Gili Iohan – Chief Financial Officer Yaki Faitelson – Chief Executive Officer Staci Mortenson – Investor Relations.

Raimo Lenschow – Barclays John DiFucci – Jefferies Matt Hedberg – RBC Capital Markets Keith Weiss – Morgan Stanley Scott Zeller – Needham and Company Greg McDowell – JMP Securities Michael Kim – Imperial Capital.

Presentation:.

Good day and welcome to the Varonis Systems Incorporated Fourth Quarter 2014 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Staci Mortenson, Investor Relations. Please go ahead..

Thank you. Good afternoon. Thank you for joining us today to review Varonis’ fourth quarter and full year 2014 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Gili Iohan, Chief Financial Officer. After preliminary remarks, we will open up 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 first quarter and fiscal year ending December 31, 2015. Actual results may differ materially from those set forth in such statements.

Important factors such as risks associated with anticipated growth in our addressable market; competitive factors including increased sales cycle time, changes in the competitive environment, pricing changes and increased competition; the risk that we may not able to attract or retain employees including engineers and sales personnel; our ability to build and expand our direct sales efforts and reseller distribution channels; general economic and industry conditions including expenditure trends for data governance and data security software; new product introductions and Varonis’ ability to develop and deliver innovative products; risks associated with international operations; Varonis’ ability to provide high quality service and support offerings; and macroeconomic conditions could cause actual results to differ materially from those contained in forward-looking statements.

These factors are addressed 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 obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2014 earnings press release, which can be found at www.varonis.com in the Investor Relations section.

Also please note that a webcast of today’s call will be available on our website in the Investor Relations section. With that, I’d like to turn the call over to our Chief Executive Officer, Yaki Faitelson.

Yaki?.

Thanks Stacy and good afternoon everyone. 2014 was a strong year for Varonis. We completed our successful IPO and celebrated 10 years of operation, those meaningful milestones in our development as a company. I’d like to thank all of our customers and provision partners for helping us to achieve our success.

To quickly recap the results, Q4 revenues were $33.7 million, an increase of 31% year-over-year, for the full year revenues were $101.3 million, up 36%. Our results further validate a growing demand for organizations and by organizations to secure, manage and take advantage of the rapidly expanding human-generated data.

On one hand, we are seeing an increasing number of high profile which is those that are not only target financial information, but also sensitive data and intellectual property to meaningfully the star business.

On the other hand employees are straggling to find and access the same information, which is unacceptable that a tackles can more easily search out and extract intellectual property than trusted employees.

It is becoming increasingly clear that organizations cannot reverse or even slow this trend, one that threatens their ability to conduct business without having Varonis as a co-component of their infrastructure.

Gili will offer the financial details in a moment, but I wanted to provide you with additional business highlights that illustrate the success we are having in growing our business and building awareness of our product. Companies face the challenge of keeping critical business information secure without compromising the productivity of the employees.

And this is only getting more difficult as the explosion of business data and our dependence on it complicates organization need to protect it, while still make it useable and accessible.

We recently sponsored a study that was conducted by the Ponemon Institute; a leading research center dedicated to privacy, data protection and information security policy, a study included more than 2,000 employees in the U.S., UK, France and Germany across a variety of industries.

The study revealed that organizations lack control over employees’ access and the use of company data, and that organization would overlook security risks before they would sacrifice productivity. The truth is they are not improving productivity, but overlooking security risks, they are slowing it down.

With Varonis, the same control and practices that keep your data safe when used correctly also allow employees to utilize data more effectively. For example, 71% of employees say, they have access to data, they shouldn’t. Yet 43% of end-users take weeks, months or longer to be granted access to the data they need to do their job.

At the same time 73% of end-users believe the growth of company data is very significantly or significantly a factor in their ability to find and access data and 68% of end-users say it is difficult or very difficult to share appropriate data or files with business partners such as customers or vendors.

These findings represent a huge opportunity for Varonis and illustrates of what we have believed for many years that is no longer acceptable to be either productive or secure, organizations must be both. Our solutions not only dramatically reduce risk, but actually improve productivity and efficiency at the same time.

Our huge market opportunity reinforces our commitment to extending our product offerings and opening up more use cases. We are pleased with the early touch and we are all getting around our version 6 Metadata platform, which became generally available in the quarter as well as our DatAnswers product.

Enterprise search is a large opportunity and we believe our reports to attacking the problem positioned us well to capture market share. In addition, DatAnswers is expanding a risky sale into related areas such as e-discovery.

E-discovery functionality expands many of our products, but search is definitely one of the key categories of our solution easily answers critical questions for business, legal and IT users such as which file exists that contains a reference to a model, what data did the person have access to at a certain time, and have any of the files been active by whom and when.

When purchasing, we can easily activate this license key, leveraging the Metadata Framework already in place with our other product family. We are also excited to announce that the IDU Classification Framework for UNIX and Linux will be generally available by the end of Q1.

