hard to make sure that the right people can access day like data virtually impossible to understand when people on attaching to do forensics to get to root cause and to understand what is the what is critical and also.
These applications of interconnected and you see a lot of a lot of the of lateral movement and so this year. We don't think that you live and material revenue contribution, but we think that it will be big both of these prospect and.
And and customers. So you know and as you know to each of SaaS solutions. It's in there.
I'd say in the cloud, but we believe that it's increasing drastically the total available market and our ability to sell and a licenses to customers. You know 1 thing we've seen varnished, it's always more and you sell more licenses you get most of the automated valued and customers are buying more.
And we definitely see a clear path to get too high a day.
<unk> digital licenses Oohs and.
Our customer base. So we are very excited about the opportunity and definitely it's a shorter and the time to market in organic powder for women.
Yes.
Our next question is from Brent Thill of Jefferies. Please state your question.
Hey, guys you have of Joe on for Brent really appreciate the question and just kind of on a follow up with Sterling and <unk> question and ask it a different way, but how should we think about incremental air and AOR of seasonality as we move throughout the year any reason it would be less pronounced versus last year I know <unk> was relatively similar to <unk> in terms of incremental IRR at it.
So theres 2 parts of that question on and I'll try and adjusted from from the 2 angles in terms of seasonality of the business not so much the E. R. R of I'll touch on that and the second the seasonality of the business is very much. The same where Q1 is the lowest quarter of Q4 has historically been our.
Largest quarter and in dollar terms I think when you look at the E. R R and the revenue and.
Apart from the fact that you know a R. R grew 39% the revenue grew 33%, which we're very happy with them when we talked about kind of those metrics converging.
I think you need to look at that on a recurring revenue component really on a on a 12 month trailing basis and the revenue recurring component is of subscription and and the maintenance and when you kind of look at those 2 there theyre very much closer and I think when we look at the second part of the year, we have very strong momentum we have.
Strong pipeline and and we feel very comfort and going into the second part of the year.
Our next question is from it's a cat.
Of Barclays. Please state your question.
Great Hey, guys. Thanks for taking my question here, maybe this is something for for both of you to tag team, but you know Yoki Guy I was wondering if you could just kind of talk a little bit about more about the increasing number of licenses per customer and feels like that's on a theme for several quarters now why do you think that's happening.
And maybe as part of that specifically for you Guy how do you think about that sort of increasing licenses for customer vis vis of metric like like net revenue retention sorry, there's a lot there, but does that does that makes sense.
Yes. So thanks for the question. So I think in terms of just number of licenses. It's just very interesting what is happening.
And obviously because of Covid do you see this explosion in you know everybody walks from home and you have you have this a M.
Many laptops, but what's happened is that you can define and perimeter of anymore and you still have data on pay and people accessing and its going this is very important to understand.
And just tremendous adoption of office 365, and other just SaaS applications that they are really geared towards the collaboration but creates a massive and.
Secured massive security challenge and what's happened also with dysfunction data repository that you're starting to have less and less data on the endpoint and you know everything is much more of like your phone and everything connected to the central repository and so if you really want to.
Protect your digital assets and protected and the most efficient way of you need to go from first what type of digital assets and then go you know obviously to the net book and active directory and then to the endpoint itself. This is the most viable way to protect the use of data and this is something that slowly maturing and in.
And then in the last 2 years of organizations understand more and more so the 1 thing that is really driving it that you want more coverage you want to make sure that reported 365 and you want to make sure that you're on Azure and then you have all of the virtual machine daily and of Windows and Unix and all of these would stop you must make sure that debt is protected. So this is 1 thing that is happening.
I don't think department and he's automation and you want to classify the data automatically you want to make sure that youre doing automated remediation, which is very important and also need a lot of enrichment. So if something is happening you of an alert and you really want to understand immediately what's happened and get to the root cause and these are free.
That would definitely doing very well and the other thing department of these net.
And we see like Swiss 65, but really exploring for socket and we also see things out of of SaaS applications.
