- Earnings call transcript Q3 2022

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Operator

Greetings. Welcome to Varonis Systems, Inc.

Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. I will now turn the conference over to Tim Perz, Investor Relations. you. Thank

begin. may You

Tim Perz

Executive Good After Varonis' you results. third call the Operating a Faitelson, on operator. Financial to Melamed, today and call remarks, Officer With joining we to the Chief Chief Yaki are review quarter of today session. and afternoon. you, Guy for Chief Varonis. Thank Officer us me Officer; preliminary Thank question-and-answer XXXX open financial will

as forward-looking and Exchange Commission. section in to with reflect and Securities the our described statements that These forth other the filings. our encourage reports and we for call, related year make federal would forth all fully projections be issued SEC including are factors caption read number may forward-looking We December investors results more and today materially our press under full results statements risk filed important actual the in statements, as should business this XXXX. any During Due date. These set earnings year we of XX, our to these of statements herein. representing differ as relied considered revisions ending ending factors any statements through are such of well or any to or views under only quarter our forward-looking publicly made operating laws, of not undertaking Varonis securities be the as today application and December our future in release views statements. set factors, as disclaims upon XXXX, to a that may full those subsequent XX, from expressly any fourth updates

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

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

Yaki Faitelson

afternoon, milestone walk Tim, today. about challenges I important an through good and vision we and and want the the and of Thanks, company, opportunities everyone. trends evolution marks and to long-term talk you our our Today short- in see

our the reviewing $X.X quarter Let's pound, third results below outcome. exiting start ARR and was our softer the to adjusting caused our when effect still expected. the by the expectation. this deal FX organic XX% XX% million last scrutiny million reviewed weakening our led a year-over-year our we some anticipated grew to economic The or energy our Ukraine, in the year-over-year and and results. headwind reported crisis Even economic of war for primary the by the EMEA euro additional were Russia and for general We the results of of to of were adjusting reason than quarter, impact business. slowdown $XXX.X but when with impactful segment continued uncertainty than the more

impact an U.S. million The where against expectation. approximately of our to our had factor close was our million business rates $X second Federal $X

reported the contributors incremental In updated long-term guidance year-over-year, challenges commercial be performance than the full that to Because Russia. our despite view of in our to that year our X%, QX, these the expected in revenue grew XX% this specifically we and condition in business year-over-year Russia. by down and impact that unfavorable you million headwinds should However, that well factors XX% Guy to revenue XX% strong vertical. expectations North was will effects and EMEA, persist a no business. was also This see full due federal assumes but through results headwind are in guidance in our adjusting These economic more U.S. revenue our somewhat offset also for adjusting to grew revenue In will in our adjusted EMEA XX% factors change the both EMEA business, walk QX our FX for changes and moderately Total America, in year after grew $XXX.X strong deteriorate and federal and ARR those will our in we affect as we begins continues this an faced results business. in details. quarter the to guidance the pound. or euro

As headcount reduction a initiatives. line are includes across guidance, to we expenses steps the reduction thoughtful manage a result, business, top addition updated in in our X% to which of taking and cost prudent other

have said to plan at investment believe environment, of in greater seek the we to is the the tie to we achieve. revenues a that macro always we approach uncertainty We our this given this short-term prudent time. And level

on-prem organizations against we dangerous, data take the explosive step have actors harm of of for sensitive or priority that like automation and a organization – any before our discuss radius and Since can also Varonis These Now behavior date, made automatically access help platform, to environment heavily to results back while threat from We our security to more makes problems, done. solve those provide we importantly, comprehensive of stopping all unusual sources, data alerting challenging data does protection increasing With to the securing pattern. and at our open address a create and regulation. damage the challenges, generate data sophistication blast data growth also biggest ever. the to have risk. penalties cause in yet is attacks the continue over challenges so visibility I the provide hard, the because to their go into to compromised data the and making has for the founded attack which a protect than would bad protection we not invested going to machine more where who our critical across critical these government data – can vision. We user a and stores expanded but growing cloud world, organizations for and innovation single it founding, strategic of kind What on is or near-term and trends it's shrink more opportunity Varonis.

led innovate technological All ultimately business within innovation us model our of to our as well.

As the if licenses customers via we grew platform, subscription. upfront that delivered lower realized could additional cost utilize them our we a at we

based, demand complete able transition because the this Varonis lifetime X-X customer. the model. term the as success transition with value the our XXXX, customers to easier. perpetual next licensing total as model flagship our a Today’s SaaS and subscription buying So the we introduction just reduced of subscription the to Security Platform the increased increased This quarters term upfront from in in as stage our of evolution in our consume perpetual-to on the our is had Data a significantly cost of we platform the our announced license company offering a builds of to We were made transition. and on-premises process

