Varonis Systems, Inc.
Q4 2019 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to Varonis Systems, Incβs. Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to your host, James Arestia, Director of Investor Relations. Thank you. You may begin.
- James Arestia:
- Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' fourth quarter and full-year 2019 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Guy Melamed, Chief Financial Officer and Chief Operating 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, 2020. 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; transition and sales from perpetual licenses to a subscription-based model; and increased competition; the risk that we may not be able to attract or retain employees, including sales personnel and engineers; general economic and industry conditions, including expenditure trends for data and cybersecurity solutions; risks associated with the closing of large transactions, including our ability to close large transactions consistently on a quarterly basis; our ability to build and expand our direct sales efforts and resell our distribution channels; new product introductions; and our ability to develop and deliver innovative products; risks associated with international operations; and our ability to provide high-quality service and support offerings 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 people 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 fourth quarter 2019 earnings press release, which can be found at www.varonis.com in the Investor Relations section. Also, 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.
- Yakov Faitelson:
- Thanks, Jamie, and good afternoon, everyone. I am thrilled to speak with you today as we review our 2019 performance and discuss our expectations for 2020. 2019 was truly a monumental year for Varonis for many reasons, none bigger than the pace of our transition to a subscription model. Going into the transition, we believe that customers who purchase five or more licenses will more likely to buy even more licenses because of the value they receive. What we didn't know was how eager existing customers would be to purchase additional licenses to subscription. We also didn't know how well our salesforce would take to the new model. A year later, it is an understatement to say that the transition has proceeded much faster than we expected. I will leave it to you to decide if this was the fastest transition in history, but in any case, I am extremely proud of the team's strong execution and what they have accomplished this year. We just had our 2020 sales kickoff, I'm always excited to spend time with our colleagues from around the world, see their enthusiasm and hear about the differentiated value we deliver to customers. The stories this year made it crystal clear that the power of our platform has never been stronger and the need for our platform has never been greater. Over the last year, we have truly transformed building the foundation for a durable and scalable subscription business. This achievement speaks to how eager customers are to adopt our platforms to subscription and the urgency to reduce risk detect and respond to threats and address privacy and regulatory compliance in both on-prem and cloud stores. Let's go over our results. For the first quarter, total revenues were $72.6 million, with 82% of license revenues from subscriptions, exceeding our guidance of 75%. For the full-year, total revenues were $254.2 million, with 65% of license revenues from subscriptions. We are very pleased to have achieved this 65% full-year subscription mix compared to our expectations of 10% at the beginning of the year. As we look at across regions, North America had a very strong year, as the teams immediately embraced our subscription transition and quick time to value it creates for customers. After a slow start in EMEA in 2019, the team has completely embraced the new subscription model and we feel good about the 2020 pipeline in that region. Before Guy discuss the financial results in great detail, I want to talk today about three strategic topics. First, the secular trends that continue to benefit Varonis; second, the opportunity we see to continue to provide substantial value to our customers; and finally, our evolution into subscription business, and how this will accelerate our flywheel and propel the business forward.
- Guy Melamed:
- Thanks, Yaki. Good afternoon, everyone. Fourth quarter results capped an outstanding year of subscription transition with 82% of license revenues coming from subscription, compared to our guidance of 75% and 62% year-over-year growth in ARR to $210.5 million. Throughout the year, you've heard me discuss the fourth quarter where we have the highest number of renewals as the final test in our subscription transition. Would existing customers adopt subscription on a large scale? The great news is that we passed with flying colors, with the highest contribution from existing customers this year at 57%. Not only did our existing customers renew the maintenance of their perpetual licenses, they added to their Varonis deployment with additional licenses under the subscription model, far exceeding our expectations heading into the quarter. While this dynamic generated a modest revenue headwind this quarter compared to the Q3 contribution from existing customers of 50%, it underscores that we are a subscription company and the opportunity that we see ahead. Now, let's turn to results. Total revenues for Q4 were $72.6 million, in the upper end of our guidance range despite the higher than guided subscription mix. Fourth quarter license revenues were $38.4 million, which included $31.6 million of subscription revenues. New subscription customers continued to buy on average between four and five licenses in the initial deal compared to purchasing between two and three licenses under the perpetual model. Lastly, maintenance and services revenues were $34.2 million. Maintenance renewal rates on perpetual licenses once again exceeded 90% in the fourth quarter. As mentioned, ARR was $210.5 million as of the end of Q4 and grew 62% compared to last year. This significant increase correlates with a much greater contribution we are seeing from subscription revenues, a more predictable and recurring revenue stream and reflects the underlying health of our business.