M, obviously, slack and sales force to get tub, and Bulks and day, Google and stopped like Oct and zoom you of a lot of data and a lot of collaboration and tremendous amount of free and a lot of the south application you of the data protection problems you have the insider threat and problems and Apd problems and also configuration for.
And you can do just 1 mistake because it's so much geared towards collaboration and you opened the system today and.
For the public Internet and this is why everything that's going with data and advantage a cloud based on the polygon acquisition you know it just we believe that this is something that can be you know.
Big and may be even bigger than and everything that related to 365. So I think what is happening again gradually ease that if you want to protect your data you'll need a solution like von <unk> and because of the fact that we have such a moat and it's just you know.
And it almost uncontested you you need to get to US. So this is what happened and so on and we see it and the you know in the reliable way that we can close deals and the people you know with time are just buying more and no really you know of standardization plague.
And just from that to add on that from a numbers perspective, I think the kpis that we provide on customers with 500 employees of more that have of.
For a more licenses and 6 of them more licenses that the growth. There is really really strong I'm going from 58% to 68% and and going from 24% on the 6 somewhere to 35% is of great indication that we're selling the platform. We also talked about the fact that new customers of buying them in their first initial PERC.
<unk> between 5 to 6 licenses and that's approximately double the amount that they purchased under the perpetual model and when you kind of combined of these things together you know when we announced the transition we were hoping for a 3 year breakeven and.
Based on the price list and when we look at kind of the behavior of those new new customers. When we're selling kind of that double number of licenses for new customers were able to reduce the time to breakeven significantly. So that's very encouraging but on top of that the fact that they're consuming more of the licenses is actually.
Providing them more value and then later on and they come back and buy even more so all of that is kind of working for us very very well.
Our next question is from Rob Owens of Piper Sandler. Please state your question.
Hi, guys Ben Schmidt on for Rob. Thanks for taking my question I'm wondering if you could talk a bit about the contract value boost.
That we should expect from adoption of the new data advantage cloud licenses and and related to that as.
As we think about more data and moving to the cloud can you just talk about how much of your business. You think these cloud data stores could become.
It's still early stages, you know and everything is very everything is their initial but we believe that day.
So now we just see a traction you know, but this is you know it's very preliminary and you can see traction around all.
All day repositories debt, we are recovering and just what we see that is also interesting, but the data just going on claim.
And in the cloud and most of us applications going to the cloud and you know you have a lot of them, but several of the telco usually of interconnected and these are the ones you don't need to cover everything that you need to cover. So we just believe that you know this footprint with time will increase within our customer base and we can get more of these you know more of these custom.
But we still need to see and how we sell it you know how customers will buy it says these are the initial stages, but everything we see now is very very encouraging.
Our next question is from Mike <unk> of Needham and company. Please state your question.
Hi team. Thanks for taking the question here and I did want to ask about I guess and of the final comments from the prepared remarks, there was of comments around pipeline and your ability to execute and capitalize on this and and I did just 1 of frame. It. So my understanding here is that if you have and new customer.
Coming on and taking more of the solutions upfront, we're talking about 5 to 6 of these different licenses so that the offering itself as more consumable today, they realize value that much quicker and then they're coming back and and growing and alongside that dynamics. You guys are also taking the time to make sure you're investing both in your platform.
For them as well as and your sales and marketing go to market motion.
Or are all these different factors playing into the strong pipeline that you guys are talking to and maybe the other additional point could you help us better understand the strength of that pipeline how on.
Or are customers going through their size of the sales cycles quicker as a result of this as well.
Anything there would be incremental.
Yes.
So what we see primarily just the quality of the pipeline and because of the offering and the market condition. So you know we just have overall better coverage and our enterprise enterprise sales always takes time, but we just see that we live with and in a much more predictable way we can go upmarket discuss.
<unk> thousand 250000 and fuel.
And land the allowance builds and once we sell through of customer enough licenses upfront, usually we can sell them more and more and with time because they seem that there is this gradual realization that you know you need to protect your data where it lives. This is where it's vulnerable and this is all youre doing it with <unk> and also.