Many of our customers store important files on UNIX and Linux serves and UNIX-accessible NAS devices and as the need to be able to find and classify those that are sensitive, regulated or otherwise interesting. In addition to the new offering, our Version 6 Metadata platform will include enhancements to both DataAdvantage and DataPrivilege.

The entire DataAdvantage family will get more granted or statistical use and reports on employees, [indiscernible] to enhance security on key operations and business intelligence. DataPrivilege will get new automation to make secure collaboration easier.

With data classifications for UNIX and Linux, we have increased our license count to 12, providing an excellent opportunity for existing customers and border offerings for new ones.

We also announced future compatibility to our Metadata Framework with Microsoft Office 365 to well protect customers’ investment as they evolve their IT strategies to include cloud platforms, expected to be introduced later in the first half of the year as the cloud becomes more mainstream.

We are extending our commitment to protect and mange human generated data regardless of where it presides. These are first of many exciting updates and several new licenses we plan to announce this year.

We continue to see success of our ongoing efforts to increase our customer base adding 363 new customers in the fourth quarter and 950 in 2014, or 27% and 30% year-over-year growth respectively and ending the year with more than 3,300 customers.

During the fourth quarter, we saw a high volume low ASP business model plays out, which provides us with a steady source of business for mostly on existing customers throughout the quarter and meaningfully reduces our dependence on big deals.

We’d very good attach rate across our entire product line, which reinforces the expanding set of use cases to our product. It is important to remember that it takes approximately 18 months for our sales reps to be fully productive, therefore our 2014 results are primarily driven by our 2012 and 2013 investment.

We plan to invest in sales in 2015 with the addition of the new reps, managers, channel enablement programs to drive growth. We also plan to invest in ongoing product development to further fuel engine. However, in 2015, you should expect us to see incremental leverage in the module as we gain efficiencies in the business.

We continue to add and expand with great set of customers and let me spend a moment providing you with few examples.

Ohio National Financial Services with DataAdvantage for Windows, IDU Classification Framework, and DatAlert is a proactive and preventive approach to protecting its customer and corporate data with Varonis in place Ohio National has a comprehensive view into how its 1,200 users use data and automated detective control that alerts on unusual activity.

When the Boston Globe wanted to alert corporate risks and audit findings by identifying/locating corporate data that needed to be protected and ensuring rightful access.

They also wanted monitoring controls that would ensure ongoing compliance and to reduce overall storage costs by identifying and eliminating stale data, after revaluating Varonis the globe purchase DataAdvantage for Windows, DatAlert and IDU Classification Framework to meet these objectives.

And finally, I wanted to highlight Morpho purchase of DatAnswers. Morpho is a French multinational company, specialized in electronic security solution.

They came to Varonis because they wanted to make sure the users could get value from their data and enhance end user experience with search, as well as to ensure that only the right data was accessible to the right people and organize correctly.

With Varonis DatAnswers and DatAdvantage, end users access to relevant secure search result that is accessible to only those who should have access to it and all use is monitored.

If we look to 2015, we see meaningful growth drivers for the business and we will continue to make investment in support of our product, comparative differentiation, and go-to-market initiative.

As I’ve already touched on, you should expect us to continue enhance our overall product portfolio, thereby extending the value we provide to our customers in our market position. We also continue to make investment to grow sales organization, but also focusing on helping those we have added the last year ramp up in the reach productivity.

We are excited about the opportunity in front of us, and believe we are building a world-class organization with the people and technology to go in-scale. With that I will turn the call over to Gil..

Thank you, Yaki. Total revenues for the fourth quarter increased 31% to $33.7 million. Growth was very balanced, driven by new customer wins, the success we have seen with our land-and-expand strategy and consistently high maintenance renewal rates at over 90%.

The movement in foreign currencies from when it provided guidance in November negatively impacted our revenues by approximately $300,000 during the quarter. License revenues were $21.7 million. This represents a 29% increase from the fourth quarter of 2013.

Our maintenance and services revenues were $12 million increasing 36% compared to the fourth quarter of 2013. Looking at the business geographically, we saw broad-based growth. U.S.

revenues increased 26% to $17.9 million or 53% of total revenue, EMEA increased 37% to $12.7 million or 38% of total revenues and rest of world increased 41% to $3.1 million or 9% of total revenues.

For the fourth quarter existing customer license and first year maintenance revenue contribution was 36% versus 37% in the fourth quarter of 2013 and for the full year is at 36% versus 34% in 2013.

Our land-and-expand model is delivering results and we will continue making investments to broaden our relationship with existing customers as well as increase new customer additions.

As of December 31, 2014, 42% of customers had purchased more than one product family, up from 39% as of December 31, 2013, further validating our focus on innovation and expanding the use cases for our products. Our ASP for the full year 2014 was $58,000 compared to $61,000 in 2013.

