VRNS - Earnings call 3 2023 | Varonis Systems, Inc.

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Operator

Greetings, and welcome to Varonis Systems, Inc.

Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Perz, Investor Relations. Thank you.

begin. may You

Tim Perz

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

statements are earnings that we and the for these call, and more are related investors filings. These to make federal would in projections be today including may may forward-looking fully forth and read our reports full results business issued we this During our year in XX, to SEC of considered forth number statements. a factors press with differ We ending actual that other the statements such section to of under Securities Forward-Looking quarter the under operating results our described laws, Exchange all from securities important Commission. risk in factors materially December set our encourage captioned release future and Due factors, Statements, XXXX. set fourth those filed

to made only forward-looking views publicly These any statements undertaking and views be should any not upon to of reflect our updates revisions statements as of subsequent release as any date. or disclaims obligation today any relied or as our representing herein. Varonis expressly

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

today's that our note is the Investor Lastly, a on of Relations please section. available webcast website in call

the turn to Yakov Yakov? Officer, Faitelson, like Chief over With that, our Executive to call I'd

Yakov Faitelson

everyone. for today. Thank and joining Thanks, you afternoon, us Tim, good

by those and the Ed. customers, our me are Let recent employees, of start with in thoughts all our impacted partners by saying events

continue business. lock visualize difficult. review data but make control. is collaboration, to in tailwind whatever business securing and takes do The as I prime greater how managing cloud of remote to like companies has made AI because and an for employees has to down. it QX companies of would to you to support and our also serve from solve. will first, discuss our would a meaningful problems it and can We out will Varonis who explosion Data their collaborate results remind allows Varonis target this automatically important it why to a the come. our Today, I the the This to safely more of we bad priority. and even the years like has work is its also to data But to while actors sensitive helps Data locate and access get only improved value risk data AI

continued Our healthy of third SaaS. results reflect the quarter Varonis adoption

company to We is SaaS area. now XX% SaaS ARR approximately model further our total in working that represents transition of evidence saw a business

to XX%. a SaaS free against of fast at $XX quarter XX% flow headwinds. in guidance From our quarter to progress up Third cash year-over-year Guy comfortably of mix year-to-date, this cycle position million generated our million and we longer of high to results last ARR came from of have of and our directory review updated remain in encouraged ahead see macro continue same and XX%, $XX.X standpoint, XXX,XXX QX level these we our guidance by period will year. more detail. but grew the sales the

has the and risk benefits but safely increase my to more need It and comes how Veloce. significantly significantly boost must there data, opportunity potential spend presents for -- with Vero. key more. that significantly security. in for opportunity In opportunities Vos my This prospect, companies and takeaway to generate an to efficiency, security would data represents both some AI in and for I that for the time more customers is the presents growth AI risk conversation of Stepping order back, productivity risk businesses realize more meaningful like AI to companies. mitigate for first. like on Now a Gener these is are and up opportunity

happens the organizations in Without is policies them what that Varonis mitigating access to without revealing I AI employees. Varonis, AI a is which call this everything to controls assets, even businesses prevent suggest The help comment own is AI over is from the is mean content, company's control right with AI to only company's locked recommends first as automatically. to access I core rightsizing and risk analyzing payroll data which sensitive or This the for place, it time, data entire account little down, Microsoft using still risk find and system bank search pilot, challenging. see who to dataport want surely business customer problem their gets risk surface -- and this will done. start very and information, they files will everyone. should which when bad people. self-inflict in doesn't the actors list, related is becomes the deploying content know control a to to for further to right having critical risk, what And to harder place, securing for AIS huge access before compose precisely Managing and specifically the contribute by won't information data estate

many job. Varonis see actor to out preventing bad people or only can spend are their the machine from perimeter suggestions although information use face a actors can that examples creating content help the to continue job helping need this few that create ensure compromise relevant happening, controller that see lock so from ice in damage that to machine that Unfortunately, this bypass function. increase to Varonis employees related It's translate hacking treat also companies data they risk takes. arising companies example. leveraging AI the we ensuring of using barriers A made has their for include fake organizations model, then for the and have risk we the and image risk creating to mitigate to them will paintline technology languages, external our years threat Varonis access organizations AI many entry they ways are AI new use for in security , improve customer will also by analysis been fishing in the in and lower order engine experience. sets our and into do can learning of that only to for to this

AI our And security SaaS capabilities today, data language operations AI or we what natural system X are platform. generated security we and announcing search. call center in exciting SOC