So that data protection, and third detection and response and and compliance and privacy really stemming from the same problem and you need the same the same platform and this is what we see you see just bit of quality of pipeline, we definitely see that see soes and and even much more bold and and the management team.
And just a looking of the digital assets and saying, how we're going to protect it and once you do it and we are of a deal we can on a.
And with a high level of confidence of sales campaign that we know how it will and and usually we also have a very good visibility to the overall customer lifetime value in terms of just the quality of both of these smart links the quality of most of dismantling it really increased drastically and.
And just to add some color on on on that from a from a numbers perspective when.
When we look at kind of a comparison between the perpetual model and the subscription model and we talked about kind of that 3 year breakeven I'm, probably easier if I give some sort of and a simple example, just to kind of break down how how we're enjoying that higher customer lifetime value. If you take a customer that bought.
Let's say 120000 dollar perpetual deal.
With a 20% maintenance on that deal you would get 20, K and year, 2 and year, 3 which would kind of add up to $160000.
On overall dollars from that customer over and over a 3 year period, and we price subscription is 45% of that.
First initial purchase so so let's say 54000, which gives you that 3 year breakeven.
Because we've sold.
Double the number of licenses to that new customer and the discounts of really stayed firm you're able to sell let's say roughly around 100, K and that year, 1, but now instead of getting $20000, which is that maintenance of perpetual we're getting the same the same revenue stream and we have the ability to expand.
Because we're providing more value to that customers and.
So that's really the beauty of the model and how and why this model is so powerful and allow us allows us to have that breakeven period significantly less than 3 years.
Our next question is from Hamzah sort of Wala.
And of Morgan Stanley. Please state your question.
Hey, guys. Thanks for taking my question, just wanted to and maybe get a little bit more color on the pipeline as it relates to federal headed you know and in Q3 in particular.
Just an update on <unk> can you give us any sort of rough sense of how much of your sales are coming from that vertical and how that pipeline has been coming together for some of you know recent product announcements and some go to market initiatives there.
Yes, hi, there, where we are entering the quarter, who is good pipeline, we have a great team in place and are well positioned to do very well. Obviously you know this is the quarterly for this is the quarter of the federal doing a lot of business and the you know again, we are positioned to do very well and obviously, we all go.
On to update on the day November call and and the federal has been roughly mid single digits out of total revenue.
We have a great team like Yankee said, and we believe that that percentage can be higher but it's it's still to date has been in that range. I know other companies had a much larger component of their business coming from federal and and we believe we can continue to expand there.
Our next question is from Chad Bennett of Craig Hallum. Please state your question.
Great. Thanks for taking my questions nice job on the quarter again.
So just maybe now that.
We're maybe and our second year ish of of kind of scaled and net expansion and the business, maybe I'm cutting of short, but just yes or are we at a point just because you're you're you're seeing so rapid license expansion, whether it's upfront or just on on cross sell up sell.
Or are we to the point, where we might be seeing kind of co terming or early renewals that you know may either good or bad impact kind of billings for a quarter positively or negatively or is that is that not a real issue at this point and the.
Model transition.
So we don't really provide any color on the billing and I wouldn't say that we've experienced any are any changes that are related to billings are being pulled into the quarter I will say that every renewal.
<unk> is an opportunity to upsell, but we are seeing many customers that aren't even waiting for that renewal period and are expanding and therefore co terming them their deal and.
And extending that and that's been very positive for us.
We see that continuing because the more licenses we sell as we said before the more value of the customer is benefiting and the more automation and theyre getting with the product. The happier they are and therefore, they are coming back and buying more.
Our next question is from the Shah of <unk>.
Colin Please state your question.
Thank you hi, good afternoon, guys good job.
Yeah I Wonder you gave you gave you gave an example of a fortune 500 company in your prepared remarks and is is some of that acceleration has to do with you guys going to higher within the enterprise and you know even the enterprise could be.
Categorized into let's say a couple of buckets of employees was 5000, 10000 and and and above but.
Does it have something to do with that as well the 19th of acceleration that we're seeing and now you've indicated on enterprise sales of a little longer that's understood, we'll get that but could it be that you know that the acceleration is little so hinged on that.