invested offered in they existing our measured flagship to While it, want subscription of the many of our our OPS additional review more significant alongside by roadmap make transition benefits primarily we time-being will delivery years over will as relentlessly Platform, more I offering we Cloud the either model been some DA of last our which in flagship million another features our Security offering To are we success deployment. continue SaaS this as we as worked that has we record which Security to transition SaaS flexibility engineering be on-premise or Data take platform. because the licenses. sell part was through a a consume a transform expect be of success. for to This performed clear, seen to subscription like for companies a in would delivered $XXX how part solely SaaS, our the on-prem the our to detail Data defined a SaaS offering. expect approach into SaaS to Platform products, by years has a in term-based, group realize the two Throughout have and we plus pace

able upfront our costs; deploy lower First, requirements selling of quickly fully and trained a should expect Second, easily we faster and risk ultimately motion, of us be new phase sales-cycles; reduced motion, significantly and contract be ramp-up to core will maintain this deploy, renewals. have the initial and in to assessments, more expected gets shortening infrastructure our the should the time-to-value, will be which solutions customers that customers sales the on with realizing beneficial is salesforce to are to which help once of effect our quicker past

threats model get threat greater prepared and we regulations; allow our customers evolving will also the value products; classification Third, the from additional our which expect this customers Varonis ability into Fourth, will And them finally, customers features deliver benefit continual will stay have as us from help and spot behaviors and will SaaS usage, renewal model help to to more to that quickly, updates more functionality more that threats efficiently. rates inform and new the will innovation; product better visibility will for and

to these introduction the will together, meaningful in and launch our helping march us shareholders and help to with Taken we data delivered expect we goal ARR milestone Platform an Guy. today’s Varonis of In our Security improves. continue significant most flagship flexibility. me $X growth continue customers, urgent let as that, important call believe as SaaS macroeconomic value to our beyond. for billion protection customers We in drive create enhancements and in over their the Guy? them closing, solve achieve With long-term driving the turn ultimately significant turn, Data for our that additional founded situation we value them for needs marks towards

Guy Melamed

to are how like revenue review and to to additional like on think framework our on the Russia. it. of SaaS Thanks, third adjusting our $XXX.X the Yaki. year-over-year provide ways impacts to a start quarter everyone. to million, responding operating and the it XX% or about XX% by In total afternoon, we with new call with results. current for thoughts also environment, third you I’d Good you today’s quarter, our I’d a how providing and grew FX offering business

this meet our range, reported guided not our was within While revenue expectations. our did

was currency headwinds and the a As our in reflecting business additional X%, worsening EMEA continued Yaki climate. economic mentioned, down reported of revenue

impact In products. That The revenue that slowdown and Russia, because our does America, quarter. significant XX%, business Euro well demand our but mid-single-digit EMEA our of not as economic business, weakening for $X.X impact discussing. impact XX% despite results currently foreign reported to translation currencies. reported our that to the in third of Let short-term results commercial currency is headwinds demand region a a grew The of growth quarter sell as for our impact of in federal year-over-year. the Adjusting strongest revenue the the foreign we results separate two North me drove the products of our the for said, does does for minute impact of ARR. third the below the expectations. were which Pound the team represents in fluctuations was federal currency a local headwind million I’m in from percentage you, our To one the remind total seasonally take

remain made reflect returns Unfortunately, that we years, we generated a significant not and number can that reality. the have of investments Although we those goal expect. this, that make our yet the current in over results the considerably business grow to have past don’t couple this investments confident

spillover there seen that some year As into adjusting weakness challenges, expectations result we our our these a American are will operations, likely EMEA the North we’ve guidance. be of full our near-term in from and economic

numbers. Let of me review moment to impact of help factors these to take better the you the understand each a

and currency, such, given as business weakening earnings and Pound Dollar, Euro in the this impacts of local is renewals the that against accelerated we both our This and our ARR trend significant First, relevant revenue. since price the last the call. new and

For $X.X guidance the headwind impacts ARR approximately this year, by our full previous million.

conditions of in deterioration worsening Europe and expectations. slowing conditions of the reducing the continued revenue macro in environment, year full North to economic of America. due the assumes our and ARR This Second, business we are

not of softness American for global metrics wider we North seen range While business, last prudent backdrop, we given plan commercial track quarter. it to is prevailing we foresaw for macroeconomic believe in than outcomes have we the the a

$XX which reduce macro XXXX, of million, Taken we ARR the ARR would together, by attributed million close deals in environment $XX the in recognized $X and that to guidance, as have of and revenue our the FX previously the our guidance guidance primarily is until included which the in and revenue component of well related maintenance can currency and be from headwinds the previous XXXX. headwinds to XXXX the reduction impact between total were timing revenue been The additional to reduction not difference our guidance expected ARR but respectively. million our as as in

