Q4 2021 Varonis Systems Inc Earnings Call

[music].

Greetings and welcome to the Veronis Systems, Inc. Fourth quarter 2021 earnings Conference call.

Speaker 1: Greetings, welcome to the Verona Systems Inc. 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question 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.

At this time all participants are in a listen only mode.

A question 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.

Note. This conference is being recorded.

I'll now turn the conference over to your host James Oresteia Director of Investor Relations. Thank you you may begin.

Speaker 1: I will now turn the conference over to your host, James Orestia, Director of Investor Relations. Thank you. Thank you for essence Moonl......

Thank you operator good afternoon. Thank you for joining us today to review <unk> fourth quarter and full year 2021 financial results with me on the call today are Yaqui fight Olson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer, and Chief operating officer of Arone Us after preliminary remarks, we will open the call to a question and answer session.

Speaker 2: Thank you, operator. Good afternoon. Thank you for joining us today to review Veronis's fourth quarter and full year 2021 financial results.

Speaker 2: With me on the call today are Yaki Feitelson, Chief Executive Officer, and Guy Malamed, Chief Financial Officer and Chief Operating Officer of Verona.

Speaker 2: After preliminary remarks, we will open the call to a question and answer session.

Yeah.

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 first quarter and full year ending December 31 2022.

Speaker 2: 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 first quarter and full year ending December 31, 2020.

Due to a number of factors actual results may differ materially from those set forth in such statements.

Speaker 2: Due to a number of factors, actual results may differ materially from those set forth in such statements.

These factors are set forth in the earnings press release that we issued today under the section captioned forward looking statements and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission.

Speaker 2: These factors are set forth in the earnings press release that we issued today under the section captioned forward-looking statements. And these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission.

We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Speaker 2: 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

<unk> expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward looking statements made herein.

Speaker 2: Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call a reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter and full year 2021 earnings press release, which can be found at www Dot <unk> dot com in the Investor Relations section also please note that all common stock.

Speaker 2: Additionally, non- GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter and full year 2021 earnings press release, which can be found at www.feronist.com in the Investor Relations section. Also, please note that all common stock and per share data have been retroactively adjusted for the impact of the three-for-one stock split effective March 15th, 2021.

And per share data has been retroactively adjusted for the impact of the three for one stock split effective March 15th 2021.

Lastly, please note that an updated investor presentation as well as a webcast of today's call are available on our website in the Investor Relations section with that I'd like to turn the call over to our Chief Executive Officer, Yaqui finals and Yoki.

Speaker 2: Lastly, please note that an updated investor presentation, as well as a webcast of today's call, are available on our website in the investor relations section.

Speaker 2: With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Fytelson. Yaki?

Thanks, Jamie and good afternoon, everyone.

Thank you for joining us to discuss our Q4 2021 performs.

Speaker 3: Thank you for joining us to discuss our Q4 2021 performance.

The results of a steady consistent and well executed by our team.

Speaker 3: The results of a steady, consistent and well executed year by...

Looking ahead, we are excited to capitalize on the Congress opportunities, we see for 2022 and beyond and are focused on positioning voyages for durable long term growth.

Before I discuss these opportunities I want to start by reviewing the key themes for 2021 Guy will then review our Q4 results and our financial guidance for 2022.

Speaker 3: Before I discuss these opportunities, I want to start by reviewing the key themes for 2021. Guy will then review our key four results in our financial guidance for 2022.

So let's jump in.

We think about the market for data security in the last 12 months. It is important to ask what has stayed the same antibodies changing.

Speaker 3: think about the market for data security in the last 12 months it is important to ask what has stayed the same and what is changing.

Starting with what has stayed the same for many years, we have bet on secular trends to name a few explosive data growth this sophistication of threat actors and increasing regulation.

Speaker 3: Starting with what has stayed the same, for many years we have met on secular trends. To name a few, explosive data growth, the sophistication of threat actors, and increasing regulation.

We now see another trend, which is serving as a strong tailwind for our growth.

Speaker 3: We now see another trend which is serving as a strong tailwind for our growth.

That is a global scarcity of in house technical expertise.

Speaker 3: And that is a global scarcity of in-house technical experts.

Prevent significant need for added automated protection for all organizations that spend the moment on these trends, which continued to accelerate in 2020 one.

Speaker 3: represents a significant need for added automated protection for all organizations.

Speaker 3: Let's spend the moment on these trends, which continue to accelerate in 2021, driving demand for our platforms. The first is data growth, which we have...

Demand for our platform.

The first is data goals, which we have talked about since we founded voice.

This showed no signs of slowing due in 2021 what are the on prem or in the cloud, which only openings companies around the world to greater risks.

Speaker 3: showed no sign of slowing during 2021, whether on prem or in the cloud, which only opens companies around the world to greater extent.

And the threat environment, given the growing dependence on critical data, which makes every company highly vulnerable. It is not surprising that threat actors continue to refine and sharpen the strategies cybercrime.

Speaker 3: The second is the threat environment, giving the growing dependence on critical data which makes every company highly vulnerable. It is not surprising that threat actors continue to refine and sharpen their strategies.

By the day, and he tends to become more profitable than ever before.

Speaker 3: Cybercrime gets swarthed by the day and it has become more profitable than ever

The third trend is regulation.

Speaker 3: The third trend is regulation. In natural byproduct of these attacks, all of these regulations have sharp.

A byproduct of these attacks all of these regulations have sharp teeth.

And as we have seen in the past you noncompliant results in substantial fines.

Speaker 3: And as we have seen in the past year, non-compliance results in substantial finds.

The last thing that I mentioned earlier technical scarcity.

Speaker 3: The last thing that I mentioned earlier is technical scarcity. We constantly hear from customers in prospect that they are IT and C.

Constantly hear from customers and prospects that the I T and security experts are stretched too thin and they need automated platform solution that allowed them to do more with less and this is exactly what <unk> provides its scale and of course Davidson complexing violence.

Speaker 3: that they need automated platform solution that allow them to do more

Speaker 3: This is exactly what Voronis provides its scale because they verse in complex environments. Our technology

Well technology has never been a better fit than for today's market. As a result of a data first approach continues to resonate with customers regardless of size industry or region.

Speaker 3: As a result, our data first approach continued to resonate with customers regardless of size industry.

Now, let's turn to what is changing starting with the digital transformation, which is drastically impacted how companies must be poached data security.

Speaker 3: Now, let's turn to what is changing. Starting with the digital transformation, which has drastically impacted our companies must approach their security.

As we have said.

The walk from any will the perimeter, he's how to define and even harder to voting.

Speaker 3: He's worked for many well, the perimeter is how to define and even how to...

There has been an explosion of endpoints, which play mentally safe as access points to enterprise data stores, both on Prem and in the cloud and sensitive data now lives in the sanction data stores, which Mexico ablation easier and security it's much harder.

Speaker 3: There has been an explosion of endpoints, which primarily save access points to enterprise data stores, both on-prem and in the cloud. And sensitive data now lives in these sanctioned data stores, which makes collaboration easier and security much harder.

As you all know.

Solutions to problems are found.

Speaker 3: As you all know, when solutions to problems are found, new problems often emerge. We believe the biggest problem for data driven organization over the next decade will be managing the tension between productivity and...

Problems often merits, we believe the biggest problem for data driven organization over the next decade will be managing the tension between productivity and security.

Digital transformation is.

Speaker 3: Digital transformation has made collaboration so easy that the average employee has access to 17 million files on the first day, most of which are not necessary for their job. As a result, the potential for widespread damage from just one compromised user which we call the blast radius is enormous.

Collaboration so easy that the average employee has access to 17 million files on the first day, most of which are not necessary for the job as a result, the potential for widespread damage from just one compromised user which we called the blast radius is enormous.

Of that attack is have so many victims to get to get to sensitive data.

Speaker 3: On top of that, attackers have so many vectors to get to sensitive data.

It can be through an endpoint and vulnerable gateway configuration.