- Operator:
- Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
- Unidentified Analyst:
- Hey guys, thanks. This is Howard on for Brent. I have a question for, Guy. I was hoping that you could help me reconcile to potentially conflicting data points, so that 57% of license in first-year maintenance that attributable to existing customers. So that was a significant uptick as you pointed out. But at the same time, the number of new customer adds, the 229 this quarter, that's been declining about 20% over the last four quarters or so. So within the framework of land and expand, it might seem that more of the new business growth is coming from the expand portion. So is that a fair statement? And is that consistent with your internal plans?
- Guy Melamed:
- Let me try and break that into the two components of it. When we look at the new additions, the new customer adds, in the last couple of years, we've been focused not only on the number of new customers we bring in, but on the quality of those customers, and we've been focused on the customers with the lower user count, the ones that are over 1,000 employees, and that's been working very well for us. So when you think about the delta between the new customer adds that we've had in the last couple of quarters compared to the previous year, the delta really relates to the lowest user group, the companies with less than 500 employees and that's been very consistent with our strategy and that's been working very well. In terms of the existing customer β the license coming from existing customers, yes, as you point out, that was very healthy this quarter. We always said that Q4 was a test for us. We wanted to make sure that customers not only renew their maintenance of perpetual license, but add additional licenses with the subscription model and that worked very well for us in Q4. We passed that test with flying colors. So the 57% of license from existing customers did generate minor revenue headwind compared to the guidance, but really shows how strong the business is, and the reason we raised our 2020 subscription mix to be 90% plus.
- Unidentified Analyst:
- Thanks, Guy, and that's really helpful on the color on moving up market. And if I just may have a follow-up for, Yaki, a related question on β just on the renewal rates. So given β now that you've fully lapped transition to the subscription model, any insights that you have to changes to renewal rates for the legacy on-prem base that is now subscription, that'd be helpful? Thank you.
- Yakov Faitelson:
- At this point, we haven't seen any change. So for us, it's the same trend.
- Guy Melamed:
- Let me add some color there. When we look at the renewal rate for perpetual license, maintenance coming from perpetual license, that's been over 90% and we're very happy with that. We don't see any change there. In terms of the renewal coming from the subscription, from renewals there, we've seen in the past renewals is an opportunity to upsell to existing customers. We've actually seen that in the second part of 2018 is when we had the pilot and we saw that, that came as an opportunity for us to actually upsell to customers in the second part of 2019 as well. It's still a small sample, but we're very happy with that.
- Unidentified Analyst:
- Okay. Thank you, guys.
- Yakov Faitelson:
- Thank you.
- Guy Melamed:
- Thanks, Howard.
- Operator:
- Our next question comes from the line of Melissa Gorham Franchi with Morgan Stanley. Please proceed with your question.
- Melissa Franchi:
- Great. Thanks for taking my question. Maybe I'll start with Europe, and just trying to understand what's going on there. It looks like the declines accelerated this quarter, but it's hard to understand if it's the subscription transition or if it's something fundamentally. Yaki, can you just maybe talk about what you're seeing in Europe and how the salesforce has been adopting subscriptions in that region?
- Yakov Faitelson:
- Yes. As you know, we started the year with some friction in Europe and we need to make some leadership changes. And really took us close to five months to make sure that we have all our ducks in a row. And the top priority for the year was to move to be a subscription company. So we did really in one year, what takes to most company that managed to do the transition four to five years. And the Q4 mix in EMEA was better than the 82% mix for the company. So we believe that we are in a good place. We feel good about the pipeline and the team is well positioned to do well in 2020.
- Melissa Franchi:
- Okay. That's very helpful. And a follow-up for Guy. I know you're not guiding to ARR growth next year, but I'm wondering if you could just help us put maybe some parameters around what we should expect next year, particularly as we're getting into more difficult comps in the second half of the year. How to think about that relative to revenue growth? Thanks.
- Guy Melamed:
- Absolutely. So we talked about 2020 being the year of two halves. When you think about the first part of the year, we still have some revenue headwind because the subscription mix in the first part of 2020 will be higher than the subscription mix we had in the first part of 2019. So the revenue headwind will actually have kind of the reverse relationship in terms of ARR. We should see ARR grow at a higher number there. And then in the second part of the year, where it's much more apples-to-apples on a revenue basis, the ARR should be closer to the revenue growth and that's kind of the way to think about it throughout 2020.