As reduction ARR The a into balance deferred as in reminder, and is closed. associated the The that mentioned revalued in FX million at of rates subsequent U.S. used guidance. dollars duration initiatives updated Yaki currencies the each of foreign are in sold revenue and not with $X as deal quarters to headcount saving date deal cost ARR are should and revenue booked translate a fourth quarter, the reflected the during during approximately savings of contract. other result our

growth, leverage generation. given felt the our not to outlook make, While it philosophy to balance operating do strategic top-line an updated easy decision our cash we and thing was this flow and was right to

about in next to as talk is to right take a of that toward today SaaS benefits. step a strategic compelling goal us and service. our the Platform heard flagship offering Data our $X you’ve years, operational financial ARR to many has target by and the billion Security get time For number

and it renewal service rates. which as to customer customers our protect we in will opportunity. us will will our how into market use SaaS improved Varonis cycles also We interact will only to It time better us our expect to us benefit know broadens to platform. better business and that provide our and will better want our our visibility shorten It with improve time-to-value, sales us underpenetrated address over allow and into with our enable consume and market visibility SaaS, also customers First, a allow turn us provide customers who the opportunity. with predictability

understand of subscription materially may this to delivery licenses. quarterly upfront, now is term-based, if a platform value approximately sold SaaS deal to we in revenues period, whereas existing on a through same different as and the basis, is key In our point the a transition that deals SaaS SaaS choose recognize of on through revenue on-premise XX% customers recognition consume subscription because New on-prem or or on-prem the deal, subscription deal’s At let is It’s roll-out, are to fully for our outset. and ratable however, the visibility progressing. to each stage that pace by improve we transition best which difficult we ARR. to choose this adopt expect exactly same you will is the to over way is it do customers predict our note measured will the important from early the our deal SaaS, our very but time to know in how

our we to do with transition some base this As four Yaki expect mentioned, to take years. of time, six assumption current

progress with targets. time metrics and our our the forward-looking flow, this business to reminder, As the has This This achieving towards components. exercise, ARR, a expect free term-based a health subscription of the an our transition key to of a a to take approach around. licensing perpetual on-prem, was on will measured be financial means that why model we along transition primarily to SaaS discuss operational metric is focus while model our more we cash our additional from

new, one, to are similar we throughout gauge this transition which to revenue, to to from progress. both have we of SaaS the be expect will health transparency towards possible ratable our you our new less past. business provide experience, term as new predict be will that providing various the the understand are revenue as will where in approximately framework scenarios several you of recognized committed and making deal’s period, exacerbated to progress the as existing Until under somewhat much a for a on our this than And our have in with is customers. as goals model. both by of our measured, help and previous indicative value both XX% operating customers to will difficult SaaS rollout they pace of for with way our model metrics of to During and income profits the optional some well This reported our our it play business transition to been this licenses we upfront the the and a KPIs quarters ratable transition and of out which fully revenue is make shift

reminder, flow throughout our to journey. follow a and be ARR As metrics will cleanest the cash

year expect to new to color framework includes: We general levels in previous the to but of full think XXXX, and for years. million more with seasonality KPIs deliver $XX next to the year cash million flow early XXXX about for $XX similar Free

initial reminder, largest QX the the and XX% to XX% a second lowest of the revenue European free sales of throughout also and phase the the of full to from year. for generate SaaS QX assumes which an the the conditions for in of year, slowing new followed the further of provide business in moderate assumption mix the America half amount being This first in XXXX. year, plan our quarter. As SaaS half growth team North economy, licenses cash our a in of in we sales by of of half improvement ramp-up assumes deterioration next the the first ARR flow year with We a full X% year. mix

detail. adjusting was FX third ARR for Now headwinds, and to turn ARR in Russia million. to After the our grew XX% results let’s quarter $XXX.X XX%. more year-over-year growth

were XX% again As which revenues subscription adjusting or XX% FX over $XX.X and of with million, XX%. rates and I Maintenance This mentioned XX% year-over-year. earlier, revenues grew million, total $XX.X revenues grew renewal after Russia. includes for Services

total or World X% to of million, XX% or grew grew geographically, $X.X to revenues. declined quarter, million, revenues. business total revenues. Last, of million, revenues X% revenues of EMEA $XX to XX% total at strong Looking revenues North XX% of the another $XX.X XX% as Rest America or had

four our customers XXXX, more ago licenses, more purchased XX% and year ago the up more or XX% six years or time, customers ago. and two a XXX year of or XX% As from licenses, At up from years those of same XX% with employees September XX% a purchased two of XXth, ago. XX%

discussion new existing the and continue helping customers. Our be both bundles to are and simplify well-received by pricing

of Turning of for million. gross back expenses to profit $XXX.X representing the to in discussing non-GAAP totaled XX.X% third the was income forward. I’ll the million, compared going quarter quarter Gross margin Operating the a third statement, XXXX. $XX.X be in results quarter third XX.X%,

$X.X million million, operating period of operating basis of of the of As the for year. was margin related to compares an operating points. or XXX expansion a XXX was headwinds result, $X.X X.X% margin operating in points third quarter or basis an X.X%. income to accounting income After hedging last This program, Shekel same our the

diluted During per financial offset income approximately expense due notes. by or of the which our million, This and we $X.XX the respectively. income on the to was million for per diluted partially income, income compared a Net quarter for XXXX, of XXXX share income $X.XX $X.X share, and of income shares is QX net XXX.X million outstanding diluted on million, of quarter based primarily XXXX convertible XXX.X $X.X third interest quarter, QX had $X.X to million third for interest or was of of XXXX.