Speaker 3: can be through an endpoint, a vulnerable gateway, or a misconfiguration.

And all it takes is one four.

Well every company the scale of the problem can be messy.

Speaker 3: For every company, the scale of the problem can be massive. And it is...

And it is impossible to solve without automation.

This is exactly what we are laser focused on going into 2022 and beyond.

Speaker 3: This is exactly what we are laser focused on going into 2022 and beyond. And how we are positioning the

And how we are positioning the company for durable long term growth.

We intend to go both wider and deeper.

Speaker 3: We intend to go both wider and deeper as we expand our platform.

Expand our platform, which with a distinct focus on SaaS data stores data advantage cloud meaningfully expand our market opportunity as we cannot provide coverage for Google dive Salesforce AWS and many more SaaS data stolen applications.

Speaker 3: Such data stores their advantage cloud meaningfully expand our marke.

Speaker 3: We can now provide coverage for Google Drive, Salesforce, AWS, and many more SAS data stores and applications.

We can also go deeper on many of these.

Speaker 3: We can also go deeper on many of these, as we already have with classification for Google Dive.

Already have with classification for Google dive in books and there is so much more we plan to do an alerting and integration.

Speaker 3: And there is so much more we plan to do on alluring and integration. The one comments.

The one common theme it caused these airports is automation.

She is truly transformational for our customers and addresses the data protection challenges they face and we believe that we are just scratching the surface of an enormous market opportunity before I turn the call to Guy I want to briefly discuss some key customer wins in Q4.

Speaker 3: tooly, transformational for our customers and addresses the data protection challenges.

Speaker 3: And we believe that we are just catching the surface of an enormous market of produce.

Speaker 3: If you prefer I turn the call to Guy, I want to briefly discuss some key customer...

Our U S healthcare services organization with 30000 employees became a new voice customers this quarter.

Speaker 3: A U.S. health care service organization with 30,000 employees became a new Varonis customer this quarter. They viewed Microsoft 365 as a significant risk.

Microsoft 365, as a significant risk.

And what does it mean.

Not only did our risk assessments validate their concern, but it also expanded.

Speaker 3: not only did our risk assessment validate their concern, but it also expanded the initial use case to address ransomware, open access issues, and permissions map.

Initial use cases to address somebody open access issues and permissions mapping.

They purchased a double digit number of licenses and we are now already discussing how they can expand the cloud licenses for additional protection.

Speaker 3: They purchased a double-digit number of licenses, and we are now already discussing how they can expand with DA cloud licenses for additional protection. At the same time, our existing customer base continues to grow.

At the same time.

Our existing customer base continued to serve as a strong source of incremental revenues.

And the team had another outstanding quarter closing a number of significant expansion deals.

Speaker 3: team had another outstanding quarter closing a number of significant

One of the world's largest auto manufacturers who are we.

Speaker 3: One of the world's largest auto manufacturers, originally a perpetual customer with only two licenses, significantly expanded their Varonis deployment in Q4.

Regionally it perpetual customer is only two licenses significantly expanding their deployment in Q4.

Prompted by the need to comply with regulation and take most strategic approach to securing those sensitive data.

Speaker 3: prompted by the need to comply with regulation and take more strategic approach to securing their sensitive data. They now have a double digit number of licenses.

We now have a double digit number of licenses.

These are just two examples of how the trend impacting organizations today.

Speaker 3: how the trend impacting organizations today, fueled by the digital transformation, provides

But did it by the digital transformation.

Provides a long term opportunity to fulfill its mission of protecting sensitive data for its customer was coupled with a platform innovation and continued investments across the business. We believe we have a clear path to our 1 billion target I want to central team for their great effort and hard work.

Speaker 3: fulfill its mission of protecting sensitive data for its customers coupled with a platform innovation

Speaker 3: We believe we have a clear path to our 1 billion ARR target. I want to thank our team for their great effort and hard work last year, and I know I speak for them when I say how excited I am for 2022. With that, let me turn the call over to you.

Last year, and I know I speak for them when they say how excited I am for 2022.

Is that let me turn the call over to Guy Guy.

Thanks, Jackie good afternoon, everyone. Thank you for joining US today, we are extremely pleased with our fourth quarter results. Our continued execution resulted in impressive performance across all key metrics highlighted by 35% <unk> growth to $387 1 million.

Speaker 4: Thanks, Yaki. Good afternoon, everyone. Thank you for joining us.

Speaker 4: We are extremely pleased with our fourth quarter results. Our continued execution resulted in impressive performance across all key metrics highlighted by 35% ARR growth to $387.1 million.

We also achieved total revenue growth of 33% and non-GAAP operating margin of 17, 7%. Both ahead of our guidance.

Speaker 4: We also achieved total revenue growth of 33% and non-GAAP operating margin of 17.7%, both ahead of our guidance.

Similar to previous years, we showed greater operating leverage in the second half of the year, bringing almost all of our Q4 top line beat down to the bottom line.

Speaker 4: Similar to previous years, we showed greater operating leverage in the second half of the year, bringing almost all of our Q4 top-line beat down to the bottom line.

As we look at the market, we continue to see broad based demand for our platform coming from new and existing customers all of whom recognize the growing and pressing need to secure their sensitive data.

Speaker 4: As we look at the market, we continue to see broad-based demand for our platform coming from new and existing customers, all of whom recognize the growing and pressing need to secure their sensitive dates.

Our experience confirms our belief that more as more and then it's easier to get a customer from six to double digit licenses than from one license to five.

Speaker 4: Our experience confirms our beliefs that more is more, and that it's easier to get a customer from six to double digit licenses than from one license to five. Why? Because the more licenses are customers by, the greater value they realize, the higher the likelihood that they expand with additional license.

Why because the more licenses are customers by the greater value they realize the higher the likelihood that they expand with additional licenses and we're seeing this over and over again as our customers increasingly take a more strategic and longer view to securing their data.

Speaker 4: And we're seeing this over and over again as our customers increasingly take a more strategic and longer view to securing their data. As of December ,

As of December 31, 2021, 73% of our customers with 500 or more employees purchased four or more licenses up from 63% a year ago, and 54% two years ago and even more powerful is that 41% of those customers purchased six or more licenses.

Speaker 4: 73% of our customers with 500 or more employees purchased 4 or more licenses, up from 63% a year ago and 54% two years ago.

Speaker 4: And even more powerful is that 41% of those customers purchased six or more licenses up from 30% a year ago and more than double the 20% in Q4 2019, setting the stage for the further expansion I just described.

Up from 30% a year ago and more than double the 20% in Q4 2019 setting the stage for the further expansion I just described.

Lastly, our dollar based net retention rate for subscription customers was above 120% at the end of the 2021 year.

Speaker 4: Lastly, our dollar-based net retention rate for subscription customers was above 120 percent at the end of the 2021 year. Turning now to our fourth

Turning now to our fourth quarter results in more detail.

Total revenues grew 33% to $126 $6 million. This included subscription revenues of $96 million, which grew 53%.

Speaker 4: Total revenues grew 33% to $126.6 million. This included subscription revenues of $96 million, which grew 53%.

Maintenance and services revenues were $29 $6 million as our renewal rates again, we're over 90%.

Speaker 4: maintenance and services revenues were $29.6 million, as our renewal rates, again, were over 90%.

Lastly, our Q4 results included several hundred thousand dollars in <unk> and data advantage cloud.

Speaker 4: Lastly, our Q4 results included $700,000 in ARR from Data Vantage Cloud.

Looking at the business geographically, we saw strong performance across all regions in North America revenues grew 34% to $89 1 million or 70% of total revenues in EMEA revenues grew 32% to $34 2 million or <unk>.

Speaker 4: Looking at the business geographically, we saw strong performance across all regions.

Speaker 4: In North America, revenues grew 34% to $89.1 million, or 70% of total revenues.

Speaker 4: revenues grew 32% to $34.2 million, or 27% of total revenues.