- Melissa Franchi:
- Got it. Thank you very much.
- Guy Melamed:
- Thank you.
- Yakov Faitelson:
- Thanks.
- Operator:
- Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.
- Matthew Hedberg:
- Hey, guys. Thanks for taking my questions. Obviously the ARR growth was impressive well above where I think a lot of us were thinking this quarter. And I guess to follow-up on Melissa's question, thinking even a little bit longer term, so not just 2020, but longer term, now that we're through the, effectively the end of the transition and that mix is now 90% plus. Is there a way that we should think about a framework for sort of like sustainable ARR growth? Or maybe said differently, just underlying market growth? I think it's kind of helpful when we think about even longer term than just 2020.
- Yakov Faitelson:
- Yes. Hi, Matt. I think that the overall, the underlying market growth, what we're seeing empirically is that anybody with unstructured data and critical infrastructure needs Varonis. What is really changed significantly is our ability to go up market in a very predictable way and also that customers are buying much more. The overall customer lifetime value, when we engage with the customer in the right way, really increasing leaps and bounds. Just to understand, we are doing extremely well with everything that's related to the Cloud 365, we have six licenses there. We have Azure AD, and OneDrive Online and SharePoint Online and Exchange and the two DCs. So when we engage with customers, we can take so much more and add so much more value. For us when the transition will kick in, so when the flywheel will kick in, the higher mix subscription will start to kick in, in the later quarters of this year. We believe that we can do a β we can start to show overall very healthy growth. And we can β when we believe that we can maintain 20%-plus growth for a long time.
- Matthew Hedberg:
- Super, helpful. And then I know Yaki, you've talked about one of the byproducts of this transition has been reduced friction in sales processes. And considering how quickly you've moved through this transition, when you think about 2020, are there additional steps that you're taking from a go-to-market perspective to maybe even further reinforce the value proposition that you guys delivered there?
- Yakov Faitelson:
- No, we changed. We changed so many things. We have this β the way that we go-to-market, we have what we call the Value QBR, the way that we are mapping how we are taking the customers to value and we also see that all the products really working. We really sell everything in the platform. And the big change, Matt, was that customers are willing to spend a lot of time with us. We see more C-level people. Our dashboard is being used by, and the reports by business people. And what we want to make sure is that we will master this skill, that form being very opportunistic and starting small and growing, we need to start being and go bigger. We see that many customers are starting with six licenses and we just see a path with many, many, many customers and prospects to go to 12 and 15 and more licenses. There is just a clear path. And in one-year, I can tell you that it's a completely different business, completely different sales motion and completely different way that the customers are getting the value. We are just becoming so much more strategic with our customer base, and really was β how the platform is fitting to the overall market condition and our ability to spend more time with customers and then they are bringing the right people and we are able to show them in a very quantifiable way, how we are providing business value immediately and ongoing.
- Matthew Hedberg:
- Super, helpful. Thanks.
- Guy Melamed:
- Thanks, Matt.
- Operator:
- Our next question comes from the line of Alex Henderson with Needham. Please proceed with your question.
- Alex Henderson:
- Great. Thank you very much. Great job, guys. Really impressive. I was hoping you could talk a lot about deal process time and deal sizes and what the pipeline looks like? Clearly, selling a subscription is a little bit harder exercise than selling perpetual. You had a very tight pattern around perpetual. Has that lengthened the process time to get deals done? And obviously you're selling a lot more subscriptions. I would assume that's also in turn increasing deal sizes. Can you give us any sense of those two dynamics and what the pipeline of leads looks like? Thanks.
- Yakov Faitelson:
- Yes, thank you. So in terms of the sales cycles, they relatively stay the same. But in terms of our time to spend with customers, we spend more time with them, and they are willing to spend much more time with us, and we are able right off the bat just to sell them more licenses. And so this is really what we see the ability to sell more of the platform upfront and overall ongoing. And one of the things that we see now that most of our pipeline is subscription pipeline. Last year, we almost forcefully, really transitioning from perpetual to subscription, and Q4 was a huge test, Alex. Getting into Q4, that it's CapEx heavy, and to do this 82%, we saw part of the team. It was just an unbelievable achievement. And now that everybody knows, the customer knows, and all of our salespeople that this is done, we are a subscription business and all the pipeline and most of the quotes is a subscription pipeline, it's we are in a very good position just to sell the platform and in significantly frictionless way to get the subscription deal.