we in September of cash, short-term XXXX, marketable and securities. cash equivalents, million had XXth, deposits As $XXX approximately

quarter. operations, to fourth a net $X.X of have increase through expense September quarter $X.X million for we Shekel, Israeli XXXX. review me full ended first We million to X,XXX our months the year employees XX, we the take you the mitigated ended of which second with our nine I New employees, in full, our partially guidance XX but period exposure to and third the generated remind moment an year. a new the program quarter In moment last For same will hedging let compared cash generated in from of XXXX, from

full the this XXX basis year to headwind respectively. be quarter For XXXX fourth of basis XXXX, is expected XX and and points, points

expect range million XX% operating of Non-GAAP approximately share diluted to growth diluted and million; $XXX guidance $XXX growth to $XX to total Turning Russia; for or net per at income FX million of we million, million in non-GAAP $X.XX. XX% the of of $XX XX%, our fourth This XXXX, shares of the midpoint, XXX.X income quarter to representing the adjusting $X.XX outstanding. assumes and for to revenues

midpoint, the to growth expect ARR we For $XXX the adjusting midpoint, $XXX million; XX% approximately representing $X.XX. XX%; $XXX growth million million, XX% of or This million, income of million to diluted or growth XX% revenues at and full net million $XXX year $XX.X operating year-over-year for the share and adjusting for approximately Russia; FX XX% non-GAAP at assumes FX of outstanding. non-GAAP of per XXX.X representing range to Russia; shares diluted XX%, of growth income of to now in $XX.X to the total and to $X.XX XXXX, million

has million for as the authorized announced our repurchase time. Board today, we share Lastly, a $XXX first program

beginning announcement make to that million because $XXX be has an and We of flow are our year. this expectation in cash strong cash sheet nearly next free able balance positive to

use main we ability and capital we in is in different. of summary, but In challenges today Our shied the over never long-term, will be to want the continue maximize no today from value. our shareholder investing away order have to to business act

capture significant will us create success for continue will for and to be manage continue thoughtfully allow to but to we a all uncertainty not in value the joining ultimately our our model, transition that, we to with our as which business Thanks navigate SaaS would Operator? for us questions. to long-term take opportunity and near-term Varonis’ growth our durable happy today, also stakeholders. of position only us to We

Operator

question Instructions] Markets. with [Operator Our RBC first Matt Hedberg from is Capital

Matt Hedberg

question. taking Hey, guys. Thanks my for

excuse sort business North that the of European America here played used little for So And run a XQ. And has balance a maybe Europe, And progressively the forecast sort quarter worse? get on did color. October? continued it of you've little the was you're to more how Europe but Europe? discounting of curious, you're for through some of I on It out, the or guess to deteriorate concern But additional like embedding sort I'm bit North business more maybe the it macro me, is America. rate sounds the side, mostly as that color I bit guess,

Guy Melamed

there a there. components Matt, lot a -- Hi, couple of are

uncertainty try of you quarter, talked I'll last know, weeks a our there. on in quarter. In two give were go about that was scrutiny we portion things in when the of talked the that QX, significant Europe we really and So And about additional as as some deal there the business color. three expected. is Last going didn't

deteriorated EMEA expected longer than First, faster worse we and with cycles sales closing.

The that third, U.S. happened dollar they strengthened didn't expected. second thing our came is even we close below really million And about in but further. federal expectations. the good $X million pipeline, $X to had as They

changed EMEA U.S. and for expect cycles at we We business federal, approach, we lower may close worsen Europe to a view as our and haven't as the want long-term guidance, prudent to that and economic QX take and sales we rates in but longer our well. conditions impact look

Operator

question next Joseph Gallo is from Our with Jefferies.

Joseph Gallo

then for maybe update since Cloud. quantitative include the focusing how rather Really is data of million? on-prem cloud? Hey, separately, we $X Are location, nine the been but ignoring And gotten the data months provide the on protect, the much guys. DA today on if protecting any Office we track XXX, appreciate you can on a versus your in question. you It's we've color the business there. deployment still model, Guy,

Yaki Faitelson

far changed. see works according it's Cloud, Yaki. Everything so to opportunity. this DatAdvantage We massive Nothing regarding plan. So

see just about anywhere. invest is data going is on-prem the the hub like repositor, heavily this get tremendous think and identity not we salesforce.com, opportunity You product, user in we repositors Okta,

engineering faster lot there. was last architecture the going form it's to and Most there is ability This tremendous for the announced It's of investments we it's of game the tremendous automation a is automation, technological relentlessly lion's all very give changer and the just golden. to is is on-prem a the company first Varonis metadata the a score installation, version deliver primarily, the data Actually, ransomwares. that target platform. SaaS our platform us tremendous the a two there, of network in is years. the we the milestone. of And the a long a automation every And thousands in our of a were the the diverse changing model. big this that have of of except It's of with remediation, milestone feature to for was and it's So product risk just ability the efforts Varonis attack of score biggest analyze just lot in that And about effect. gives engineering share build Varonis, just request modern But completely. customers term.