7% of total revenues.

Rest of World revenues grew 27% to $3 3 million.

Speaker 4: rest of world revenues grew 27% to $3.3 million, or 3% of total revenue.

Or 3% of total revenues.

Turning back to the income statement I'll be discussing non-GAAP results going forward.

Speaker 4: Turning back to the income statement, I'll be discussing non-GAAP results going forward.

Gross profit for the fourth quarter was $113 4 million rep.

Speaker 4: Gross profit for the fourth quarter was $113.4 million, representing a gross margin of 89.6%, compared to 88.7% in the fourth quarter of 2020.

Representing a gross margin of 89, 6% compared to 88, 7% in the fourth quarter of 2020.

Operating expenses in the fourth quarter totaled $91 million as a result fourth quarter operating income was $22 4 million or an operating margin of 17, 7%.

Speaker 4: Operating expenses in the fourth quarter totaled $91 million. As a result, fourth quarter operating income was $22.4 million or an operating margin of 17.7%. This compares to operating income of $13.9 million or an operating margin of 14.6% in the same period last year as we continue to maintain our focus on balancing margin expansion with top line growth.

This compares to operating income of $13 9 million or an operating margin of 14, 6% in the same period last year as we continued to maintain our focus on balancing margin expansion with topline growth.

During the quarter, we had financial expense of approximately $850000, primarily due to interest expense on our convertible notes.

Speaker 4: During the quarter, we had financial expense of approximately $850,000, primarily due to interest expense on our convertible notes.

Net income for the fourth quarter of 2021 was $18 5 million or income of 16 cents per diluted share compared to net income of $12 $3 million or income of 11 cents per diluted share for the fourth quarter of 2020.

Speaker 4: Net income for the fourth quarter of 2021 was $18.5 million or income of $0.16 per diluted share compared to net income of $12.3 million or income of $0.11 per diluted share for the fourth quarter of 2020.

This is based on $118 6 million and $108 4 million diluted shares outstanding for Q4 of 2021 in Q4 of 2020, respectively.

Speaker 4: This is based on 118.6 million and 108.4 million diluted shares outstanding for Q4 2021 and Q4 2020 respect.

As of December 31, 2021, we had $807 $6 million in cash cash equivalents and short term deposits for the 12 months ended December 31, 2021, we generated $7 $2 million of cash from operations compared to negative $5 8 million used in the same period.

Speaker 4: As of December 31, 2021, we had $807.6 million in cash, cash equivalents and short-term deposits.

Speaker 4: 12 months ended December 31, 2021. We generated $7.2 million of cash from operations compared to negative $5.8 million used in the same period last-

Last year.

We ended the year with 2065 employees, an increase of 96 net new employees from the third quarter and an increase of 346 employees in the last 12 months.

Speaker 4: We ended the year with 2,065 employees, an increase of 96 net new employees from the third quarter, and an increase of 346 employees in the last 12 months.

I will now briefly recap our full year 2021 results.

Speaker 4: I will now briefly recap our full year 2021 results.

Total revenues grew 33% to $390 1 million well above the high end of our guidance.

Speaker 4: Total revenues grew 33% to $390.1 million, well above the high end of our guide.

Subscription revenues grew 67% to $268 9 million.

Speaker 4: Subscription revenues grew 67% to $268.9 million.

Our full year operating margin was six 5% compared to negative one 5% for 2020.

Speaker 4: Our full year operating margin was 6.5% compared to negative 1.5% for 2020.

The 800 basis point improvement validates the leverage in our model that we have talked about throughout the transition.

Speaker 4: The 800 basis point improvement validates the leverage in our model that we have talked about throughout the transition.

We continue to be thoughtful with our ongoing investments to capitalize on the long term opportunity generated by the trends the yaqui discussed and accelerated by the digital transformation.

Speaker 4: We continue to be thoughtful with our ongoing investments to capitalize on the long-term opportunity generated by the trends that Yaki discussed and accelerated by the digital transformation.

Before I move to guidance I want to note that as our SaaS offerings continues to increase in the years ahead.

Speaker 4: Before I move to guidance, I want to note that as our SAS offering continues to increase in the years ahead, ARR will become even more important as a leading indicator for our business, given the ratable revenue recognition of SAS.

We will become even more important as a leading indicator for our business given the ratable revenue recognition of SaaS.

Additionally, some color on our 2022 guidance.

Speaker 4: Additionally, some color on our 2022 guide.

I want to remind everyone that our 2022 full year operating margin guidance reflects the 200 basis points headwind related to our hedging program for our FX exposure to the new Israeli shekel.

Speaker 4: I want to remind everyone that our 2022 Full Year Operating Margin Guidance reflects the 200 basis points headwind related to our hedging program for our FX exposure to the new Israeli Shepard.

On a constant currency basis, the midpoint of our guidance shows expansion of approximately 120 basis points year over year.

Speaker 4: On a constant currency basis, the midpoint of our guidance shows expansion of approximately 120 basis points year over year.

In the first quarter of 2022, the impact is more pronounced with a 350 basis points headwind and on a constant currency basis. The midpoint shows expansion of approximately 140 basis points year over year.

Speaker 4: In the first quarter of 2022, the impact is more pronounced with a 350 basis points headwind and on a constant currency basis, the midpoint shows expansion of approximately 140 basis points year-over-year.

These rates were in retrospect as good as we could get for 2022 and just to remind you. These headwinds follow the 100 basis points of tailwind we benefited from in 2021 as we took advantage of Covid related volatility in early 2020 to lock favorable rates for the year in general we.

Speaker 4: These rates were in retrospect as good as we could get for 2022. And just to remind you, these headwinds follow the 100 basis points of tailwind we benefited from in 2021 as we took advantage of COVID-related volatility in early 2020 to lock favorable rates for the year. In general, we tried to minimize volatility through our hedging program with our larger focus on margin improvements where we have control.

Try to minimize volatility through our hedging program with our larger focus on margin improvements, where we have control.

Lastly, we expect our Capex for 2022 will be in the range of 12 million to $14 million.

Speaker 4: Lastly, we expect the CAPEX for 2022 will be in the range of 12 million to 14 million dollars.

Moving to our guidance for the first quarter of 2022, we expect total revenues of $94 5 million to $96 5 million representing growth of 26% to 29%.

Speaker 4: Moving to our guidance. For the first quarter of 2022, we expect total revenues of $94.5 million to $96.5 million, representing growth of 26% to 29%.

non-GAAP operating loss of negative $10 5 million to negative $9 5 million and non-GAAP net loss per basic and diluted share in the range of 11 to 10 cents.

Speaker 4: Non-GAP operating loss of negative 10.5 million to negative 9.5 million dollars, and non-GAP net loss per basic and diluted chair in the range of 11 cents to 10.

This assumes a $108 4 million basic and diluted shares outstanding.

Speaker 4: This assumes 108.4 million basic and diluted chairs outstand.

Okay.

For the full year 2022, we expect.

Speaker 4: For the four year 2022, we expect ARR of 484 million to 489 million, representing year-over-year growth of 25% to 26%.

<unk> 484 million to $489 million, representing year over year growth of 25% to 26%.

This assumes approximately $5 million of <unk> from da cloud.

Speaker 4: This assumes approximately 5 million of ARR from DA Cloud.

Total revenues of 485 million to $419 million, representing growth of 24% to 26% and this assumes approximately $2 5 million of revenue from D. A cloud.

Speaker 4: Total revenues of $485 million to $490 million, representing growth of 24% to 26%. And this assumes approximately 2.5 million of revenue from DA Cloud. Non-GAP operating income of $26 million to $29 million, and non-GAP net income per diluted share in the range of $0.16 to $7 million.

non-GAAP operating income of 26 million to $29 million and non-GAAP net income per diluted share in the range of 16 to 17.

This assumes $128 5 million diluted shares outstanding.

Speaker 4: This assumes 128.5 million diluted shares outstand.