- Guy Melamed:
- And Alex, just to add on that, when we sold perpetual licenses, we usually had in the initial sale between two to three licenses. We saw under the subscription model that new customers by between four to five licenses. We saw that in the first three quarters of 2019, and that was consistent in the fourth quarter. So we're very happy. And the increase in number of licenses hasn't changed our sales cycle.
- Alex Henderson:
- Okay. One last question if I could, just a follow on there. To the extent that you're selling now a lot more license, getting a lot more automation upfront. I assume that the installation happens faster as well as a result of that and time to value happens faster. So is there also now that you've got a year's experience under your belt, some evidence to suggest that the time to the next upsell is also faster? Thank you.
- Yakov Faitelson:
- Thanks, Alex. In terms of actual installation, it's the same, but when they are buying more licenses, they get extremely fast automated value. And this works very well. And we still have, just initial indicators, so we can say that these are stationary trends, once we understand it more, we are going to communicate to you what exactly we see. But we just want to make sure that these trends are really solid before we are telling you that this is something that it's worth to pay attention to.
- Alex Henderson:
- Great. Thanks for the color.
- Yakov Faitelson:
- Thank you.
- Operator:
- Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.
- Saket Kalia:
- Hey, Yaki. Hey, Guy. How are you guys doing?
- Guy Melamed:
- Good, thank you.
- Saket Kalia:
- Yes, absolutely. Hey, Guy. Maybe first for you. Maybe thinking about the subscription transition from a slightly different angle from expense perspective actually, I believe there were strong sales incentives this year to really encourage that behavior around leading with subscription, clearly, was very successful program. I guess now that we're at the tail end of that transition, how does sales comp change, high levels of course but qualitatively to really maybe start to drive more leverage in the business?
- Guy Melamed:
- Let me try and break that question on the commission side, but also take the opportunity to talk a little bit about the expense as a whole for Q1 and 2020. And I'll start with the comp. When we looked at the comp, we had to make sure that the sales reps are incentivized to do the right thing. I think the comp plan was done very well in a sense that it rewarded the reps for doing things that were beneficial for the Company, and we're keeping most of that going forward. There is not any major changes going into 2020. The only small component is that we're dealing with OPS renewals, with subscription renewals, which were compensating the reps, but obviously at a lower percentage than bringing new business in. That kind of relates to the comp. In general, in terms of the expense side, because this is a year of two halves and we talked about that in the prepared remarks and in one of the previous questions and the expenses are relatively fixed and that really results in some short-term pressure on operating margins in the first half of the year, but that should be alleviated in the second part of the year, and we expect to show sequential margin improvement going through 2020.
- Saket Kalia:
- Got it. That's really helpful, Guy. Yaki, may be for my follow-up for you. I think we mentioned earlier that, in the maintenance business, the renewal rates there, I think, continue to be pretty strong at 90% plus. I guess, the higher level question is, how do you sort of envision maintenance customers over time? I mean, is there an opportunity to maybe more proactively convert them to subscription, or is that just maybe more of a natural evolution for them to opt in for subscription? Does that make sense?
- Yakov Faitelson:
- It makes sense, but for us, we are selling subscription and the maintenance subscription, it's a subscription business, and what we want to do and is just to make sure that everything else they are buying is going to be just subscription and what is very important for us is that the subscription model let us really unlock the potential of the platform. So what is important for us is to go to these customers that have two, three, four licenses and make sure that within two, three years, they will have 15 licenses. And we believe that with many of them, we have clear path of how to do it. So we have this tremendous base. With so much potential, we now have a clear path in terms of budgets and their ability to buy it. It's just to say, let's do everything, let's make sure that on your protected on-prem and in the cloud and have all the automation and really addressing the three use cases, everything that related to data protection and privacy and compliance and threat detection and response. And we just believe that we have a clear path and this is how we also to think about the transition in one year, we transitioned, then we also really hitting a very nice scale. And this is because the base is buying. And as Guy said, Q4 was the β we can make test because it's customers that are β but were usually buying perpetual and have these perpetual renewals. They are coming and just buying more and more with subscriptions. So after the fourth quarter, I can tell you that we really have clear visibility and a lot of evidence from the base that we can take this enormous asset that we have with the 7,000 customers and really make sure that they will use the platform and increase drastically to overall customer lifetime value.