Guy Melamed

to the DataAdvantage Cloud, add hasn't is ARR. $X year still Just for changed. million for the That expectation

Operator

Our next Fatima question Boolani with Citigroup. from is

Fatima Boolani

or questions. Thanking my good Hey, taking maybe Actually, Either Guy. for afternoon. Guy for for Yaki.

generally reasons between Thank mentioned between manage are to Just be and the it's then measured, with about us customers respect how the I engagements know why but you and SaaS going give some confusion you a that to form these those very or a finish you that SaaS to competitive? pocket you. maybe who demand essentially didn't air electing behind to to transition, around And more line make the as the federal just factors. Can that going are slipped. the of the term plan deals you bit deals talked little were context necessarily it to

Guy Melamed

expect but remarks, the QX, didn't do below with came in And believe those performance. opportunity than if more. X we not five But as start because is We of would same million federal which million the we the pipeline, Like more said Varonis we the I'll longer they expectations. Fed behaving enterprise strong years a deals. quarter about but they them do, really in business to close of -- into We all the our exact to the prepared longer-term today expect close. just the deals anticipate. much close to some evangelical. with ago. were in the $X faced don't the $X Enterprise It Fed like four sometimes to customers is business about customers problem behaved we our takes do just

Yaki Faitelson

It's Yaki.

the to in maybe data federal and that data terms the most the them, in critical things you protecting a know You terms of how have of the are and for working top programs. priority but that data, just customers are it's understand need we in the

see a are to deals lot just The the three data to specifications related you're be other thing the that in of can difference. zero not large starting QX on trust, two, data and protection

And like in categories. other embedded the sometimes not we are programs still product

So -- the healthy that commercial is that is it the the materialize you business. why can remind SaaS, And can what fluctuation. me? a see you can in will you regarding this way not was work of This see the regarding sometimes question sector why the pipeline

Fatima Boolani

or to Just just platinum launch versus and recognize And around term-based licenses manage options? SaaS and silver you the modules. customer your education the for gold I how options term confusion bundles and now the

do how or confusion your maybe for education on impacting business side. to expect customers that the without term just So manage around the you

Yaki Faitelson

just first, be it So yet to we're announcing seen. and

much, is very you But us. today, but this of are understand we've well, that of same So why all and need Thankfully, and delivery, stop you careful here. we it's didn't done a it stuff. it better need is much time kind to relatively hardware product bit the the so on-prem, takes with this

SaaS the same best the to and incident a of give the we is the it's we the terms with in time is provided and opening it's on-prem starting data we of response in the end to to radius the the automatically cloud also XXX in mediate from the We're and data engine of amount can XXX XXX SaaS. SaaS, give it in blast first and for the service today, much value. so more the our customers So that automation immediately, that version because the also fact user, one the task hands of in

for to believe time our maintenance confusion, magnitude that XX transitions tremendous in of far, long reduction. how deployment can is the automation had careful term, company POCs next the it's the introduce with complete This And to to because, spending to consume way customers that that very are so initially clock, provide the in time software that it's a months, the proposition the how that and in takes value a a some is We that friction do know SaaS the think changer. response, be had provide, are that we with it's the the remediate term, yes, well, model. that the to most And today stock we incident short and we So this we we everywhere better that but in support in it the deploy, literally people can it probably classify, game on is the changing the conversation But the are working, how the to to exceeding it's from we time a expectations. it works. order completely. something

Guy Melamed

-- the then we Just new those with to platform, go our plan one will will confidence on more we to with we upstream SaaS thing. side, more is the way add initiate first we customers new that smaller to will And start gain customers. with The of new with go the rollout existing offering, we the as customers.

Operator

Rob next with is Owens question Piper Our Sandler. from

Rob Owens

questions. my taking for Thanks afternoon. Good Great.

realizing it's pricing? Thanks. time, how shift we and customer SaaS? two then SaaS pressure more be And to should on think about questions operating margin neutral, transition relative the like-for-like margin going it's but to that to pressure Is going take Just to with so potential one to really. gross ARR some the

Guy Melamed

So order have throughout an is And gauge no health the that couple the of business. over the because continue of perspective, there leading last metric strength we and accounting quarters that transition ARR is ARR different treatment. the really from to should said the in the

it. look So at that's really the way to

income giving operating SaaS kind due the north margins headwinds we're transition, cause of be the treatment our SaaS of health will operating during have to of metric, the flow costs. and of operating they than will in subscription. indicative less the and star really cash the of accounting margins because margin, metrics treatment of difference terms the because on-prem of ARR to upfront the gross business versus in accounting the In SaaS as and And been the free past

which term, mind, faster be a longer impact is of more the the So the but transition keep putting the one on together, more there's will that income in to statement this in the the shorter negative term. all positive component