SoC plan say analysts system AIS skew proactively separate remediating hardening threats provide performing system will not to an do a with intelligent DIS environment. and our as we Although security specialized in investigation,

as CISO remind can user moment would to been general and the to to resolve do security to provide and are we our even platform fast build discussed past has that next natural help is our you or experience. with steps can research you Internet? customers of on Or that Anyone of all the natural we key Today, upon desk provides will mix. features over year is. benefits customers. analyze SaaS value context accessing I incident. with such time Even answers from Irish AI reduce Bonistas and user pay to help spend the get questions exposed like and that introduced to accurate SaaS power the passwords what file have refine. and Our for language With the more and a X efficiently to containing their we the improve to platform have any further use

remediation and protected customers upgrade. initial effort much quicker of proactive benefits response we deploy much First, costs and key stasis margin lower chassis maintain time. third, significantly realize Second, shorter automated cycles, easier lands a the infrastructure benefits one, better sales to to are larger the X to and that incident in over less out with and with

quarter, We customer government only large state This XXXX. continue department this in of see -- to the state benefits. quarter. a became customer SaaS proof we gained points a these of first as this additional organization

a win trait the Over ultimately successful curability deployment year, for broader mandate. the very the in because we had is this master department and state as -- to security build a past government thing. team SaaS us that allowed organization, the

and to Now remediation incident benefit most importantly, better quicker our from on they be and XXX. deployment automated will they protected proactive Microsoft prem and team for faster response value Windows with will time

became SaaS this The to X first They the to widening quarter. large converted let sensitive meaningful will equivalent the achieving environment. for the down. to -- on-prem purchased With hardware, over and Varonis of Proactive improve continue the their radius supplement our Melamed. their interest stakeholder their a to by a Varonis deeper. innovation as a all-prime saw faster Windows Microsoft additional did was consume closer given and healthy originally which the to committed billion need licenses that success existing all call both gets transition XXXX now blast sure multinational customer staff to on and This plan. well incident organization them and subscription a sustainment of target converted going quarter, package licenses in delivering from We information data scalability us manage they this desire this cloud that into window institution an who ARR we see SaaS volume self-hosted wider protecting to package financial drove capabilities to locked that one-window they the XXX pace was on-plan with will platform help shrink we me a a also protect turn for $X just in customers their as response starting own One coverage. example make customer of coupled purchased customer the Guy the value. SaaS from that,

Guy Melamed

Thank us of you importance and we takes Thanks, to health continue them. goes for do to permanent saying today. our us, is that employees whatever to It support joining without Yakov. will Good a afternoon, it the and safety everyone.

I in Israel business. operations. From Before want a our of briefly war Israel of our discuss than the less to line comment on results, X% represented the impact on has historically top I perspective,

in members At a as support principal time, facility called located global up our employees team Beauty. and low administrative our as Israel, of X/X research and approximately Active our sing-digit well of general been development of and a has have portion this We team. to

the We to to turn contingency on QX global have business. don't plans at this operations. on to expect I'd impact time, results. a our executed like we our impact material minimize that, business And With

pleased SaaS against with We macro are adoption the Verona of headwinds. strong continued continued

this quarter the numerous as additional as and the momentum, Our well performance. flow gain transition provided proof to SaaS our customers cash continues our to tailwind benefits to of and ARR

ratable was meaningful of as traditional SaaS leading As fully recognized XX% revenue and headwinds SaaS value a to ARR, margin the licenses recognition business SaaS model the to conversions will customers The as upfront reminder, converting transition. where the with contribution this is cause this mix increased. free flow a the the existing number ARR our metrics during for increased. indicators customers statement impact income shift initial And approximately from again cash on-prem subscription deal existing to of are SaaS on and of quarter's

However, accounting business. and are the these of our headwinds health not of are indicative treatment of a function

it is at it as In pace. is headwinds better the the these fact, for our faster the progressing business greater accounting-related a means are, transition

significant that is quarter, third be To this revenue. SaaS, in we is existing that our in to to third pricing SaaS causes previously now new approximately QX margin conversions converting $XX not we cash or SaaS increase of the the into an accretive total ARR. deals headwind in uplift us as of of our X the previously million $XX that but provide transition, to The business from customers, free customers, was flow. our to uplift these impact new revenue booked and impacting SaaS were XX% saw not only third a which and our guidance realized which ARR but provided. margin, with continue the renewal had a does The does quarter XX%. the In that approximately this again realized from and net SaaS the average amount sizes Our in versus free subscription offering. confidence structure reported new deal we ARR XX% flow. of mix In the we ARR now upsell on-prem amount after And sold company's an XX% quarters represented million quarter of cash and to QX XX% is include clear, represents operating to conversions, customers quarter, existing