- Saket Kalia:
- Very helpful. Thanks guys.
- Yakov Faitelson:
- Thank you.
- Operator:
- Our next question comes from the line of Gur Talpaz with Stifel. Please proceed with your question.
- Christopher Speros:
- Hi. This is actually Chris Speros on for Gur. And Yaki, to just piggyback on what you just were describing. The subscription model continues to yield four to five licenses upfront versus two to three for the perpetual model. With more than a full-year of subscription selling and a better understanding of the subscription renewal process, how should we think about the degree to which the subscription model can enhance potential customer LTV in the long-term?
- Yakov Faitelson:
- It's drastically. We just see now that all the products are working and customers are really trying to buy everything that we have for the three use cases. And it just makes sense for us to spend a lot of time with them and when they are buying more initially, it's much easier to upsell and just every sales campaign becoming so much more predictable.
- Christopher Speros:
- That makes a ton of sense there. And one more in regard to the competitive environment. Historically, Varonis wouldn't count a competitor, while performing a risk assessment and one out of every 30 or so assessments. Does this remains the case or has your persisting outsized growth resulted in a more crowded market?
- Yakov Faitelson:
- No, we don't see more competition. In terms of the competition landscape, it's the same.
- Guy Melamed:
- Thanks Chris.
- Operator:
- Our next question comes from the line of Chad Bennett with Craig-Hallum. Please proceed with your question.
- Chad Bennett:
- Great. Thanks for taking my questions. Nice job on a strong year end. By my math, the EMEA business from an execution standpoint did really well in the fourth quarter, so congrats on that. So I guess Guy, if we look at the guide for fiscal year 2020 in the implied growth rate on the subscription side, it's 90% plus of growth, and I think a lot of people are trying to ask us in different ways, but if we kind of look at whether it's net new growth in that 90% number or cross-sell, upsell in that number, kind of how would you think about what's going to drive subscription growth this year? And maybe you have targets on where you end in terms of two plus products and three plus products and so forth that you'd care to share. Thanks.
- Guy Melamed:
- Thanks for the question. I think the subscription transition really unleashed the platforms potential. So we saw both new customers buying more licenses as I discussed in the previous question, but we also saw our existing customers embracing this transition and buying licenses under the new model. So when we think about what's going to drive 2020 and the reason we kind of upped up that subscription mix to be 90% plus goes back to how well we felt Q4 was. Q4 as we talked in the prepared remarks was really a test to make sure that customers are buying and the existing customers not only renew the maintenance of perpetual, but they buy additional licenses under this new model. So when we think about 2020, we think that both new customers will continue to buy subscription. We think that we have a tremendous opportunity within our existing customer base for them to buy additional licenses under the subscription model. And also, like I said before, the renewal of subscription is an opportunity to upsell to those customers. So all of those components together give us kind of the confidence to the 90% plus number we guided for.
- Chad Bennett:
- And the renewal on the subscription customers that you're lapsing or annualizing. I mean, do we think that uplift is kind of a 20% CAGR annually. I'm thinking in terms of like a net expansion number. Maybe, it's too early to talk about that, but how should we think about that if you care to frame it in anyway? Thanks.
- Guy Melamed:
- So the right way to look at it is that looking at the NRR, but the NRR kind of the earliest to have meaningful data is at the end of this year. So we don't want to jump the gun and jump to conclusions. We feel that the numbers are healthy, but the right way to look at it is at the earliest at the end of this year.
- Chad Bennett:
- Okay. Thanks guys. Nice job.
- Guy Melamed:
- Thank you.
- Yakov Faitelson:
- Thanks, Chad.
- Operator:
- Our next question comes from the line of Rishi Jaluria with D. A. Davidson. Please proceed with your question.
- Hannah Rudoff:
- Hi guys. This is Hannah on for Rishi. Thank you for taking my questions today. I know you guys have mentioned spending more time with customers now under this new model. I was wondering if you could talk about if the role of resellers has changed all under the subscription model. So any color you could provide would be great.
- Yakov Faitelson:
- Hi. The role of resellers didn't change, but we feel that we became significantly more important to the partner community just because the annuities. They have this very nice deals that customers can renew every year. So it makes sense for them to support their customers and support the effort they can get from Varonis every year, much more. So overall, it didn't change, but definitely becoming much more important to the main partners.