Operator

Our Saket next Barclays. with Kalia question is from

Saket Kalia

since question question. kind headwinds rates win FX second additional you incremental the questions through of the a are for as said I first, we that guide from all? sort Great. much time macro Can walk if you That's at first Okay. Guy, you. is, last housekeeping results to taking cut the quarters, questions how the how Maybe $XX versus spoke my is headwinds. ARR think about here. the maybe of for at of for And couple looked us guys, short of thanks a we last competitive Hey year. million changed, these just just few

Yaki Faitelson

with Saket, So, competition. the start I will

three here we But are So and there, POC on company situation content, really we actual that large, that Advantage try the coverage are didn't access, we we have platform. access that the are, And can use the when for case head-to-head what really and it's Cloud, the and change. three the which use and of real -- uncontested. streams, the terms in doing cases a these do the we companies the competitive see Data don't have to and just by integrate breadth potential one competition. one or In doing we

landscape competitive the stays So the same.

Guy Melamed

in yet track. million the your gave coming the we to when that the haven't million of second, dollar any in in seen expectation at to of scrutiny spill it it cycle strengthen QX couple of even below sales in there $X will metrics was the of to of and federal that expectations the U.S. we our U.S. But ARR impact when the FX, QX, deal a we And about EMEA compared EMEA million in dollars scrutiny, and of though deal headwind. of continued some component and guidance guidance look $X was a we to regards question over to the really reduction the

Operator

Cowen Our Eyal at next is & from question Shaul Company.

Shaul Eyal

Thank or the you. headcount you. sales board? And it Good that Was afternoon. and across predominantly much question EMEA Guy, softness? on cutting. maybe also the on pretty marketing? the Thank country-specific a Yaki, Is quick rate

Guy Melamed

really question. deals to those live. are felt We them they already, saw closed opportunities in the pipeline that lose with and to We them, of I'll be they the slip board. competition. the deals of not of effect we but EMEA And the continue start there. all Shaul, macro the but some didn't We've environment across are the

Yaki Faitelson

across Hi, people the company. regarding in gains. We We just two And of Shaul, sure that regarding, than and hiring, it's hired the more feel to we XXX we the years efficient. last productivity very just want are no, that lot make a

that can doing can from relatively efficient. cut future. productivity on investing being we for taking hiring So the without anything and execution, We the more we the this we keep And that are spree future. realize believe small material believe and focus we we just gains

Operator

with question next Wells Nowinski is from Our Andrew Fargo.

Andrew Nowinski

between Okay. you the I factored revenue if rev then just if Thank was the was retention you headwind net on QX also, how wondering us term into And us tell differences transition. you. rec could could just you SaaS, SaaS much guidance the given the update for if and wondering I rate.

since, that updated last I haven't of You think, QX year.

Thanks. So if throughout changed tell year. could this the us you just that's of how wondering course

Guy Melamed

offering the salesforce time XXXX in in of in SaaS to any from in comp QX our some as So at we we the of contribution material happen we're in expecting beginning our have seen seen on-prem ramp-up not we're color, six and changing as transition baking first not past have months, the the subscription. that And perpetual Varonis the in we're the with XXXX. will plan because

and an In annual provide the of color earnings next terms we number in that's call. NRR, we the that provide

Operator

Roger Our Securities. Boyd next from is with UBS question

Roger Boyd

how my what taking terms retention Maybe talk of dollar I question. nicely. How mean, it way? Thanks. for impacting But like look thanks that about bundles? at that another is to basis, on the adoption a renewals. net of just metrics sounds continue a rate either adoption question. are platform if the renewal to way in retention net you trend seeing Hey, you're just could But you seeing

Guy Melamed

Definitely. landing introduced is significantly, with give ability the higher by conversation very the we we and SaaS to us automation and have offering on also our the customers some year, value. helping base the which and they licenses were being the with us we because well really at of renewable. them in a of have but a number our the go therefore, are part I'll see have customer within to at a our and is the look licenses more When that them color that simplifying that. beginning customers the reason of direction see received continue goes customers, of up part likelihood more this actually bundles number licenses It's really salesforce. like back of intention coming a allowing offer buying to of that in and They of higher it's and bundle, both more expand to automation that see more new of that larger it's portion with that

Operator

is from question next Capital Craig-Hallum Group. Bennett Our Chad with

Chad Bennett

Thanks questions. my for taking Great.