But definitely you know going upmarket, we always thought to large accounts, but now you know they understand very aware of what we do they use the product. So we definitely go there and you know can reliably go there and all of that many times, you know and a predictable way.
And we're winning the business, but also you know customers with 2003 thousand 5000 users just buying more and more.
And that the most important.
And that we see is once you have you know licenses, you're just buying more when you get these automated value. So just the overall customer lifetime value is using.
And he is increasing and we just see and expansion of the platform of the use cases. So you know just a bit of everything.
Our next question is from Dan Ives of Wedbush Securities. Please state your question.
Yeah. Thanks can you just geographically just talk about U S versus Europe, and terms of penetrations different trends that you're seeing there.
Especially when it comes to expansion of license deals.
And you know the obviously the U S is a much bigger business for us, but the overall trends we see the overall trends of the same you know you have if you have critical data you know someone wants to still eat and isn't data driven enterprise you your capacity to create and share.
And formation really far exceeded your capacity to protect it and this is something that everyone that everyone understand so and just in terms of the opportunity you know we definitely see that we can get to you know double digit licenses within the customer base.
All the platforms net recoveries will be run the business and it's very important that if you want to protect your data you need voice and this is just a gradual process that is happening and in the last few years and works very well for us, but its just happening worldwide.
Our next question is from Mark Chapelle of Benchmark Company. Please state your question.
Alright. Thank you for taking my question and nice job on the quarter.
Jackie I realize of data protection and cuts across all industries, but are you seeing certain verticals accelerates or adoption of.
Debt of production more so than others sort of last couple of quarters.
And you know it's it's.
And it stays fairly the same we also see that you know other verticals that you know you know maybe harder to close large deals are really starting to participate.
Just sort of digital transformation, but there's a lot of benefits, but can have a lot of diminishing returns. If the data is not is not protected.
Protected so we just cities.
Well everything that is happening is you know its graduates of gradual process really pushing the organization to think about how they need to protect their data and you really need to.
On a trust foundation in order to function as an organization with critical data and intellectual property cash some of the data business partners data employees data and this is something that valonia enables organizations and you know we just see we see it of course, all verticals and you know just kind of cross verticals would you see that.
Gradually it is becoming a top priority.
Our next question is from Jonathan.
Baird. Please state your question.
Yeah, Hi, good afternoon and.
And so really ransomware spin arising and threat back there for several years and we know it's a clear use case for her for her own and so I'm wondering if you can just talk about that use case in light of the increasing number of vendors the talc capabilities to protect against ransomware, including Edr vendors X.
And the same vendors.
What are they competing technologies you see the most and and how does for own has performed relative to those different approaches.
Yeah. Thanks for the question so.
You know it.
And somewhere is ease of form of malware that comes in and keeping your data and tie to sometimes encrypted data on the local disk, but we each time, you see less and less data on local decent and then it's going to the shelf positively and well at least 5 every day.
And on file shelf on file Silva of and NAS devices, and also on and on a collaboration and a platform like Kim.
Like a 365, sharepoint and onedrive and so the way that he talks if you are able to bypass the endpoint, which is you know not such a hard task because of you can bypass the Edr Oh you have a machine that is not part of machine opened to date to the internet.
Just some VDI that you can put an end point of a million of ways you know to a million.
Many of new ways to get in and then the problem that we have is the blast radius. So as we said in most organizations that don't have on us.
Sometimes 90% of the files that they random employee can access is not relevant for them and this is what they need they don't need to do anything they just anything, especially they just need to take the permissions, but you have to encrypt massive amount of data. So once they bypass the perimeter and we really the only game in town and nothing else will help them. So we see it on this.
Data repository and any abnormal behavior, you'll see what is going on and so what we are doing immediately was detected we can is.
Stop the overhaul encryption and then we can tell you what critical data you need to install and also ease of edge product. We can help with the infiltration and expectation of data because you see they take that data out and then day starting to threatened new but theyre going to release date and usually releasing it in piecemeal and this is how it works. So you know.