for of renewals look to to from the the model as million. As same Year-to-date, third revenue guidance that our million quarter, QX, XX% balancing we're the cash inherent million million which $XX cash with to improving reflecting now our generation. approximately free will year-over-year over we is from growth customer generated up of to up well we convert previously. in was $XXX.X $XX the In line year, fourth which top existing grew quarter, $XX million assuming as our ARR period last in $X.X commitment leverage flow, flow SaaS

patterns the results. which purchasing year. is was still a near-term continued macro seeing that we We're and longer half cycles board, the and across environment see QX, to scrutiny impacting our to is of In similar customer deal the constraining first sales

longer continue We this expect consideration. our updated scrutiny, into takes cycles and with budgetary deal along guidance these associated to the

results Turning our now third detail. in quarter to more

let Before what into ARR, take Street leading based for cash commitments a the our of combination of are our you flow margins I indicators and mix said a remind get expected customer while transition. free on the the existing to it's since ARPU conversion. We we've for numbers, SaaS me this and now,

metrics. X% progress income previously, said the in our more statement $XXX.X were our these we positive rapidly. faster year-over-year. adopting SaaS they revenues customers We are million, down solution light throughout show traditional As as total our we the QX view headwinds a experience

were ratably to upfront compared year, on-prem to Subscription XX% rate was representing last $XX.X growth product. profit revenues as quarter were our rates million as year-over-year million, headwind a cost XX%. had quarter for of increased margin our third again the our are recognition renewal having booking mix, $XXX.X as result we same and over services were $XX.X XX.X%. revenues recognized revenue quarter, of versus a a and in gross the the subscription approximately During of sales our million, the SaaS which maintenance

million margin operating third result, to X.X% same was $X.X a in of or of As an million year. or period quarter income $X.X operating an compares margin last the income operating X%. of This operating

last which upfront the During our in ratable a year, quarter, approximately margin the compared to products. recognized as operating of SaaS fully XX% sales quarter subscription our had the booking as increased we our to result same on-prem mix, are headwind of an versus having recognition

the strong XX.X%, up from Third last to leverage X.X% reflects quarter during was margin our ARR The the ARR drive transitioning significant SaaS. contribution even year. margin while improvement transition early incremental and growing stages ability of to

$XX.X outstanding investments During marketable of we share on diluted for $XXX.X deposits shares and share million, $X.X of is income interest respectively. $X.XX $X income for million income per a quarter cash quarter approximately Net XXXX This diluted per diluted shares QX XXXX, third XXXX. for our financial outstanding the of the QX had net primarily based and income driven on million or income the of to and or XXXX in quarter, $X.XX XXX.X of was million net by compared third securities. diluted million

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

million the last X operations to For of compared year. year. the $X.X last million million generated XXXX, CapEx September to ended we $XX cash period XX, generated same months $X.X $X.X was from in million compared

price million During completed $XX.XX repurchased intended the an which our average X.X third quarter, of shares purchase we at repurchase. and

the $XXX repurchased consideration for course average X.X $XX.XX million. purchase the an a total price million of of shares of we approximately at Over approximately program,

of from SaaS previously, to XX% upsell XX% be new detail. QX's We're Turning expect XX%. and our to ARR and SaaS mix business up more full our to and year we mix guidance raising guidance in

our SaaS, to our of to to the not factor continues QX, in to we've the a that we're continue a that in is line guidance before do ARR to of is close will quarter at level prudent We take of dollar the considering as fourth building the headwind assuming year, discussed mix deals length deal of uplift largest serve same renewal revenue. million trends. macro headwinds SaaS In value conversions convert in approach we to sizes historical SaaS the in impact outlook to -- in $XX will as which any with the expect which past.

turning our guidance. Now to

diluted XXXX, diluted expect million, quarter shares per to net income fourth the XXX.X This and to For assumes income of X%. outstanding. the million share of we to $XX Non-GAAP $XXX in revenues $X.XX. total million growth million of million, $XX range representing non-GAAP of $X.XX X% $XXX to operating of

$XXX expect XX% X%. cash million, related of revenues TCJA $XXX includes of year For million $XXX Free of $XX to provisions. million to The representing of now representing capitalization of $XX $XXX flow to the million the $X ARR full of to $XX million million, we million growth Total headwind XX%. R&D million, to growth which XXXX, of to

income $X.XX. $XX.X both share operating solid continue of diluted million outstanding. income $XXX.X platform. This your range diluted in owners Non-GAAP shares of wish million, per demand and to our assumes summary, SaaS new see the to non-GAAP $X.XX net $XX.X to to we for customers existing consume million through who In

generation, move quickly quarter. performance SaaS. which As now our benefiting a This for total our coming positions us is result, XX% transition from strong ARR and continues of is approximately and our a to cash ARR fourth flow

questions. we would take be that, happy With to Operator?

