VRNS - Earnings call 4 2023 | Varonis Systems, Inc.

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Operator

Greetings, and welcome to the Varonis Systems, Inc. Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Perz of Investor Relations. Mr. you, Thank begin. may Perz, you

Tim Perz

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

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

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

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

Yakov Faitelson

Thank us positioned full year transition XXXX of you quarter fast Tim, review discuss and we year good them. One despite we Thanks, We their key know to for everyone. our offering, and was lot XXXX of our macro discuss discussed on how cloud-native our we our early, excitement which growth in on fourth XXXX. ] automatically. invested years a several at we progress and [indiscernible] our like Varonis packaging we are ARR drivers SaaS dollars to in afternoon, the business our in million plan, to had to world-class joining end I data initial capitalize product, team our ago, to our a heavily performance grew our would our for today, customer allows of have XXXX and and build SaaS to have customers ongoing [ needs, simplified from $XXX approximately we challenges, that it secure confidence include automation million to but and SaaS

XXXX in have and momentum We that are achieved us part for up so beyond. the set far we of how

the mix our platform, transition review SaaS levels ARR XX% multiple XX%. happy progress This the transition fourth [ ARR the time our in us reflect QX line, our which approximately by year that I'm [indiscernible]. Fourth to and our of our QX, remained confidence to gives high Our complete XXXX, we million excited results initial we Overall, of $XXX and $XX.X of more to cash XX% [ end guidance quarter in detail. ] up the continue earlier results Guy see company came last of now XXXX, flow and a progress of will environment at guidance in stable expect are The by with SaaS [indiscernible]. the to generated we XXXX of year. year-over-year our XX% free million of level quarter grew SaaS headwinds. momentum to sustained total announce ARR we $X.X a of represents SaaS approval. accelerate million ] during of against descrutiny macro these and

We in step to grateful a how overall so the executed to expect our entire QX the the far. I'm Varonis and very direction getting SaaS in we team for realize benefits delivery have are model still with and we early XXXX innings to But just are and right marked transition the started. strong

Turning XXXX. now for our to strategic priorities

to three provides remind our ensure Of automated briefly lower can quicker that benefits little effort. and continuing is and significantly SaaS our SaaS because easier focus. operationalize [ which platform there outcomes, of Customers to ]. are deploy key SaaS transition achieve to SaaS means customers. be very of you, to will data And to course, maintain a primary an we is infrastructure is personnel and uprate with investments protected can

realized: margin to in larger we and sales are lands them benefits three see cycles, over continue They to are started of there time. benefits Additionally, XXXX evidence shorter initial benefits expect and that We XXXX. these key in

new compliance these that, overall SEC environment the events. service, executing SaaS let's Einstein like creating AI such detail. we new within data data each call for increasing in drivers: rule dangerous [ as backdrop, With drivers copilot In additional security disclosure which tackle our the awareness on that ] around more managed transition, cyber addition enterprise-generated see our of we the and increased to is adoption requirements the detection and threat three and environment of response

able much Our innovation has With have innovate follow been automate. and centered foundation for the to faster. been we data SaaS, to

and and wider and that an analysis, our we hands service, with a We operations, and stores, this ] business no this customer's monitor machine responsibility world-class builds MDDR them. SaaS detection and our next the the out team. Today, takes ] this little but teams because XX/X so introducing can response data world's [ we with customers comes [ ] our behavioral learning it customers response proactive the of Instead, first introduce and thin us. Varonis gone return paid protect managed is introduced in will metadata with automation no outcomes response our MDDR by coverage. with to enabled Customers very service longer offering [ telemetry have the maximizes the places system stretched on service evolution to unique our automation which a just leverage SaaS ago, incident the of incident provides One Varonis with Varonis that effort, platform are our more which enterprise from beginning. in Solr. security teams are of achieve investment. managing data gone with SLA of deeper their have is year we more We coverage upon