And as the out of layer, which is the you know you have so many endpoints of so many places that you need to protect 1 misstep and they're all in and then you have the data itself. So we are taking the data that they would want to increase and we want to still and this is what we are protecting so this is something that the organizations understand.
And we definitely see that we are a top priority for this ransomware and yeah. I don't think also to understand the way the markets work and sometimes you do you see some kind of and attack and then there is a lot of noise and everybody stay you know, we can protect and new cities emergency spending, but with time and when the dust and really startling and.
Nation for doing these deep thinking of what they need to do in order to be protected where is the biggest event for my back what is the biggest return on investment they usually come to us and this is something that we so you know as you saw that day really day market evolves and the last for years every time something like that happen in the shelf.
All of them, we benefit, but sometimes less and other companies, but overtime, we benefit much more benefit from beef and benefits from stopped like GDP.
GDP, all and heat pumps and all of the other regulation. So this is definitely a trend that we see that you know something external is happening all the the market is there is the immediate reaction. But then there is just the ongoing reaction and this ongoing thoughtful reaction. This is something that we believe is benefiting us in.
A big way and elevating us and the priority and really with time, putting us in a place that no. Its over on his first I want to protect my data I need to I need to I need volume because when everything said and done if you look at most of the security solutions are there. They are in order to protect data as you all have already.
Vectors in order to protect data. So we are just starting to recover and the last for years. We see this realization, let's start from the day rate. So, let's let's make sure that my data is protected and.
And as we are and it organizations.
And using more and more reported there is they need the same and protection.
On these data repository. So this is really what we see and definitely we believe that it will seem to pop and with ransomware is accelerating the understanding that you need voice and we also see debt we had tremendous value in terms of funds from a protection to our customers that his day.
Licenses that related to on some of our protection.
Our next question is from it shall we say rafi of Etsy.
Etsy and security and please state your yes, well. Thank you very much and so I wanted to drill down on the gross margin line and it keeps increasing on a year.
Year to year basis, how much of that is because more and more customers are buying more and more licenses.
And what are some of the other factors impacting the increase in gross margin and also relate to this last year. You. You finished with your gross margin your 89% do you expect to sell more of kind of pattern this year as well.
Yeah.
So the margin expansion is obviously, it's benefiting from from strong renewals and the fact that selling to existing customers is quote unquote cheaper.
And so we've talked a lot about the fact that where we were committed to kind of year over year margin expansion.
And you can see that in the years prior to debt transition with.
We're very happy with the margin expansion as we sit here today kind of debt 450 basis points expense and expansion, but at the same time, we want to continue to focus on the opportunity. We have ahead and and that's why we're making the necessary investments, but still bringing some of it to the bottom line and so I think we've done a very good.
Job of balancing growth and profitability and we expect to continue to show.
Margin improvements and the second part of the year and and and in the years ahead.
Our next question is from Eric.
JMP Securities. Please state your question.
Yeah, Thanks for taking the question and and congrats on good quarter.
First off just on the on the point of Ransomware can you can you give us a sense for how much of a topic of discussion that is for your new accounts is that literally every account.
Coming out of it.
And they're looking at <unk> as a tool for protecting against that or how critical of the of a selling point is that and then I've got a follow up question.
Ransomware is lack of commercial for Vaughn and think about what it does it's coming in and bypassing the endpoint then exposing the excessive access control and without you knowing it sometimes and drifting millions of 5 and <unk>.
And debt and distilling them, taking them out of the organization.
So you understand that.
And as customers understand that they can easily bypass the perimeter and then they can go in and you have this what we call. The blast radius. There is so much excess of access control and lack of alerting and auditing and they can keep your data and then still it. So I would not say that it's on solar per se, but with and some of it that is really show you the problem.
And I need to protect my data and protected where it leaves and need to be able to alert on any abnormal behavior and understand completely what's happened get to root cause and do very effective forensics and get to the time to resolution very fast and they need a lot of automation and so and it automatically.
And should the right people can access the height data and need to make sure.
On all the platforms and understand what's happening on where and this is something that we are doing extremely well so and somewhere its just you know it's another apt's you also need to understand depends on where he just 1.1 kind of malware a lot of these models are coming and are very stealthy way and you don't see them. So I think what happens is.