Operator

Barclays. Our question of from Instructions] comes first line the Kalia with [Operator Saket

Saket Kalia

the team Okay. in to just their Varonis and families send I thoughts want our to Great. Israel.

Guy Melamed

Thank you .

Saket Kalia

make maybe you on Yaki, for to Absolutely. great traction X here, it I'll like seems SaaS. just stick it If I question,

seeing modules? now you that are use? usage deploy are SaaS any to change on tools customers different those For to easier the you seeing and the what usage arguably Are that moving are in your tools, of

Yakov Faitelson

We order proposition. this of what ability the call in value of the pressing platform customer little just change. more very can to do to see we much services -- a the of build configuration. we value remediation, what everything people according update of North thing, magnitude, is the installation XX% customer a nothing, ability we terms measure our our can works more almost dramatic to in robotic we And with doing the our Well, the effort, from the other also see call provide very, lot was it's we in by Star support to professional helping just of of to value the we plan. always

So completely literally an proposition, robots. value just different missing

Operator

Our Morgan of with next question comes from line Fodderwala the Hamza Stanley.

Hamza Fodderwala

Yaki, little I wanted to around commentary about bit in more a your AI. dig generative

I extent think talking things curious have are language they customers a a governance leakage on can big that to in CISOs you lot and to conversations lower to security the of deploying about models starting prevent what like that And talking are recently we're these to generative I'm our these and more a is poisoning data occurring? CIOs hurdle from or way with can data AI how deploy models.

Yakov Faitelson

it's changer. saying release saying mining data initial essentially game It's access access it excessive. still the are be completely, a just I that is think it that of does. can are all reality people staple the think that the XX% but going The of complete this Microsofts that is to and we controls me seen haven't not what for I copilots business,

need them. don't You

completely amounts mining language policy. have going of that massive this that products in in high-value out creating you rate models large leveraging tools of are information So tremendous data that

have now and think to about highly of understand that's that are that XX% I data. this and if that soon control have these thinking order sure make you. sophisticated take not will that avoid extremely AI is assets. need in access just tools can you sure And creating what data I they is data they access they can your for relevant you valuable auditing see credentials it, make productivity classification in So you these realize to organizations place and the very gains that

foundation the that that this Varonis product. that see make to to I really And to is starting we're it. AI-based is that that use -- customers something able about that this all sure you talking would you can the talking customers So are be about believe are it,

Operator

comes Matt Hedberg Our next line question of RBC from the with Capital.

Matthew Hedberg

the Gen follow-up I'm you prayers think conversations Israel. change around you Congrats AI you this that results, said on separate prepared if point. customers, could think we maybe a at curious all do in the initial a And I term? maybe to as impact send employees to Hans' how then sell and you're longer could don't thoughts as our globe sizes to Yaki, and VAronis question, the expect in and remarks, deal secondarily, in these it the SKU future? having with the

Yakov Faitelson

So it's definitely, it can change.

need One the learn tremendous. we what are thing means can to use just you with doing think fintech, is you REI, natural you with that If language product that which is don't

it look world have time, second thing, And of can we detection method that the call but meta it, other you this and monetize but I at platform. have overall have that I sure this leverage world secure But are to for it digital ice is sure only really the that benefit unique customer to you that at world-class if and the great, we the is prepared to data just if to the assistant has in person. to are what think that it the this collecting, we the is have IT are ARR best be our answering will now be And for use response, the But but and foundation to them the starting way, the bread. we model. seeing completely The question. much different been take able gain tradition base, decide in company it's to to our to and tip sell grow significant your we make can a easy a deal is make think to way really for the we way the your initial to and going We're with data that data can the really, value.. to monetize part really to have so a we oriented it's regular then person. customers, -- transition in and what sell us to we very maybe will be now are monetize is data, point, we'll want that it the we we usage, of this stability in we

Operator

Our with of next question Brian from the Essex comes JPMorgan. line

Brian Essex

Our thoughts as with in your are and you Israel families well.