As I look back at the recent challenges posed by the pandemic. It is clear to me that not only have we overcome them, but we have generated significant gross margin expansion and improved cash flow. During the last two years, while positioning ourselves to take full advantage and capitalize on the longer term.

Speaker 4: As I look back at the recent challenges posed by the pandemic, it is clear to me that not only have we overcome them, but we have generated significant growth, margin expansion, and improved cash flow during the last two years, while positioning ourselves to take full advantage and capitalize on the longer-term opportunity that lies ahead. Thanks for joining us today, and with that, we would be happy to take questions. Operator.

Opportunity that lies ahead.

Thanks for joining us today and with that we would be happy to take questions operator.

Thank you at.

Speaker 1: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tunnel indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue you.

You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 1: For participants using speaker equipment and maybe necessary to pick up your hands up before pressing the star keys.

In the interest of time, we ask that you please limit to one question.

Speaker 1: In the interest of time, we ask that you please limit to one question.

Our first question comes from the line of Matt Hedberg with RBC capital. Please proceed with your question.

Speaker 1: Our first question comes from the line of Matt Hedberg with RBC Capital. Please proceed with your question.

Great guys. Thanks for taking my question Congrats on a strong end of year.

Speaker 5: Great guys, thanks for taking my question. Congrats really on a strong end of year. I think we all appreciate the ARR guide this year. When we think about the algorithm for that, how should we think about the new customer ads versus expansion your base? Obviously, you highlighted a DA cloud, which seems super exciting. But just wondering, with the ad investments, what is the right way to think about new customers versus expansion?

I think we all appreciate the <unk> guide.

The guide this year.

When we think about the algorithm for that.

How should we think about the new customer adds versus expansion of your base. Obviously, you you highlighted your cloud, which seems super exciting, but I was wondering you know with the AD investments with what is that what is the right way to think about new customers versus expansion.

Hi, Martin thank that.

We definitely see that the strategy is working and there is this underlying architecture that is forming with the digital transformation. The data is concentrated in dysfunction data repository that we'd be a cloud we are covering all the you know in all therefore, the but we have done.

Speaker 3: You know, we definitely see that the strategy is walking.

Speaker 3: And there is this underlying architecture that is forming with the digital transformation.

Speaker 3: that data is concentrated in the sanction data repository, that is DA Cloud, we are covering, and we're all the efforts that we have done. So customers.

So customers see the value and we really have a path that many of our customers who live between 15 to 20 licenses, having said that new customer is also very important for us, but it's also extremely important for us to cover the market in the right places.

Speaker 3: We see the value and we really have a path that many of our customers will have between 15 to 20 licenses. Having said that, new customers are also very important for us, but it's also extremely important for us to cover the market in the right places.

And before that at 1000, plus now the focus is even.

Speaker 3: and before that it was 1000 plus now the focus is even

2002, 2000, and tools and above and then really to take them to 15 plus licenses. So overall, it's smoking, we just need to make sure.

Speaker 3: 2000 users, 2000 users and above and then really to take them to 15 plus licenses. So, you know, overall it's walking, we just need to make sure we are, you know, focusing on

Focusing on the right places and sometimes it's really important to decide what not to do but definitely you know it's still early innings for the cloud and as you know we have 365 and automation engine, it's always really takes a year.

Speaker 3: the right places, you know, and sometimes it's very important to decide what what what not to do.

Speaker 3: but definitely, you know, it's still early innings for DA Cloud. And as you know, with 365 automation engine, it always really takes a year that the stationary trends will form. But we believe that there is just a huge opportunity. We see tremendous opportunity with 365. We also see an explosion of...

The stationary trends will form but.

We believe that there is just huge.

Huge opportunity, we see tremendous opportunity with 365, well also see an explosion of the data on Prem and moving more away just realization of organizations.

Speaker 3: the data on-prem and more and more just realization of organizations.

All over the world.

Therefore, the cyber security and data protection in order to take digital assets and this is really the only shines so.

Speaker 3: all over the world that the efforts of cybersecurity and data protections are in order to protect digital assets and this is where the run is shines. So the short version of the answer is it's both, but we need to focus on the right size of cash.

At the show as well.

Answer.

It's both what we need to focus on the right types of customers.

Thank you.

Speaker 1: Thank you. Our next question comes from the line of Sterling Audi with JP Morgan. Please proceed with your question.

Our next question comes from the line of Sterling Auty with Jpmorgan. Please proceed with your question.

Yeah, Thanks, Hi, guys.

Speaker 6: Yeah, thanks, hi guys. Thanks again for the ARR guidance, I appreciate it.

Thanks, Ken for the <unk> guidance I appreciate it.

Just wondering.

Speaker 6: I'm just wondering if DA cloud turned out to be 15 million instead of five. So in other words, if you added 10 million more, how does that impact the ARR? Obviously you get 10 million from the DA cloud, but what I'm asking is, given the ARR treatment of traditional, on-prem subscription licenses, what's kind of that mechanism? So for every 10 million of DA cloud, what's the net impact ARR?

D a cloud turned out to be.

$15 million instead of five so in other words, if you added $10 million more.

The impact of ore, obviously, you get $10 million from the D. A cloud, but what I'm asking is.

Given the <unk> treatment of traditional you know on Prem subscription licenses whats kind of that mechanism. So for every $10 million of D. A cloud what's the net impact of era.

So sterling. Thanks for the question I think it's a great one and I want to give some color before I touch on on that specific question on the mechanics of <unk> revenue because I think it's important for the context, So obviously, where we're providing the IRR guidance for three main reasons. One is we want to.

Speaker 4: So, starting thanks to the question, I think it's a great one. And I want to give some color before I touch on that specific question, on the mechanics of ARR and revenue, because I think it's important for the content.

Speaker 4: So obviously we're providing the ARR guidance for three main reasons. One is we want to provide more transparency, and ARR is becoming the leading indicator of the business, and eventually will be even more important as we sell more of the cloud, especially with the radical revenue recognition that comes with that.

To provide more transparency and IRR is becoming the leading indicators of the business and eventually will be even more important as we sell more of the cloud, especially with the ratable revenue recognition.

Comes with that.

But when you look at 2020 in 2021.

Speaker 7: But when you look at 2020 and 2021, I think the mechanics of ARR and revenue are important. So in the last two years, revenue is higher than ARR because of that non-recurring component, mostly the professional service.

The mechanics of <unk> and revenue are important so in the last two years revenue was higher than <unk> because of that nonrecurring component, mostly the professional services. So in 2020 revenue was higher than <unk> by $5 5 million in 2021 revenue was higher than <unk>.

Speaker 7: So in 2020, revenue was higher than ARR by $5.5 million. In 2021, revenue was higher than ARR by $3 million. And again, it was mostly that professional service component, that non-recurring component.

By $3 million and again it was mostly that professional service component that nonrecurring component as we're looking ahead in 2022, the gap between revenue and RR isn't <unk>, sorry is narrowing because of that D. A cloud component.

Speaker 7: as we're looking ahead in 2022, the gap between revenue and NRR is an ARR, so it's narrowing because of that DA cloud component, and we're assuming that 5 million ARR contributions.

And we're assuming that $5 million a contribution approximately half of that recognize this revenue and that's really what's closing previous year's gaps and as we kind of look ahead. We expect in the years ahead as we sell more and more cloud licenses that <unk> will overtake revenue and <unk>.

Speaker 7: approximately half of that recognized this revenue and that's really what's closing previous year's gap

Speaker 7: And as we kind of look ahead, we expect in the years ahead, as we sell more and more DA cloud licenses, that ARR will overtake revenue and become the bigger number, the larger number in dollar terms. That's the way we're thinking about it, and that's the way we expect it to kind of perform.

The bigger number the larger number in dollar terms, that's the way, we're thinking about it and Thats the way, we expect it to kind of perform.

Now digging deeper into your specific question I think there's a bit of a confusion out there and I want to put things in perspective.