So product? and of terms capabilities terms advantage applications on-prem of just covered, everything offering, compared in the and whether to it's be -- covered is terms of and the in of like-for-like to like-for-like in platform have, underneath. repositories classification licenses state your it number it initial you SaaS be going Will

Yaki Faitelson

Most core have priority. we but functionality party, small yes, now relatively Eventually, a a the there. of it's is

incident for now are moving very can from have fast do our a we that the which cloud. XXX us to will going new remediation But gap of very most we complete is just response you ability a first advanced the from also changer capabilities customers. game for expect then to We and with is and the become what fast And close company. remote, SaaS

move faster feature much we with So will the set cloud. our in

Guy Melamed

-- perspective. a one just Chad, from pricing a to thing, more add Chad, just And

the product, same SaaS XX%, offering. higher the to subscription XX% is For on-prem compared priced

sure that's make So to just clear.

Chad Bennett

a clarification, just then of prior question Maybe how Guy. this from go-to-market terms around real standpoint. of a kind or quick And year just next rolls one in the out

new talked and expansion of the you I mainly about logos. logos on new think offering being kind SaaS in focused

switch So and SaaS product a like-for-like the I is next if there I'm or license, I'm renewal. customer And able and to over year? offering SaaS an up on-prem am to for existing

Guy Melamed

The short yes. answer is

that new the switch is to will that. to on involves. We move new then will base with we later with our SaaS. to do go start wants what's for to intention and them uplift our customer customers But our allow upmarket customers. Obviously, the go customers, with and customer best to if then those do existing and them And a SaaS, to

Yaki Faitelson

believe mass It's learning we This to sales to our small cycle works time. you some execute tools. is It where curve. and and once to we exactly and technical are know going, have to are did better we we but said, the I reducing get case the step to as is ducks how with migration really more more transition measured of orders on will we are of all the we a The magnitude takes this way. we to development every friction just It's and in we critical is than all how see then how the because, of just going the to changing the of the value to that have customers build have which will everything row, company OPS. well, in in, it very transition our be OPS just need then completely transition in be

So works. have good how a we understanding very again, everything once

full in going are in we the -- force. to execute will We transition

Operator

with Stanley. is Fodderwala question Hamza from next Morgan Our

Hamza Fodderwala

taking Thanks on for two you. the following comment up priced. for guys. SaaS Hey, early questions is One, question. that Guy, my

should we I being SaaS, think on think after double XX% you you XX% The on-prem discount? said maybe about digits to subscription. uplift higher versus ARR that

Guy Melamed

we discounts, can the more how But cases, $X.XX in discounts. if they see really to evolve. sell. in $X make that a need $X.XX They allows grading place on system reps make high sell every at our we things money have make a Obviously, for they dollar. sell they to some they, But when good

So up. they XX% Obviously, the have discount if things levels. But levels and to want is, the same price how list to us that levels, or see kind keep similar discount as the a control XX% discount progress. to we of should allows

Hamza Fodderwala

Okay. right. All

on the XX% correctly? this that level, with discount that's hear similar -- to I did XX% So uplift ARR,

Guy Melamed

Yes.

Hamza Fodderwala

on then guide, into growth, to just Are new about rate? talk little if you XXXX assuming decline number? got a in And to Okay. Are you're that that you much to implies assuming ARR XX% XX% just guidance. you Can you ARR. you. XX% ARR renewal guiding does which lower XX% And a heard correctly, XX% about how the net Thank lower I how FX new factor to customer bookings? bit

Guy Melamed

things in now. wrong. four very Sure. There's quarters go X.X fluid economic XXXX just right to can that of We X, versus lot bake are and the a softness year this of wanted in macroeconomics

slowdown we're EMEA. in So building further in

ramp-up year you with for also half of first our comp there's We look into versus at also in headwinds the the we the a force to the metrics that the expect spread in ARR And numbers, that XXXX. XXXX in of the baked plan. sales period in although of U.S., and we two FX in quarters the it to of any the the we change seen two When of track. and haven't XXXX the introduction FX quarters extra headwinds, SaaS

get in wanted the we that guidance to guidance. appropriately light to uncertainties responsible see. is wanted we and set of reasonable So We the that

Operator

next question with Shebly from Our FBN. Seyrafi is

Shebly Seyrafi

Yes, very thank you much.

Last from in your And the year. XXXX, in you to rate question, by guiding XX% growth related XX%. of at question in growth you year ARR XX% last of end next in the growth kind the the core normal around grew your what for XX%. whether at XX% this now think this to is, know want just to core do XX% in term. think is currency of So ARR you to your QX XX% not decline year like you're believe whether to is my constant is really medium XX% I that XX%, that near a to the but strokes, mean, I rate opinion, not growth broad new in you're double-digit past, to you XX% XX% or the grower low

Guy Melamed

from the the investment. lot There's SaaS. to of benefits And initially, the of fact But today. of unit it just a introduced decline we the upfront will economics because apart that

shorter expect over renewals time. sales and cycles We better

subscription. unit reach the of once will better So on-prem be than scale, we the economics

and just up be confidence company of market the of we it's the opportunities will that So within the that benefits fact open on it's of the us as XX with rule the efficiency, the SaaS that markets top that the transition. gives a offering we all not greenfield it's exit the