It also organization understand that this is something that is something that can happen. So it's just it's another just in out of event that the organizations understand that it's happening also think what folks on.
Our net debt enterprises understand is the level of sophistication.
There are many drivers, but a lot of it and just also you know crypto currency.
And many things of that happening is because of incentives on trip the COVID-19 seats very prevalent now and let you monetize.
Cyber crime easily a lot of states.
State active level of cyber crime and really spilling into the into the commercial space and if you have critical data someone wants it and you also of cyber insurance and many times. They are getting paid easier of the Bell then and then and.
And then few years ago. So there's just a lot of a lot of stuff that really happening that folks understand that if you have critical data someone wants it there are many ways to get in and you need something like voice and again, it's part of this gradual process that organizations understand that they needed and.
And we believe that eventually it would be nevertheless, do you want to protect your data and need a platform like von <unk>.
Our next question is from Roger Boyd of UBS. Please state your question.
O terrific. Thanks for taking my question and congrats on nice quarter.
And I'm curious you spent the last couple of years starting to focus more on the larger enterprise and I'm wondering with introduction of poly rise and that being a SaaS delivered solution does that change the opportunity you see with maybe the mid market or SMB or is focused on the high end of enterprise favorite time of day.
When we talk when we talk about when we talk about the day when we talked about the high and we took 1000 plus so its not that we have of telling you know 20020 thousand plots, which is a massive market.
But yes, we can sell for only you know anybody the types of emails and his Kitty Cat M.
And.
Business data with some kind of collaboration and sharing they need voice, but you know we just want to make sure that we can really scale in the most efficient way and what we're doing and moving the needle with extremely good insight sales team. They are doing very well for us there.
And there are critical for us, but by and large when I'm talking about the lion's share of the revenues will go on to the enterprise.
And this is really the overall sales motion, but we can sell to everyone and we are expanding the inside sales team that were important for us and doing an amazing job and we're learning a lot of value to smaller organizations.
Our final question is from Andrew Smith of Danbury and capital market.
On your question.
Hi, guys.
Just understanding that it's very very recent.
Was there any benefit at all to air are from data advantage cloud this quarter. Thanks.
No no it's early stages.
And we also think that this year that they will not have a material contribution, but usually before we sell of border of product. We know you know we see the interest to see how he talks we install it and Vaughn is we understand how the marketing marketing efforts of walking and we also see the exposure within the customers when you install it.
And on Google and installing it on Bulks and the sales force and slack and just see the tremendous exposure and the dangerous from the lateral movement and we believe you know we strongly believe that it's a it's the biggest blind spot.
Systems. They have today I, just think that there and so much so much damage that when you. When you see these breaches that organizations are experiencing and the even the even though now. So you know we strongly believe that there is tremendous opportunity there and what we have done with 365, we can do with this.
And as applications and we also think that with time, you will have more and more clinical data will be start application and they will be interconnected and we.
We are we are very excited about what we can do with SaaS and we also think that our mode of technological moat dysfunctional relationship between users data and commissions content is very relevant there and data on claim is not going anywhere and we can really be the tasks foundation of digital digital comes.
Formation, and just make sure that organization can realize.
All of the tremendous productivity benefits without the downsides of data breaches stealing data inside of a slate of compliance problems and so on.
And just to add from and they are perspective like Jack you said there was no contribution coming from D. A cloud, but the fact that a R. R grew 39% and when you look at kind of Q1 and Q2 both of them grew 39%, but we see Q2, a R. R. As a much stronger 39% that's really due to.
The fact that Q1 day or our growth was against a weaker comp and if you remember we had kind of the shelter and place placed and the last 2 weeks of Q1, and 2020 and that had an impact on our results. So this quarter as a whole is really a strong indication of the demand environment and the X and the execution we had this quarter.
We have reached the end of the question and answer session I will now turn the call back over to Jamie.
Closing remarks.
So thank you everyone for joining the call today and for your interest and please don't hesitate to reach out with questions and we look forward to speaking with you this quarter have a good night.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.