Speaker 7: Now, digging deeper into your specific question, I think there's a bit of confusion out there, and I wanna put things in respect.

Cloud, we're assuming $5 million of <unk> for the year.

Speaker 7: DA Cloud, we're assuming $5 million of ARR for the year. We're obviously, as the Accumention, we're pleased with the momentum of that, of the licenses that we have there in terms of offering, but it takes time.

We're obviously as Jackie mentioned, we're pleased with the momentum of that.

The licenses that we have there in terms of offering but it takes time that $5 million is roughly 1% of our full year expectation only 1%. So this isn't 2019, where we're transitioning the entire company from perpetual to subscription in five quarters.

Speaker 7: That $5 million is roughly 1% of our full year ARR expectation. Only 1%. So this isn't 2019, where we're transitioning the entire company from perpetual to subscription in five quarters. But we are responding to that feedback from investors looking for that leading indicator, and that's why we are guiding for ARR.

We are responding to that feedback from investors looking for that leading indicator and thats why we are guiding for <unk>, but.

We're not giving revenue guidance with the expectation that we're lowering it throughout the year. So.

Speaker 7: We're not giving revenue guidance with the expectation that we're lower throughout the year. So it's not the 2019 transition. This is very different.

Not the 2019 transition this is very different.

Thank you. Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Speaker 8: Thank you. Our next question comes from the line of Brent Phil with Jeffries. Please proceed with your question. Hey guys, you have Joe on for Brent. I appreciate the question. Guy, maybe for you, can you just parse out the different components of OP margin in 2022? Appreciate the 120 basis points of constant currency expansion. But shouldn't this be the year you finally see a massive uplift from 2019 renewals? And maybe just a little more color around the investments in the hiring side. Thanks.

Hey, guys you have Joe on for Brent I. Appreciate the question Guy maybe for you can you just parse out the different components of op margin in 2022 appreciate the 120 basis points of constant currency expansion, but shouldn't this be the year. You finally see a massive uplift from 2019 renewals and maybe just a little more color around the investments on the hiring side. Thanks.

So I think that's a great great question and when you look at kind of the expansion that we showed in 2021, we had 800 basis basis points of margin expansion and obviously.

Speaker 7: So I think that's a great question. And when you look at kind of the expansion that we showed in 2021, we had 800 basis points of margin expansion. And obviously that was part of the, and that was happening even while we were making meaningful investments.

That was part of the and that was happening.

Even while we were making meaningful investments. So I think the philosophy that we have put in place for many years now is continuing where we're focused on the long term opportunity, we want to capitalize on that and make the necessary investments and at the same time, bringing some of it to the bottom line. So when you look at Q4.

Speaker 7: So I think the philosophy that we have put in place for many years now is continuing. Where we're focused on the long-term opportunity, we want to capitalize on that and make the necessary investment.

Speaker 7: And at the same time, bring some of it to the bottom line. So when you look at Q4, almost the entire beat came down to the bottom line. And that 800 margin expansion from the beginning of the year, from last year's results.

Most of the entire beat came down to the bottom line and that 800 margin expansion from the beginning of the year from last year's result.

Was because we're very prudent with the way, we're making those investments but at the same time, we don't want to leave anything on the table. So that philosophy will continue in 2022, and obviously on a constant currency basis, we're showing.

Speaker 7: was because we're very prudent with the way we're making those investments, but at the same time, we don't wanna leave anything on the table. So that philosophy will continue in 2022, and obviously on a constant currency basis, we're showing operating margin improvement of about 120 basis points, which is in line with...

Operating margin.

Improvement of about 120 basis points, which is in line with our strategy.

Thank you. Our next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.

Great. Thanks for taking my question. This is one of the strongest quarters of net new <unk> growth that you guys have seen can you speak to sales cycles, right now and what you're seeing how they progressed throughout the year and maybe on top of that what types look like as we head into 'twenty two.

Speaker 9: Great, thanks for taking my question. This is one of the strongest quarters of net new ARR growth that you guys have seen. Can you speak to sales cycles right now and what you've seen how they've progressed throughout the year? And maybe on top of that, what pipes look like as we head into 22. Thanks. Hi, you know, sit.

Hi.

Set aside can relatively stay the same I think what is happening is that organization you know gradually.

Speaker 3: I think what is happening is that organization, you know, gradually understanding that most of the efforts that they have in cyber security and data protection are in order to protect digital assets.

Standing that most of the effort that the him in cyber security and data protection in order to protect digital assets and the digital assets today by and large concentrated in the platforms that we are protecting and also the infrastructure that is the closest to them.

Speaker 3: And the digital assets today, by and large, concentrated in the platforms that we are protecting and also the infrastructure that is the closest to them.

And what is happening we just there is just the schedule. There is this gradual process of realization that there is tremendous return on investment and efficiencies when you invest in our platform and then the overall expanding so I think what you see is just the.

Speaker 3: and what is happening, we just did this this gradual, this gradual process of realization.

Speaker 3: that there is tremendous return on investment inefficiencies when you invest in our platform and then they are overall expanding.

Speaker 3: So I think what you see is just a lot of demand in the market.

Just a lot of demand in the market.

And in architecture, the way that were up and after the pandemic and diesel stationary trends that you saw a lot of adoption of SaaS applications and data on Prem and in.

Speaker 3: And in architecture the way that what happened after the pandemic and these old stationary trains is that you saw a lot of adoption of

Speaker 3: applications and data on-prem and just a lot of endpoints that are acting as access points.

And just a lot of endpoints.

I think as access points and data that is concentrated in the center and this is just.

Speaker 3: and data that is concentrated in the center. And this is just, and what we are doing, just have a lot of need. And once customer buying, they just expanding.

What we are doing just to have a lot of need and once customers buying their just expanding so this is what we saw in the fourth quarter and we believe that over time, there will be stronger realization.

Speaker 3: So this is what we saw in the first quarter, and we believe that over time there will be a stronger realization that this is the best way to protect data.

The best way to protect data.

Thank you. Our next question comes from the line of Joel Fishbein with Truest. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Joel Fishbane with Trillist. Please proceed with your question.

Good evening and a great results I just have a question for you Guy regarding the number of licenses.

Speaker 10: Good evening and great results. I just have a question for you guys regarding the number of licenses sold. Would you consider giving us the number of customers that were taking 10 or more licenses considering you're moving upstream and it seems like you're having some really good success?

Licenses sold would you consider giving us the number of.

Customers that were taking 10 or more licenses considering you are moving upstream and it seems like youre, having some really good success.

So youre absolutely right, we are seeing a lot of success, which is.

Speaker 7: You're absolutely right. We are seeing a lot of success, which is kind of the numbers are showing everything that we're talking about, that more is more. I think we've been very transparent with kind of the metrics that we're providing. And I think we want to stick for now with the four or more licenses and the six or more licenses, because we don't want to generate too much confusion and generate too many metrics or too many numbers out there. But I think as you have seen us in the past.

Kind of.

The numbers are showing everything that we're talking about that more as more.

We've been very transparent with kind of the metrics that we're providing.

And I think we want to stick for now with the four or more licenses in the six or more licenses.

Because we don't want to generate too much confusion and generate too many metrics or too many numbers out there.

But I think as you have seen us in the past, we provide kind of the metrics when the right time comes and we're very very focused on on being transparent with investors and analysts.

Speaker 7: We provide kind of the metrics when the right time comes and we're very, very focused on being transparent with investors and analysts.

Thank you.

Our next question comes from the line of Fatima <unk> with Citi. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from a line of Fatima Boulani with City. Please proceed with your question.

Hey, good afternoon, and thank you for taking my questions I've got a question for you with respect to the our our guidance so.

Speaker 1: Hey, good afternoon. Thank you for taking my questions. Guy, the question's for you with respect to the ARR guidance. So you're looking at $100 million of implied net new ARR in calendar 22, which is relatively flat.

Youre looking at a $100 million of implied net U a R. R. In calendar 'twenty, two which is relatively flat.