wanted dig then term. much can and year the the help was us to gives in What in impact you previous you understand your in little bit of those confidence -- deals you here? of what growth for reflecting seeing much moving into pipeline, the execute maybe as in commentary Yaki, the to customers ability or towards last you're impact Just quarter in elongated into a the that and particularly to the like? with quarter instead pipeline? regard how of cycles as Maybe to flight visibility And sales SaaS assess if how the

Yakov Faitelson

our other We thing last we're very understand actually to board. pipeline is frontier It's that that protection see in healthy see starting the data inevitable. across that your organizations resort. the first And is

can protect If its organizations that that it And you that thing fail. you. be only data, because completely many value they And to else you gain we value time And and can doing really attack projects, ongoing robotic with the will the way. didn't automated look everything do. It's protected. are think will that proposition do also we And was immediate if save to it. understand I they value enterprise head it we are on you don't at in hard whatever, if that a building, never

that a that do days, a a customers of to with lot, understand budget. are think and I they the automation, these data they we just need that well only and definitely with this that and sophisticated security see take spending I'm it positioned very platforms I time So lot people way can

Operator

the line of Joel comes Our Fishbein next with question Truist. from

Joel Fishbein

if reporting in are I'm to about seeing new follow as also thoughts pipeline driver a business? your I And ask customers questions the is rules. new you. to up and you SEC all to them it of just starting on with also and wanted your potential Paris that

Yakov Faitelson

understand that potential driver. they It's around definitely data. need is all a people that see to What protect we

And in a few think investment. I spent of on on that them fortune last a not get security. great lot years, organizations return the such

if or have that perimeter of lot, the breaches really the X and direction. tax will they detect anywhere day, acting user the of the at the in the and device, on from and like have on a you a most is only are insider a most or that organizations most stall happening user You lot the a credential the end an that valuable around security one. any a from and not inflicting data going the data it's come stores. can damage essentially most vulnerable assets And someone

So the SEC regulation is just another one, just inevitable.

to protect You have data. need you cyrosecurity, want to

And regulation we definitely, is. really So where and are see. we every what this is

Operator

the with comes Our next of from Boyd line UBS. question Roger

Roger Boyd

thinking the another on time to on don't SaaS of quarter adoption. success very be Any expectations think mix Congrats line. plan too a active how Great. transition transition? see But the Phase to and of not with given Varonis on a surprised seeing about why you're of And I the X update SaaS convert strong lean conversions. outperformance into timing to you're meaningful more existing and outperforming should customers? further investors just

Guy Melamed

line versus When X% that we at you question plan think would think we time a increase forward, guidance to something with quarter. revisit do is last line, that's we I time it be that that. line, and part the about math and way X. the about into One overall we our Phase the and I time our that talked of and year-end, broken reconsider it about going extrapolates X. When last kind definitely to of makes second think SaaS overall the sense for think kind quarter can that is that

adopting you the customers X our because about very, it -- when XX% in from happening think quarters. We're are fast. coming very sales That's very just transition, think it's have happy I and SaaS it's overall, force moving positively. ARR fast our our very to of

So on earnings we more to our call. forward in look definitely next part color that providing

think up we -- our yet. is how In positive you guided QX came of from and percentage and hasn't base, terms really Phase begun million, conversion it. very million. gone to conversion $XX in when that's we And the it terms customer think kind about I a that of that's we still base. you $XX number of X, existing about installed define million of Phase last you which number, of small expect we And the high But when at in about the quarter. $XX increasing number QX that the very as it's think in we a actually but are

So strong a seeing plan year. adoption but in to much do happening yet, it we we we're next haven't as as that's very prioritized way, that natural

think I move and continue the as the progression of pace going we hope positive, really in to transition, So that it's at been look overall, we forward. to

Operator

Our Nowinski next question from Fargo. comes with Andrew Wells of line the

Andrew Nowinski

Okay.

the I think deals. the business for last from expected and SaaS that for federal of upsell quarter, your contribution XX% guidance U.S. new about was of account because to

And was guess, assume it what fair relative the happened I given to deals? guidance not your to if that how as So was Fed this to demand those SaaS much you as expected? strong higher is so, quarter,

Guy Melamed

look see When when very So ARR look business. driven business federal you overall we how was to but still industry in the customers business. ability at -- It's definitely as at confident SaaS. of but strong out adopting the our we there, it percentages it's mid-single-digit there. small we the reflection when of feel at the opportunity, the about quarter opportunity the enterprise whole, was And this grow a the Enterprise a are enterprise growth the driver look you XX%, by

Operator

Our next question from line Fatima Boolani the with of comes Citi.