- Hannah Rudoff:
- Okay. Great. And then, I know it might be a little early for this question, but is there anything you can mention about the growth trajectory of what a customer looks like beyond the adoption of initial purchase? And if you've noticed any trends more broadly among new customers?
- Yakov Faitelson:
- We can't mention it now like just a trend and what we can expect from every customer, but just we can tell you that all the products are selling, the cloud is doing extremely well everything that related to 365, and we can see that customers can exponentially grow the amount of licenses that they have.
- Hannah Rudoff:
- Okay, thank you.
- Guy Melamed:
- Thanks, Hannah.
- Operator:
- Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
- Daniel Ives:
- Yes, thanks. So when you guys getting this β when you get into a deal and you actually get an assessment, I mean what percent those deals from a high level you think you're winning?
- Guy Melamed:
- So we don't actually breakdown the numbers, but let me give you some color. When we are able to get into the room, the right people high enough within the organization and we can get the CISO in and we show the risk assessment, that's kind of the jaw dropping moment when a lot of the companies realize how vulnerable they are and how much sensitive data, sometime it's just sitting there. So, it really is a question of who we get in the room and when we have the right people in the room, the rates are really good.
- Daniel Ives:
- Great. Okay. Look, I asked the last quarter also again, Guy, when is the subscription ARR in the quickest time that most people have ever seen seminar, could you just let us know? Thanks.
- Guy Melamed:
- I told you we signed you up as the first participant.
- Daniel Ives:
- Okay, just let us know in 2Q. Thanks.
- Guy Melamed:
- Thanks, Dan.
- Yakov Faitelson:
- Thanks, Daniel.
- Operator:
- Our next question comes from the line of Shaul Eyal with Oppenheimer. Please proceed with your question.
- Shaul Eyal:
- Thank you. Hi, good afternoon, guys. Trying to build on some prior questions from an ARR perspective and I know it might have been a little late to the call. Is there any magic number from a subscription respective or subscription customer needed to sustain the strong ARR growth we have seen? I know, Yaki, you mentioned before six subscriptions because look at the shift to subscription has really accelerated modules adoption, but you guys have an additional, I think like 18 to 20 additional modules to upsell. So how should we be thinking about it within this framework?
- Yakov Faitelson:
- Hi, Shaul. We have close to 25 licenses, and we really believe that many of our customers can use a lot of them. So, I think that, with time, we'll see how it depends on working, but just initially, we saw that so many of them are getting more than 10 licenses. So we still can't have just a plug number in terms of licenses and ARR, but we understand very well how the value works and how the overall customer lifetime value works. So the main thing that we can tell you that the model is really unlock the ability of our customer base to consume the innovation and get much more value.
- Shaul Eyal:
- Understood. And as we think about the ongoing investments into 2020, I think also, Guy, in the context of two halves of the year, where is it exactly that you guys are putting money to work, and I think also from a geographic perspective, how should we be thinking about it?
- Guy Melamed:
- So the way we're thinking about the investments is really kind of across the Board. In terms of the sales department, we want to invest and hire sales people because it takes us up to 12 months to get a rep in the mature territories to be fully productive and we want to put that investment to work. Knowing that we have some short-term pressure because of the headwind of revenue, but it's still makes a lot of sense to make those investments right now on the sales front. We've also had tremendous ROI on investments we had on the R&D department and we want to continue to invest there. And on top of that, we're investing in customer success and professional services to support the subscription transition. So our philosophy hasn't changed. We want to continue to invest in a responsible way because we're focused not just on the growth side of things, but we're focused on profitability. And we've always had that in mind, and we're continuing, we are very committed to profitability. We just understand that there is some short-term kind of wins because short headwinds because of the revenue side, but we're trying to invest wisely on all fronts. In terms of the geographies, I'd say in terms of the investments mostly in North America because of the potential that we have there and kind of the second in line is EMEA.
- Shaul Eyal:
- Understood. Well done, guys.
- Guy Melamed:
- Thank you.
- Operator:
- Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. James Arestia for any closing remarks.
- James Arestia:
- So, thanks everyone for joining the call today. Just wanted to let everyone know that we will be at the JMP Technology Conference in San Francisco on February 24. That presentation will be webcast with the link on our Investor Relations website. And we look forward to speaking with everyone throughout the quarter. Please don't hesitate to reach out to me with any questions. Thanks, again.
- Operator:
- This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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