Yeah, I guess, what you experienced in calendar 'twenty one.

Speaker 1: against what you experienced in calendar 21. So maybe, can you help us walk through some of the puts and takes?

Maybe can you help us walk through some of the puts and takes into that E are our guidance and maybe specifically what is embedded from a maintenance E. R. R. A decade standpoint are in that guidance, particularly in the context of I think what you said with a 90% plus renewal rate for maintenance so any.

Speaker 1: into that ARR guidance and maybe specifically what is embedded from a maintenance ARR decay standpoint in that guidance, particularly in the context of I think what you said was a 90% plus renewal rate for maintenance. So any color there would be really helpful. Thank you.

Color there would be really helpful. Thank you.

So I think that's a great question and really the philosophy about guidance Hasnt changed.

Speaker 7: I think that's a great question and really the philosophy about guidance hasn't changed.

Want to be responsible with the way we've guided in the past.

Speaker 7: We want to be responsible the way we've guided in the past and when you think about kind of the revenue and the AR mechanics And I walk through kind of that relationship Just a couple minutes ago. We are starting In terms of revenue at the highest point for full year our full year revenue number is the highest we've had in years

When you think about kind of the revenue and the <unk> mechanics, and I walked through kind of that relationship.

Just a couple of minutes ago, we are starting in.

In terms of revenue at the highest point for full year, our full year revenue number is the highest we've had in years.

Now when you think about kind of the E. R are the kpis.

Speaker 7: Now, when you think about kind of the AR, the KPIA AR, you know, maybe new in terms of providing the guidance, but kind of the person giving that guidance.

You know maybe new in terms of providing the guidance, but kind of a person giving that guidance is the same old one. So we just want to make sure that we're responsible in the way we guide and I think this is a good starting point for us.

Speaker 7: the same old one. So we just want to make sure that we're responsible in the way we guide and I think this is a good starting point.

Thank you. Our next question comes from the line of Roger Boyd with UBS. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Roger Boyd with UBS. Please proceed with your question.

Alright, thanks for very much for taking my question and congrats on the nice results.

Speaker 11: Hi, thanks very much for taking my question. That's a minute as a result. A question on the operating margin, guys, can you just talk about the impact on gross margin from GA cloud recognizing that's coming in at about 1% at ARR, but as you build at the cloud infrastructure, what sort of impact should we expect to see on the gross margin line in calendar 22?

Question on the operating margin guide can you just talk about the impact on gross margins from D. A cloud recognizing.

That's coming in at about 1% of IRR, but as you build up the cloud infrastructure, what sort of impact should we expect to see them on the gross margin line in calendar 'twenty two.

Definitely so as I mentioned before the expectation for incremental coming from da cloud is about $5 million and the revenue expectation is about about half of that.

Speaker 7: Definitely. So as I mentioned before, the expectation for ARR incremental coming from dA Cloud is about $5 million.

Speaker 7: and the revenue expectation is about half of that. Therefore, the margin impact shouldn't be significant in 2022.

Therefore, the margin impact shouldn't be significant in 2022, but as we continue to sell that and that becomes a larger part of the business will provide more color.

Speaker 7: But as we continue to sell that and that becomes a larger part of the business will provide

Speaker 7: more color, but as of 2022, that's not an impactful impact.

But as of 2022, that's not a that's not an impactful impact for us.

Thank you.

Our next question comes from the line of Alex Henderson with Needham <unk> Company. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Alex Henderson with Needham and Company. Please proceed with your question.

Thank you very much. So I was hoping you could talk a little bit about the D. A cloud in terms of.

Speaker 5: Thank you very much. So I was hoping you could talk a little bit about the DA Cloud in terms of whether that's just a single subscription. I mean, there's a lot of functionality in that, whether it's privilege, whether it's still identity-removable, shadow identity discovery. Is there more than one subscription in there, or is that just a single subscription? It's a lot, a lot packaged in it. It's just one.

Whether that's a syndicate subscriptions and then there's a lot of functionality in that whether it's privilege whether it's.

Still identity removable.

Shadow Shadow identity discovery.

More than one subscription in there or is that just a single subscription because it's a lot more packaged and if there's just one.

It's like there are several there are several licenses there and we also realized a lot of synergy with the with our.

Speaker 3: It's like there are several licenses there, and we also realize a lot of synergy with our classification engine and the way that we work with it. You know, we have bundles for the cloud, and usually customers are buying several licenses.

Oh classification engine in the way that we work with it you know we have bundled with cloud in the usually customers are buying a server licenses but.

It's still early so as we are progressing with it we are going to provide more color and more details of how to how it is moving forward. We are very encouraged for the first quarter. We believe that it's a huge opportunity, but it's still at the beginning.

Speaker 3: It's still early, so as we are progressing with it, we are going to provide more color and more details of how it is moving forward. We are very encouraged from the first quarter. We believe that it's a huge opportunity, but it's still the beginning.

Thank you. Our next question comes from the line of Hamzah photo Rolla with Morgan Stanley . Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Hamza Fodorawa with Morgan Stanley . Please proceed with your question.

Hey, guys. Thanks for taking my question and thanks, a lot for all the color around the <unk> guide.

Speaker 6: Hey guys, thanks for taking my question, and thanks a lot for all the color around the ARR guide. Maybe a question for either Yaki or Guy?

Maybe a question for either.

Your guy.

The SaaS are our guide how much of that is the 5 million that you've guided to based on pipeline that you're seeing today, perhaps from existing customers.

Speaker 6: The SAS ARR guide, how much of that is the 5 million that you've guided to based on pipeline that you're seeing today, perhaps from existing customers, versus pipeline that you're going to generate in 2022, is the ARR are 5 million more back-end loaded in 22 versus front-end. Thank you.

Versus pipeline that you're going to generate in 2022 is the error.

5 million more backend loaded.

And 'twenty two versus front it thank you.

Hi.

Usually we have.

Speaker 3: Hi, you know, usually we have a lot of experience how we introducing a new product to our customers and to the sales folks. You know, we have a good initial indicators and we feel comfortable with everything that we see. We feel comfortable with the $5 million of fair overall. You know, when we're looking in the next few years, not now, we see that our customers have

A lot of experience how we introducing.

New products to our customers into the Salesforce.

We have the.

Good day initial indicators and we feel comfortable with.

Everything that we see we feel comfortable with the with the $5 million. Overall you know when you are looking in the next for the next few years now we see that the customer would have a.

You know very strong SUS footprint.

Speaker 3: very strong, such a footprint. And a lot of these licenses can be relevant for customers. And we think that the success that we experience with all these 365, sweet and agile, we can experience with the cloud. But as I said before, it's just a big...

And a lot of these licenses can be relevant for our customers.

And are we.

We think that the this <unk>.

Excess that we experience with all the 365 suite and as you we can experience with the cloud, but as I said before it's just the beginning.

Thank you our next.

Speaker 1: Thank you. Our next question comes from the line of Nick Matiachi with Greg Alam. Please proceed with your question.

<unk> comes from the line of Nick <unk> with Craig Hallum. Please proceed with your question.

Hi, This is Nick on for Chad Bennett, Thanks for taking our questions. So gross margins looks really strong again in the quarter can you just help me.

To understand what is driving the gross margin improvements and should we think about this being a 90% gross margin business going forward or is there anything else to consider when thinking about gross margins this year.

Speaker 12: do we think about this being a 90% gross margin business going forward? Or is there anything else to consider when?

So I think obviously.

Speaker 7: So I think obviously 2021 was a very strong year for us and we ended it on a very, very positive note.

21 was a very strong year for us and we ended it on a very very positive note.

Gross margins were roughly the same.

Speaker 7: and gross margins were roughly the same.

Definitely a number we're very pleased with as you look at 2022.

Speaker 7: and definitely a number we're very pleased with.

Speaker 7: As you look at 2022, we don't expect a major change on the gross margin front, especially because of that ARR incremental addition of dA Cloud, as I mentioned before, being.