This reflects the strength in our high volume low ASP model during the year and our ability to grow 2014 total revenues 36% without meaningful contribution from larger deals.

Before moving onto the profit and loss items, I would like to point out that I will be discussing non-GAAP results going forward unless otherwise stated, which for the fourth quarter of 2014 excludes the total of $1.8 million in stock-based compensation expense.

Please note that the detailed GAAP to non-GAAP reconciliation can be found in the tables of our press release, which is available on our website. Gross profit for the fourth quarter was $31 million representing a gross margin of 91.9%, compared to 92.4% gross margin in the fourth quarter of 2013.

This was in line with our expectations as we invested in infrastructure and personnel to support our increased revenues and high renewal rates. Sales and marketing expenses increased to $18.6 million or 55% of revenues for the fourth quarter of 2014, compared to $13 million or 51% of revenues in the fourth quarter of 2013.

The increase was primarily due to increased sales force headcount and go-to-market expenses driving our growth. R&D dollars in the fourth quarter was $7.1 million compared to $5.7 million last year.

This reflects our ongoing investments in innovation to enhance our existing product and launch new product to expand our value, total addressable market, and competitive position.

G&A expenses were $3.2 million or 9% of revenue compared with $2.9 million or 11% of revenue in the fourth quarter of 2013, primarily related to the global expansion of our business. Operating expenses totaled $28.9 million in the fourth quarter, compared to $21.5 million last year.

As a result, our operating income was $2.1 million for the fourth quarter, compared to an operating income of $2.2 million in the same period last year. During the quarter, we had financial expense of $806,000 primarily due to foreign exchange losses, compared to a gain of $116,000 due primarily to foreign exchange gains in the same period last year.

As you know, foreign exchange gains and losses can fluctuate. Our guidance does not consider any additional potential impact to financial and other income and expense associated with foreign exchange gains or losses as we do not estimate movements in foreign currency rates.

Our net income was $1.5 million for the fourth quarter of 2014 or $0.06 per diluted common share, compared to net income of $2.2 million or $0.10 per diluted common share for the fourth quarter of 2013. This is based on 27.2 million and 21.6 million diluted common shares outstanding for Q4 2014 and Q4 2013 respectively.

We ended the quarter with 840 employees, a 47% increase from 573 at the end of the fourth quarter of 2013 and in addition of 51 people from the prior quarter. This reflects the increased investments in our business to support additional innovation, new products, and expanded sales capacity in order to drive significant and sustainable growth.

I will now quickly recap this full year results. Total revenues were $101.3 million increased 36% over 2013. Non-GAAP operating loss was $12.6 million and non-GAAP loss per basic share was $0.60. If we look at the balance sheet, we ended the year with approximately $111.7 million in cash, cash equivalents, and short-term deposits.

During the full year 2014, we used $7.1 million in cash for operations. Moving to guidance. For the first quarter of 2015, we expect total revenues of $22.9 million to $23.4 million. We expect our non-GAAP operating loss to range between $10.2 million and $9.7 million and non-GAAP loss per basic common share of $0.42 to $0.40.

This assumes a tax provision of $100,000 to $300,000 and 24.7 million basic common shares outstanding. Our first quarter expenses include our annual sales kickoff, which is primarily to train our sales force in our exciting new offerings.

For the full-year 2015, we expect total revenues in the range of $129.7 million to $132.8 million representing year-over-year growth of approximately 28% to 31%. We expect our non-GAAP operating loss to be in the range of $13 million to $12 million and non-GAAP loss per basic common share of $0.56 to $0.52.

This assumes a tax provision of $650,000 to $850,000 and 24.7 million basic common shares outstanding. To summarize, we’re pleased with our fourth quarter and full year 2014 performance and we are very excited about the Company’s positioning for 2015 and beyond. With that, we would be happy to take questions you have.

Operator?.

[Operator Instructions] We will take our first question from Raimo Lenschow with Barclays..

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We will take our next question from John DiFucci with Jefferies..

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We will go next to Matt Hedberg with RBC Capital Markets..

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We’ll take our next question from [indiscernible]..

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We will go next to Keith Weiss with Morgan Stanley..

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We’ll take our next question from Scott Zeller with Needham & Company..

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Your line is now open. Thank you..

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[Operator Instructions] And we’ll go next to Greg McDowell with JMP Securities..

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We will take our next question from Michael Kim with Imperial Capital..

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There are no further questions at this time. I’d like to return the conference back to Yaki Faitelson for any additional or closing remarks..

Thank you. Before we end the call, I would like to thank all of our employees for their contribution to our success this year and all of our customers for their continuing support. Thank you for joining us today and look forward to speaking to you again soon. Thank you..

This does conclude today’s conference. Thank you for your participation..