Fatima Boolani

talk employee importance of traditional question side, are up data well lot of Yea you with zone. if vendors the that of complex as all wanted to your lot interfacing changes buyers in with data on in how respect a those to the a and been in you, buying monitors new all? changing on hearing base a to the recovery what one, you these par along entire recovery. importance bigger saying benefiting perspective sense backup management around get Our actually, and you've and protection. a your as providing in of I psychology if for data are landscape, coming more data protection. protection, these conversations the get are picture as infrastructure changes are all about about protection the to in data we've data posture sort you competitive security of sort And for at spotlight I how the with you, way been a wanted

Yakov Faitelson

protection, data people backup need that I much that just we more but we continuity in just on see security. think -- -- to data. it's business are don't data understand valuable the And and protect they

organization solve very this to other Regarding really X and think eventually people that in metadata are that well need be X -- you use that order security really data is and do. platform. you the first you posture to umbrella need this management need I to that a very and we under hard these of all in cases the solve problem, and doing something benefiting to marketing everything from understand stuff, order time is the the of and program,

You data. this doing think people to enrich most need we and breaches, it's the stores, movementbetween data are lateral

a see way. and marketplace in to place X definitely of that need are to very big to be we be So then automated repository people to using you understands able in have a to identities to scale they platform, need do the it. do and the X and our profile reliable classify able and remediation data

So and very the that is ecosystem in other are tailwind we we have everything us, from definitely see vendors. excited marketing the happening that that to benefiting

Operator

Our of Craig-Hallum. with comes the line next from Bennett Chad question

Chad Bennett

to of of know terms on-prem converting from but of the customer SaaS. in I it's -- on kind type just early, subscription just to So

-- conversion like cross-sell license hope to that there are they're I of a XX% on on any standpoint? becomes seeing you conversion think their obviously stories converting. a But you've of call you examples commonality couple in is already. that cross-sell Or talked and kind subscription and is gave like-for-like the product, And that of easier that before the SaaS you once a about get upsell is uplift. license But whole the from think I in XX% is accelerated. just lot to journey when on-prem significant them where customer terms upsell there -- of

Guy Melamed

uplift that we're with by think an the question. because platform. are depends fact get have -- is the selling And more I date the customer, the the to in they to get but number we're really that it They the amount number can buy speed I'll offering of the in that's natural for well, can We of the much users it's the up are and opportunity place. in happening when of an want on for saying they licenses. It to up. in buy of our the of licenses no-brainer individual a customers. terms conversions we to you an don't uplift we that way. a the SaaS And or that they of start conversions so renewal that wait whether When uplift consume happen, actual in them. better very ability goes good renewal, their where product. situation come get to a for can seeing the

individual. the more tremendous the SaaS sell ability and So simplicity value and of the the them to once of gives we of at it's to to to very get their a the them us see But opportunity continue the product end usage more offering, day, licenses.

just day, at X it the our methodology SaaS so favor I in straight to pricing But in it on our it to end get how So of there's far. say good would confidence no with the we answer as them see happens. works

Operator

Owens with Piper line from Our the Sandler. Rob next comes of question

Robbie Owens

could what getting channel if that to comment hope just in has I the the transactions? are you of was the response SaaS curious breadth been on you new regarding move channel participation would and you

Yakov Faitelson

usually just saying It's the is the reaction channel Yes. direct to reaction. customer correlation

will -- getting platform So of tremendous a and adapt whole is last thing it's the of easier it less and model. professional take sell is just automation it's to We channel significantly this to. understand X help something definitely, with to services, that requires need the they it's this definitely lot this they to much but we're

Operator

of Our from comes with the Ader next question Blair. line William Jason

Jason Ader

first on ask wanted a you clarification. I to

points, growth XX to XX% You percentage QX, a correct? said in That's headwind believe. I revenue

Guy Melamed

Correct.