Don't expect a major change on the gross margin front, especially because of that.

Incremental addition of <unk> cloud as I mentioned before being.

That $5 million and only half of it being recognized so I think.

Speaker 7: around that $5 million and only half of it being recognized. So I think in our view for 2022, we expect those numbers to continue in the same range.

Kind of in our view for 2022, we expect those numbers to continue in the same range.

Thank you.

Speaker 1: Thank you. Our next question comes from the line of Jason Adder with William Blair. Please proceed with your question.

Your next question comes from the line of Jason Ader with William Blair. Please proceed with your question.

Yeah. Thank you Jackie.

Speaker 10: Yeah, thank you. Dr. Kind of a high level question for you. What are your top priorities as CEO for 2022 for the company?

Can you kind of a high level question for you.

What are your top priorities.

For 2022 for the company.

Yeah, My top priorities to add value to a customer when they you know in order to do that we need to create the right product hire and retain the right talent to make sure. The right people places and can make sure that companies focusing on the right opportunity.

Speaker 3: My top priority is to add value to our customers. And in order to do that, we need to create the right product, higher end.

Speaker 3: retain the right talent to make sure the right people are in the right places and to make sure that the company is focusing on the right opportunity.

But when I see I see tremendous opportunity tremendous opportunity in terms of coverage. So it'll be you know will be data repository ongoing tremendous opportunity we have.

Speaker 3: But when I see it, I see tremendous opportunity. I see tremendous opportunity in terms of coverage, so where the data repository are going, and tremendous opportunity with automation. And when I'm looking to the future, I see that there is just so much innovation ahead of us than behind us, and I see the challenges in the customer base, and I believe that with coverage and automation.

Commission and when I'm looking to the future I see there is just so much innovation.

And behind Us and they see the challenges in the customer base and I believe that with coverage and automation.

We can.

Speaker 3: we can build a very strong, important company that can serve as the foundation.

We'll be very strong important company that can serve.

The foundation.

For the trust that is needed to function in the D. C. In this digital universe.

Speaker 3: for the trust that is needed to function in this digital universe. And I think that organization's capacity to share and create information is far exceeding the capacity to protect it and just to manage this constant tension between productivity and security going to be the biggest problem for organization moving forward. And I believe that we can solve it and we can solve it.

And I think that organizations capacity to sharing creating formation is far exceeding the capacity to protect it and just to manage this constant tension between productivity and security is going to be the biggest problem for organizations moving forward and I believe that we can solve it and consolidate.

<unk>.

Okay.

Thank you.

Our next question comes from the line of Buckhead Calia with Barclays. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.

Okay, Great Hey, guys. Thanks for taking my question here.

Speaker 5: Okay, great. Hey guys, thanks for taking my question here. Yaki, maybe just as an extension to that last question, maybe more specifically, can you just talk about any changes to sales, comp or strategy in 2022? You know, you've talked a lot about, you know, still being early in customer module adoption. Is there anything that you've thought about maybe doing with your existing base in 2022 to help accelerate that? Just given all the value that they get with more licenses versus less?

Yes, maybe just as an extension to that last question, maybe more specifically can you just talk about any changes to sales comp or strategy in 2022, you've talked a lot about.

Still being early and in customer module adoption is there anything that you've thought about maybe doing with your existing base in 2022 to help accelerate that just given all the value that they get with more licenses versus less.

There is no in terms of comp in the and.

Speaker 3: Now there are no, in terms of comp and the stuff like that there is, you know.

Stuff like that there is you know.

No real changes the only change is that as it.

Speaker 3: No, we'll change it. The only change is that in as a company we are going to be more focused on customer that are 2000 users and above

Company, we are going to be more focused on customer with that of 2000 and tools and above.

Because we can just now we just see a path that customers will have 15, and then you know 20 licenses and really the whole model, that's more with more rigs working extremely well for us when customers one of the things that we see within organizations is that behaves scarcity of security talent.

Speaker 3: you know, because we can just now just see a path that customer will have 15 and then, you know, 20 licenses and really the whole model that more is more is working extremely well for us. When customers, one of the things that we see with, you know, organizations is that they have scarcity of security talent, you know, they have very few people that need to solve a lot of big problems. And with us, once you have more licenses,

A few people that need to solve a lot of big problems and with US once you have more licenses.

Just a bit of a levelling, but other mediation you are classifying on many repository and you're just a tremendous productivity gain in terms of automation and a solution that is much more complete so it's really to go 2010 above and to make sure that our customers have.

Speaker 3: You have just better learning, better mediation, you are classifying.

Speaker 3: on many repositories and you just have tremendous productivity gain in terms of automation and a solution that is much more complete. So it's really to go 2000 and above and to make sure that our customers

Nerf licenses to gain a lot of automation value and then they'll just buying more. This is this is how we see it we see the changes the changes is just a bit more about coverage, but it is gradual changes overall.

Speaker 3: enough licenses to gain a lot of automation value, and then they are just buying more. So this is how we see the changes. The changes are just a bit more about coverage, but it's gradual changes overall.

Same thing.

Thank you.

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

Speaker 1: Thank you. Our next question comes from the line of Shawl Eyal with Cowan. Please proceed with your question.

Thank you.

And guys congrats on the quarter and the outlook for 2022.

Speaker 13: Thank you. Good afternoon, guys. Congrats on the quarter and outlook for 2022. Guys, very, very quick and simple question. Have you met your hiring targets for 2021 and what's the headcount you plan on adding during the fiscal 2020?

Got it very very quick and simple question have you met your hiring targets for 2021, and what's the headcount plan on adding during the fiscal 'twenty two.

So sure when we look at our hiring plan for 2021, I think we hit all cylinders, there and we're able to increase our head count and especially in the sales and marketing department in the R&D, which was our plan kind of going into the year. So I think we've done a very good job of being able to.

Speaker 7: So Shaul, when we look at the hiring plan for 2021, I think we hit all cylinders there and we're able to increase our headcount, especially in the sales and marketing department and the R&D, which was our plan kind of going into the year. So I think we've done a very good job of being able to add people in the right places.

To add people in the right places.

And when you think about 2022.

Speaker 7: And when you think about 2022, obviously we don't guide on head count, but the expectation and the plan for us is to continue to hire.

Obviously, we don't guide on head count, but the expectation and the plan for US is to continue to hire.

Specially in those two departments R&D with the with the ROI that it says that it has generated for us over the years and in the sales Department.

Speaker 7: especially in those two departments, R&D with the ROI that it's generated for us over the years, and in the sales department, not just in quota carrying reps, but also in the supporting functions that help customers see value. So I think overall our strategy is working and we're able to hire people at the right

Not just in quota carrying reps, but also in the supporting functions that help customers see value. So I think overall our strategy is working.

And we're able to hire people at the right places.

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

Speaker 1: Thank you. Our next question comes from the line of Andrew Nowinski with Wells Fargo. Please proceed with your question.

Okay.

Alright, thank you.

I know you've talked in the past about how it.

Speaker 14: You know, you've talked in the past about how it's easier to get customers to go from six to ten licenses than it was to get them to go from two to five licenses.

Year to get customers to go from six to 10 licenses than it was to get them to go from two to five licenses.

And if you look at the percentage of customers that have now purchased six or more licenses. It looks like you know that increase has been pretty linear each quarter. So I'm wondering.

Speaker 14: And if you look at the percentage of customers that have now purchased fixed-some more licenses, it looks like that increase has been pretty linear each quarter. So I'm wondering, will we ever see any sort of step-function increase in that percentage of customers that are buying six or more licenses? And if not, where will we see evidence that it is in fact easier to get customers to double the number of licenses that are purchasing? Where would that show up?

Will we ever see any sort of step function increase in that percentage of customers that are buying.

Six or more licenses.

If not well where are we see evidence that it is in fact easier to get customers to double the number of licenses are purchased and where would that show up.