customer and and year forcing they correct we sensitive being is Another is announced driver Microsoft LLMs this, But to support put, use core cost will briefly machines used create organization. Simply generate to to data AI companies data a AI leverage large access growth opportunities review, profile. These in ] impact for or both security posture risk, to also weeks the companies potential for sensitive data last ensure organizations turn control, reveal an need wrong harness the improve most the increases security XXX language and take hard before, training organizations CoPilot. us which which integration Microsoft access and the overexposed more the will ago, at This models. tools sometime this better these power data security. discussing are data will inside e-mail, for not to data of to automated significantly can and Varonis. spend AI even of generative Without We represents to in data be of strategic need sensitive are a partnership Companies control utilize will when look after [ that ensure also once the search In people. X during sterling that hackers for what to their help generative significantly safely phishing exposed. gene be Microsoft more must [ be deploying malware AI realizing the data existing of strength data risks and quarter of cases generating with strategy, to takes ]. and leaves to the [ robust AI ] Varonis. ahead the means for has

result is in financial data a priority. Varonis of regulation, and protect unique cybercrimes risks analyzing a their increasing bank by [ Varonis crime spots of are spot As transactions. we to analyzing ] on a Main become more seeing this a financial data capitalize watches security help position data organizations by its money. transaction. like we as

limits Varonis it, and the have infrastructure customers the data watching likelihood to Our close which of damage. the

world realize to access visualize automatically safely reliant usage, data, it allows and is locate and never In it addition more more today. their companies This data, to data lock been has we value keep watching than protected. The to leverage them. it from on data sensitive

can to explain. dissect Pentagon used every insider, no the happen every environment that today, platform. breach, catch risk. to posted It steal example the breaches very The [ sales a critical to danger highlight sophisticated security insiders shares about come you the and we the organization to [ regulation. the wasn't nobody they were enact and able A [ ] thread has far what think much one have at access authentication, data. you breached. is damage until Wikileaks, If news insiders, Breach. governments major ] too biggest ] they positioned And be when the group bypass The messages we is with led data from are the data. common a but happened for it. Data ride-sharing Take threat the watching security Ransomware data. dangerous that of that company and increasingly large stack, the to best at something ] of These are has can the Slack perimeter hacker [ breaches And teenagers had with in was threat Snowden and multifactor to knows file rogue access

For for wins business well scrutiny business. Exchange to how X-K cybersecurity public have Varonis a telling With with new in It discuss real and material example, expertise we rule governance key awareness companies customer and and has in they in will that, to a couple and disclose regulations. employees believe the into risks. on required also structure to puts more with the days cybersecurity briefly estate customer comply determining is management of four these public increased after this X,XXX [indiscernible] help Form QX. A we'd positioned became also raised handling a management cybersecurity from in quarter. companies effective on breaches U.S.-listed This board like a took which be strategy it these disclose Commission company companies risk the impact December Securities their within

risk the over during in mandate organization had executive that contracts organization. data [ and containing of ] will across to open records its environment our PII an to team thousands documents sensitive assessment, discovered Our everyone mortgage find hybrid employment the and XXX,XXX

this Our evaluated automatically the team data stopped customer only and multiple two ensure was Varonis their Internet even But breaches data ultimately, response other protected. attempts, who could vendors. one Varonis

Windows SaaS Edge, [ purchased they Varonis SX result, package a As and for ]. Microsoft XXX, AWS

We example customers interest is continue a customers see municipal a large convert Varonis XXXX. SaaS. One strong from Varonis to to in became to wishing on-prem that subscription government

our are We for enabled and organization broader and department. this team the on-prem the behavior win their data monitor to user municipal protect leveraging single organization. abnormal environment to find had mandate The in protecting to our software success a sensitive

them users. from and their and XX,XXX just SaaS This Exchange data savings. XXX, for Active for Directory is to automated security and their Microsoft XXX Windows, an SaaS improved teams. Online, users infrastructure ideal scalability quarter, to they expanded which remediation, package to converted allow purchased They because for fit protect SaaS will training without them Varonis

and effort team team none of results. tariff Finally, XXXX, about is and in in together, enthusiasm would our about for enough we us possible of had a innovation important like the level it thank event our with these month of kickoff our the changes sales and for ago, was New York to cannot magnitude during We the I bring speak we the of to energy amount here had event.

but reception me and the We as of platform of billion With also optimistic SaaS business beyond that, leaves ahead over Guy. $X about call our to as momentum we [indiscernible]. XXXX, the let approach Guy? our me are excited turn we to look not the only

Guy Melamed

you joining Yaki. Good Thank for afternoon, everyone. us Thanks, today.