Jason Ader

is just can you much right And question, the go Okay. the most to of indirect? kind channel then now? finding how the following on terms direct? customers? success then of -- on market, us seeing new is how And in much where How you up remind are you

Guy Melamed

sales to all So of does assessment, customers, where are. doing really explaining lifting we our through the outside risks channel, talking risk the sell the the but XXX% heavy force

through we sales customer the in has at So that meeting deal, the done in of us all with channel but the hard the look through the our outside we we it all only really the of on-prem And they by opens helps pipeline past. have on continue we the the the us territories, every clearing help up the transition subscription -- offering, we basically a When really to before. toughest up we in with received had and didn't it kind date getting introducing been went new up opens part to force. as the between not that and our of industries new closing that is opportunity as SaaS in and to kind opportunities new reception and SaaS offering now quote SaaS work opens expect is have new markets positive, it new customer that of

advantage forward. that overall, well think going very to we're So opportunity I take of positioned

Operator

Our Gallo question of Joseph Jefferies. with comes from next the line

Joseph Gallo

commentary. AI the appreciate And

more guys that an solution Or perfectly now? a given And guys that us just you opportunity of that just CoPilot long this size and growth just MXXX footprint. large of opportunity to positioned updated rollout you capture the maybe week, are profile your does then term? Can You clear, that to be give have business? capture existing is it

Yakov Faitelson

in product for the already here. Regarding AI, of an organization preparing terms it's

that just any XXX% behavior, is without us. proposition, right the it alert sure a make access basic it what it, in way. is can stop is data people basic Varonis it's and So secure data, use understand critical, value And can't the the you only this abnormal the right

Guy Melamed

become March, actually of Day there opportunity, go And March, back it it's in just we hasn't question. showed the tailwind definitely for our the at grown too on touch forward. going our within overall that X%, you of XXX to contribution, if look then. part significant first slides Investor in the XXX time was the since Office the penetration was in we to the a X much at us When But

positive that to the us see and when reception you much on sell forward, of customers for the think opportunity So when going capitalize so very we about our life. there's we

Operator

from line Kessinger Davidson. the question Rudy with next D.A. comes Our of

Rudy Kessinger

SGuy, ARR as mix much And federal just then what quarters? and you the how federal percentage of was exclude other a the SaaS as to QX of a higher if QX? percentage relative in QX in upsell is in new

Guy Melamed

the And like quarter FedRAMP this not actual business. drove that's To certified said So remind XX%. yet. really I the driver Enterprise we're you, before, what was the

to malicious have have the think didn't us. our we in nicely. when under very, FedRAMP that were new business, significant use that type a a that an at very to coming for sales opportunity and we the that opportunity amount tremendous, forward. And months glove of So do SaaS in market, only you federal and of actors of from the case. overall on that opportunity last cycle, been can a there going expect our fit couple grow that we but capitalize from become for industry we a like business has product And we feel The can that and have ARR sold next happened which year's upsell sits

Operator

Research. from Tilton comes Wolfe question next the line of Our Joshua with

Joshua Tilton

net capabilities? are your the is quarter think And how ago? forward? the question, about we AI Microsoft on if is into why into you thoughts front, they save them a this I'll new to more going you in do so, the going baked which expect And seasonality? impacts offer my competition with bring macro And than XQ won't second to Kind questions these were ARR worse QX actually employees -- prayers quickly. first all and people should X.X with my just and implied really question of I'm Israel just just the My sneak

Yakov Faitelson

So content need we that. truly the streams -- different the world type the build in do so to the to build robust to Microsoft, taking completely in in for the of these right-size and order are activity company metadata, that of just terms solutions only we today -- X of we access permissions,

for think advantage So in or we that and can I maintain leverage tremendous competitive a more long just time the.

Guy Melamed

And the when of changed. philosophy about we hasn't think guidance, our kind

way So thinking year. about we're we've throughout definitely the that same it in the guidance about talked the

we a saw QX, good I previous in where us. terms stabilize quarters, of our in things terms sign in But for guidance we assumptions that's are to definitely think and of compared that same. see on-prem for are And up our think terms don't of set the change we in having any large seasonality, QX we to we well the stayed subscription. have compared

continue ARR SaaS the be QX revenue because in right of contribution times of this the are the that transition. year. fact should for been indicators of the from be in it's about millions and So largest as business. me heard Obviously, they leading quarter cash largest QX, metrics the ratable, to previous talk should change has viewed free as especially the flow margins but And should it you've quarter. it a be does years. recognition the perspective,

Operator

Our comes line Securities. Seyrafi with from next Shelby FBN of the question

Shebly Seyrafi

XX, like which a your it around is grew flattish really for So was looks terms of growth and pace in first a in time headcount year. it in QX the QX. decent And like

is, So is this the you. better environment for that a sign is my question

But talked related at deal therefore, cetera. is this, et And growth going about and more? your forward. You about least scrutiny, hiring to better it talk expectations you're headcount