Operator

is from with with Joshua Research. Tilton question Wolfe next Our

Joshua Tilton

any the your in to transition, thanks in is, Hi, got squeezing you if then you you benefited me in drop the compare revenue much maybe understand we words, here. speed first time And line somewhat just saw one transition I of avoided In just is weakness having had a do and My the from you parter. question my you second having product with have weakness right solution. is for not a two gave other of the there how EMEA SaaS that fit? macro, first the and first way know And the maybe today? that to you. it a for constant us recognition how there but this have experienced terms. the will lot, the thank for I for it's number is revenue transition? FYXX a Could any guidance one help that the currency but

Yaki Faitelson

take dissect saying, last time people really taking detect data. offering, the just in staff, And to are is identify are is of the mentioned, not Uber closing workloads the your start just XXX% are to And for related so can data. breaches Think you EMEA, into something of if anywhere. tapped terms and world, This regarding like go time, we to the protect. It's deals now you and just related the a of platform Varonis very if EMEA, breach. we commit We the trying funds. of only are data data. they is the to In about that overall the that them in of about People for didn't the the as People not think it, most most Guy remediate. they to elusive. XX%

have that well. two very like are time I stuff I now see we is really objections. It didn't One and the So hardware doing in we us; that. think don't stop

to provide in the we and way, very all operational point is and really customer invested get the are at This all of careful thing So in engineering it We for Once the cloud. game look was to completely you're saying on doing and taking significantly say the a than priority. is other just $XXX is coverage, see. in to what of empirical different just value is more engineering our undertaking. a this one that the with are that are risk can response No a protection massive. not you're a of which It's It frictionless automatic, work just saying. order and install lot Most mitigate in a without million burden automatically that changer. elevates classification it. remediation in the completely incident the is evidence. two our something -- all and just you massive, just a massive than your the one customers a afraid lot But top on data history, years we And more think benefits offering. we automation. We there of you never

don't to need more you else had do without security SaaS pay and are mature overall budget. the the we all a just if anything features, So and able a you to much of with automation take doubt,

Guy Melamed

of in an fully the subscription approximately SaaS, to XX% believe investors recognize deck is investor in obviously, longer question, new and upfront XX% don't to term. we remaining we deal recognized the ratably just ratable. accounting slide the there color So going that -- give the treatment XX% is in XX% recognized when company in at your on-prem we're rate But to some deal, revenue added And a was the that's regarding understand help we better growth it.

same the the talking a both for one XXX, that's why day if flow it's the about of ARR last by north we're day So deal free is would cash just signed but those the XXXX. setting the as and be on stars ARR on of same. divided price And quarter,

Operator

next Our with JMP question Suppiger is from Erik Securities.

Erik Suppiger

questions. for thanks taking my Yes,

charging imagine that data more kind on-prem service some inclined to if I adopt this of that's cloud version you going First advantage the that then architecture? off, to trying sales disruptive a migrate be are a would And the secondly, that to to advantage the customer SaaS be -- the lift data you you're to than would cloud of version. on buying is cloud-first have? cycles premium SaaS why the

Yaki Faitelson

computing. service No. disruptive, the just advantage, the is delivery It's not different, same services just it's are just data regarding the delivery just the the of uplift -- it's not cost

Guy Melamed

on-prem and clarify, it offering to And year The we that cloud just we've talked a about basically new for as new stores offer. offering never our for the covered. the announcement I that in application that data data product today's we on-prem covers features SaaS want had advantage just a previously is

up So date to that's we're the And the had charge difference for what XX% today. additional big is between the we offering just and what the SaaS.

Operator

final Baird. W. question Shrenik Kothari with is Our Robert from

Shrenik Kothari

good Hey, taking Thanks afternoon. for questions. the

So mentioned prudent steps that about addition manage you to mentioned. which headcount reduction in guys X% Yaki taking to expenses, reduction includes initiatives cost other the in

of $X you So all-in-all, million that savings in results said.

be you some talk other initiatives So And if if much will term? sales what of contributions about you can color. onetime Just how And comparatively, head do the that expect longer these overall? are count? outside or and

Guy Melamed

ways thing. about that's And expect looking revenue our efficient. announcement efficient. is we our more why And for be free half line the more We to cut expectation entire improvement improvements. compared to can cash flow. reduction giving of end also cash at the continue be the to shows guidance to at to always XXXX. cash of balance in we we're and went to finish what where really mentioned, profitability top flow We XXXX, with continuing can which And cost want and our meaningful day, QX to And through to see to you right today's managed protect we that the offset flow and we're in do as savings the spend growth try see and you

Operator

to like session. the call turn back This to concludes over closing management our question-and-answer comments. would for I

Guy Melamed

interest Thanks us joining and your thank for for in you today Varonis.

Operator

today's conclude conference. does This you. Thank

for You participation. your at thank lines this and may time, your disconnect you

Varonis Systems (VRNS) 1 Nov 222022 Q3 Earnings call transcript