Varonis Systems, Inc.

Greetings. Welcome to the Verona Systems, Inc. Second 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. I will now turn the conference over to your host, Jamie Orestia, VP of Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter 2021 financial results. With me on the call today are Yaki Fidelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that 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 31st, 2021. Due to a number of factors, actual results may differ materially from those set forth in such statements. These factors are set forth in the earnings press release that we issued today under the section captioned Forward-Looking Statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our second quarter 2021 earnings press release, which can be found at www.varonis.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. 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, Yaki Feidelson. Yaki?

Thanks, Jamie. Good afternoon, everyone. Thanks for joining us to discuss another strong quarter as we continue building on the momentum for Q1 and the end of 2020. With the backdrop of the current environment, I want to focus today on two topics. First, why data protection is such a hard problem for organizations to solve, but is only becoming harder with the digital transformation. And second, why our platform and technology offer a durable competitive advantage. I will then turn the call to Guy to discuss our Q2 results and guidance. Let's start with the threat landscape. Simply put, Companies of all sizes and industries are facing high-profile attacks on a daily basis. This is not surprising as organizations put sensitive data in more places and access it in more ways, making it harder to lock down data and detect threats. Hackers are taking advantage of this new environment, and with the rise of cryptocurrency, the theft of data has never been easier to monetize. Companies also face growing risks from rogue insiders and ransomware, giving that the average employee has access to 17 million files on their very first day of employment, most of which aren't relevant for them. As we have been saying for many years, security of the perimeter and endpoint is critical but insufficient. Perimeters are hard to define and even harder to monitor. Endpoints are interchangeable. In reality, most data is moving to centralized sanctioned repositories, and as cybersecurity risks surge, companies are thinking more strategically about data protection and are increasingly turning to Varonis to help protect data where it lives. Data protection is an immensely difficult problem to solve, and in conversations with our customers and prospects, we ask three simple questions. One, Do you know where your important data is stored? Two, do you know that only the right people have access to it? And three, do you know that they are using it correctly? To keep data safe, you have to be able to answer yes to all these questions, but most organizations that turn to us can't answer yes to any of them. Let me drill into this a bit more. First, identifying important data take sophistication, giving the complexities of data storage. Second, to understand accessibility, most companies don't realize just how many millions of folders, files, records, and groups need to be analyzed to discern permissions, and how many functional relationships there are between them. And lastly, in terms of data usage, every system is different. Many lack fidelity or granularity, In all our important contexts, without the significant enrichment that we offer, companies can't build a baseline of normal user behavior. Furthermore, when we show our customers that by integrating data importance, access and usage, they can finally understand and safely reduce risk in a holistic way that can't be achieved with only one of these dimensions, the uniqueness of our solution becomes clear. For data to be secure, we need to be able to answer yes to all three questions all the time. This is why our platform and underlying technology provide such a durable competitive advantage and why we believe we have a 15-year head start. Data has always been a primary focus and we start by building context around it where it's stored, what it contains, who can access it, and from where. 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 threat detection while automatically fixing the damage that a single compromised user or system can do, what we refer is reducing the blast radius to become a top priority. Our subscription offerings which aligns perfectly with customer demand for our platform, is why we say that more is more at Voronis. Customers buy a larger number of licenses upfront and under the perpetual model, realize greater automated value, and in turn, not only renew, but extend their deployments. Let me provide a few examples of some key customer wins from this quarter. One of the country's largest Fortune 500 insurance company and financial services provider became a Voronis customer in Q2. We were initially brought in after an internal audit uncovered the risk of fines for regulatory non-compliance. But a risk assessment also found 65% of the folder were open to all 40,000 employees and 40% of the sensitive data was exposed. proving that we could classify their sensitive data for multiple regulation and immediate open access issues in three weeks. They purchased 10 licenses, and we are already discussing additional data advantage licenses, as well as edge to further strengthen their deployment. At the same time, we remain under-penetrated with our existing customer base, and the team had another strong quarter closing substantial expansion opportunities. A great example of this is a North American healthcare company, which was concerned with the potential leakage of patients' data as they migrated to the cloud. While there has been long-time Voronis customers with a focus on protecting their on-prem data, in Q2, they purchased the entire Office 365 suite, edge and automation engine, doubling the number of licenses from eight to 16. Building trust doesn't happen overnight. And extension examples like this one reflect the confidence we have instilled in our customers after helping solve their most urgent data protection problems over the last 15 years. In summary, we founded Varonis because we recognize that enterprise capacity to create and share data far exceeded its capacity to protect it. This has never been truer than it is today. Because we have aimed to keep pace with the relentless growth and complexity of data, we believe that our platform is uniquely positioned to address the data protection challenges facing all companies, providing Varonis an enormous opportunity to capitalize on the market opportunity we see while deepening our competitive mode.