Yakov Faitelson

something we see a was a and do headwinds, parts and for very -- to sure in it we total definitely that us we need terms it This We is organization the enrollment of will more what that of features just for the work. this pipeline available inevitable of have the on we and right in despite stability can definitely make massive how products, that and just see economic to lot demand data market. is an the there be we security. transition in transition It's it just did do when just moving know to important focused

succeed to sure that need the we customers cover So organization. it with force make and keep and we building our sales

are performing, opportunity. massive we is investing business against So the and

Guy Melamed

back And quarter's to in our that about fact the we're the if go you we talked last commentary could call, earnings hear hiring. you that

going We headcount we count, fact that right forward. we So of was we the way, think we and to sure increase and want that planning. productivity, it do continue generate grew obviously can that part head the make to but do want to to I our want the obviously, the in we increased

also it's right which pretty So pace of of a is at balancing act is look in positions, locations, in our improving year-over-year, points at when margin contribution increase the now done increasing but you right ARR leverage fact XX.X%, kind basis right headcount the that significant. as the the the of we an have XXX

Operator

Robert the line question Kothari of W. Shrenik next with from Baird. Our comes

Shrenik Kothari

and entire out your team there. Again, prayers thoughts to

in Microsoft controls previous well. to the And the question question. advantage the Yaki, on a you was Just mentioned there and follow-up access policies. and versus governing implementing Microsoft previous a runway growth the as the competitive tailwinds about

data is narrow the data DLP your around perspective. I the think is way have? respect course, what of guys have you a protection that of competitive to that right versus and offering, well. with about there And this is platform more including generative realm as of a of traction, of which access think particularly this security and pointed we the of is kind anticipating comprehensive that understand, Just the data data security, trying control, Heron where of just you're the to significance protection as course, -- this just and like urgency the competitive more on for right tailwinds, out governance, to kind rises, way advantage security to especially in quick data as kind access, governance of kind from focusing Microsoft dynamic follow-up data the

Yakov Faitelson

fall Yes, regarding it's essentially automated and completely you detection. different. What outcomes giving control the we're access classification just

can little way work very label they and pictures that VLP. a to the with of have synergy for very good that We lot overlap

building We very you up you the is lot blocks, not other our in of stuff the in can which it's a generated introduce but and disaster, the have want and and them, to a generative right AI if sure you use -- need VI, we partnership and to use As the solution to and end foundation, well work that you with mentioned X-way already. make to actually regarding different. risk very good

So cloud this technologies is all the we using of features AI that engage except -- can deliver models. in

from to are sure the make the. use can that in extract businesses order We foundation it to value

Operator

line JD the from comes Cowen. Hugh Cunningham question of next Our with

Hugh Cunningham

you thoughts on And coworkers our with team, I'll your families, echo have everyone Varonis. I your are of your X quick that prayers and our friends do there and ones. here and

up, versus to you XX% that anything about, we're licenses, uplift that's the of like pricing is mentioned go users X assumptions doesn't that? just include That more subscription that First talking any before. XX% SaaS. on

Guy Melamed

only. Apples to apples

So yes, .

Hugh Cunningham

is $XX these And you of subscription. place conversions customers, period existing in What are million, then that sort trying I'm these for quote taking of here contracts? million of initial the their that to out number, Okay. if at Is the existing number includes a right? end when accelerated figure a $XX or that recognition

Guy Melamed

deals the No. that quarter. within to relates only the

Operator

Stephens. Our comes Brian Colley next of the from question with line

Brian Colley

those how cycles customers. adds cycles. new impacted Can an pipeline in has the curious the new for talk seeing logo new or SaaS well if about for logos sales as you just you're as sales I'm acceleration platform

Guy Melamed

signs this we we as as didn't previous I SaaS with positive the customers, definitely And to that opens look customer I my opportunities subscription. sell the before, in have new at ability that on-prem new up when answers it we've tell we quarter. of you, seen look think to our said X before can So at I adds,

value. the think part So on-prem had as to I the introduced to we're through this before, quotes in of kind clean pipeline show past overall, the definitely -- the challenging us to clean of to were past transition, subscription. the some ability gives where we where said of customers I

starting Now on-prem received SaaS very subscription part is of as SaaS just the by been with customers the much the we're well of the value than because quote. . It's product the greater

Operator

closing for back Q&A our hand That's to the I'd remarks. it management of end to like session.

Guy Melamed

Look interest Varonis. to Thanks at this our forward quarter. meeting you for all conferences in your

Operator

teleconference. your Ladies Thank you does conclude for today's this gentlemen, participation. and

You may disconnect and time, a at your lines wonderful this have day.

Varonis Systems (VRNS) 30 Oct 232023 Q3 Earnings call transcript