So I think obviously as we have a platform that has today over 35 licenses.

Speaker 7: So I think obviously, as we have a platform that has today over 35 license.

Our offering has increased and we're seeing from all the feedback and all the conversations that our ability to get to double digit licenses on average per customer has been significant.

Speaker 7: Our offering has increased, and we're seeing from all the feedback and all the conversations that our ability to get to double-digit licenses on average per customer has been significant.

Youre absolutely right. When you look at the six or more licenses that the increase there has been significant 20% two years ago, 30% last year, 41%.

Speaker 7: You're absolutely right when you look at the fixed or moral licenses, that the increase there has been significant. 20% two years ago, 30% last year, 41% at the end of this year.

At the end of this year.

But youre also right in the fact that.

Speaker 7: But you're also right in the fact that that number also shows the opportunity we have.

That number also shows the opportunity we have if you look at it in reverse order. It basically means that we have approximately 60% of our customers that have five licenses or less and that just talks about the opportunity that we have ahead and how much how much meat on the bone, we have within our existing customer base to continue to grow.

Speaker 7: If you look at it in reverse order, it basically means that we have approximately 60% of our customers that have five licenses or less. And that just talks about the opportunity that we have ahead and how much meat on the bone we have within our existing customer base to continue to grow. So obviously we'll provide more color in the quarters ahead and in the years ahead as we find fit and without causing confusion. But I think that overall.

So obviously, we will provide more color.

In the quarters ahead and in the years ahead, as we find fit in without causing confusion, but I think that overall.

All the indications that we have seen the path to double digit licenses on average per customer has never been clear.

Speaker 7: from all the indications that we have seen, the path to double-digit licenses on average per customer has never been clearer.

Thank you. Our next question comes from the line of <unk> with FBR Securities. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Chablis Arafi with FBN Securities. Please proceed with your question.

Thank you very much so I think you've guided for about 120 bps of operating margin improvement in 'twenty two on a constant currency basis.

Speaker 15: Yes, thank you very much. So I think you've guided for about 120 bips of operating margin improvement in 22 on a constant currency basis. I assume you're assuming the world is going to go more or you're going to move more to a post-COVID environment with higher travel and related expenses. So I want to see what that operating margin improvement on a constant currency basis would be when you normalize for increased travel in 22.

I assume youre, assuming the world is going to go more or youre going to move more to a post COVID-19 environment with higher travel and related expenses.

I wanted to see what that operating margin improvement on a constant currency basis would be when.

When you normalize for increased travel in 'twenty two.

I think that's a great question.

Speaker 7: I think that's a great question. And our assumption for travel is that it will pick up in 2022, gradually increasing quarter over quarter. But in total, it still will be below the pre-pandemic levels. But you're absolutely right that as we kind of guide and bake in the expense level related to travel, we're assuming a gradual return to a more normal way.

Our assumption for travel is that it will pick up in 2020 to gradually increasing quarter over quarter, but.

But in total it still will be below the pre pandemic levels, but youre absolutely right that as we kind of guide and bake in the expense level related to travel, we're assuming a gradual return to a more normal world.

Thank you.

Our next question comes from the line of <unk> <unk> with JMP Securities. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Varik Supedra with JMP Securities. Please proceed with your question. Yeah, that's

Yeah. Thanks for taking my question.

On the Opex.

Speaker 12: On the op-x, talk a little bit about how you see the increased spending between R&D and sales and marketing. Is this going to be driven more on the sales and marketing side? Then what opportunity is there to drive productivity on the sales and marketing side? Where are you from a productivity perspective versus your targets?

Talk a little bit about.

How you see the increased spending between R&D and sales and marketing is this going to be driven more on the sales and marketing side and then what opportunity is there to drive productivity on the on the sales and marketing side, where are you from a productivity perspective versus your targets.

So I'll start with your permission with the second part of the question I think when you look at our model. There is a lot of leverage coming out of the model.

Speaker 7: So I'll start with your permission with the second part of the question, I think when you look at our model, there's a lot of leverage coming out of the model. And you can see in the 2021 results that that 800 basis point.

And you can see in the 2021 results that that 800 basis points of margin improvement are coming.

Speaker 7: of margin improvement are coming over the year with significant investments, meaningful investments that we have had kind of throughout the year. When you look at kind of the sales and marketing department on a non-GAAP basis, you can see that.

Over the year with significant investments meaningful investments that we have had kind of throughout the year. When you look at kind of the sales and marketing department on a non-GAAP basis, you can see that.

A significant portion of that came from the sales and marketing department and that's mostly because of the renewals that are obviously cheaper and our expansion within our existing customer base.

Speaker 7: A significant portion of that came from the sales and marketing department, and that's mostly because of the renewals that are obviously cheaper and our expansion within our existing customer base that allows us to generate that leverage. But we want to make sure that we still make the necessary investments to capitalize on that longer-term opportunity. So I think as you look at our investments, they would be focused mostly on the R&D and the sales and marketing.

That allows us to generate that leverage, but we want to make sure that we still make the necessary investments to capitalize on that longer term opportunity. So I think.

As you look at our investments they would be focused mostly on the R&D and the sales and marketing front.

Thank you. Our next question comes from the line of Jonathan <unk> with Baird. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Jonathan Rugevere with Baird. Please proceed with your question.

Yeah, Thank you and good evening.

Speaker 16: Yeah, thank you, and good evening. Yaki, I was wondering if you could drill down just a bit more on this automation opportunity that you've been highlighting this evening. Maybe touch on where you see this automation from a product standpoint benefiting the company the most. Just from an innovation perspective, does this suggest that we could see more response and remediation type solutions across the platform over time?

Yeah I was wondering if you could drill down just a bit more on this automation opportunity that you've been highlighting this evening.

I'll touch on where you see the automation from a product standpoint benefitting the company. The most and then just from the innovation perspective. This.

Yes.

Could you see more response and remediation type solutions across the platform over time.

Yes.

You will see that our what we call our operational plan.

Speaker 3: Yes, overall, you will see that what we call our operational plan, that there is an opportunity to do a lot of, just to accelerate the automation of all the phases. The automation is automation and remediation, automation and classification, automation in time to resolution. So this is key for us. And we see that there is just a tremendous opportunity.

We did there is an opportunity to do a lot of it just to accelerate the automation of all the phases. The automation is automation and remediation automation in classification automation in time to resolution.

So this is the these dcs.

This is key for us and we see there's just tremendous opportunity there.

Thank you. Our next question comes from the line of Joshua tightened with Wolfe Research. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Joshua Titan with Wolf Research. Please proceed with your question.

Hey, guys. Thanks for taking my question.

Speaker 8: Hey guys, thanks for taking my question. I just want to actually follow up on Starling's questions from earlier from a different perspective. If you sell more DA cloud this year, is that going to detract your sales from selling your traditional licenses or should we think of it as purely incremental to the current term business?

I just wanted to actually follow up on Sterling's question from earlier from a different perspective.

If you sell more da cloud this year is that going to detract your sales from selling your traditional licenses or should we think of it as purely incremental to the current term business.

You can think about it primarily as incremental.

Speaker 3: You can think about it primarily as incremental. You know, obviously, you know, when you sell licenses to customers, there is, you know, sometimes a limit to how much they can buy, but overall, it's going to be incremental.

Obviously, when you know when you sell licenses to customers there is.

Sometimes a limit to how much they can buy but overall, it's going to be incremental.

Thank you Lee.

Speaker 1: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to James Orestio for closing remarks.

Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to James <unk> for closing remarks.

So thank you everyone for joining please don't hesitate to reach out in the coming days. If we can be helpful. And we look forward to speaking with you this quarter, thanks and have a good night.

Speaker 2: So thank you everyone for joining. Please don't hesitate to reach out in the coming days if we can be helpful and we look forward to speaking with you this quarter. Thanks and have a good night.

This concludes today's conference and you may disconnect your lines at this time.

Speaker 1: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

You for your participation and have a wonderful day.