SaaS pleased adoption quarter against the are fourth challenging stable our macro results, which reflect but of with Varonis strong We backdrop. trends the

continues to gain SaaS the our SaaS Our one now after year ARR. and momentum transition approximately represents total company XX% transition, just of in

which XXXX now expect this a transition one previously is outlined. SaaS As our momentum, to we of complete year result in than earlier

where is coming our we've total subscription and X company's year. two customers SaaS will this is second customers. new described begin when to X phase is from selling on the As on-prem transition, during product began a of base we introduced in the transition SaaS XX% the of to our ARR which Phase reminder, transition we when of considered complete SaaS. In be in the platform Phase earnest past, XX% phases: occurring to our half planned converting is of to focus the the installed our is

year. free year-over-year, line flow expect margin that growing illustrate accelerating These the $XX.X we and of even this generation the million XXXX $XXX XX% XXXX the of million ramp-up of cash and and year first to generated phase year momentum We with linear quarter drive top cash further ARR of in be from in anticipate in up in last not million, of each leverage transition. ability XXXX. We will our increased growth, XXXX metrics flow and which and $X.X ended

the SaaS fourth We was customers that the be up amount realized convert ] but converted which revenue. million offering. In to the SaaS renewals saw during revenues is $XX margin. revenue to quarter, from customers which million reported revenue more existing that of Our guidance guidance XX%. million and which full XX% ratably subscription, [ to booked the of of for had quarter the our previously our X,XXX To we represent Because converting existing customer these XX%, versus again year year-over-year. a subscription and clear, XX% SaaS, to [ and a mix ] it subscription represents does when led $XX XX% SaaS headwind fourth conversions the approximately renewal as are our ARR quarter. SaaS not of flow. ARR of $XX versus year new operating conversions, free our [indiscernible] of to this on-prem $XX recognized worth on-prem our from The impact to which with We ended our upsell of this uplift quarter accretive new include impacting approximately million cash QX net was in business customers, SaaS we causes

Our retention dollar-based net end FX. subscription of at customers was XXXX the for XXX% rate adjusting for

quarter fourth results detail. now in Turning more to our

shift cause flow with cash this of for As ratable the X% contribution licenses recognition deal's a is reminder, from where ARR headwinds income SaaS indicators statement subscription to on on-prem margin recognized ARR, value fully the approximately are free and the will leading a transition. traditional initial The metrics. upfront model delivery revenue

used we had use statement previously, We word to progress quarter, I last which faster approval traditional screen I X% transition headwinds we our see total the same will if light. In multiple environment word, our is through these fourth [ I positive in stabilization. million, up to one QX we As in a said more revenues levels the year-over-year. would experience we the $XXX.X of with income are to metrics. the quarter, continue still headwinds describe were But the ] view results. impacting the which deal

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

for $XXX.X in non-GAAP income fourth the representing forward. compared the discussing which efficiency. was the $XXX.X despite quarter were XXXX offset the fourth of in largely headwinds, going SaaS quarter gross significant revenue XX.X% million XX.X% down totaled statement, by profit fourth to expenses margin of I'll results a Moving be million. Operating Gross platform quarter

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

to our SaaS last increased headwind up of having same quarter, upfront recognition as our compared our during contribution approximately which to the leverage as versus last recognized result transition, to in we to improvement the of XX.X%, fully sales margin growing on-prem strong drive was had early subscription the margin operating are a quarter year. During products. ARR the a from ability significant margin ratable transitioning all while stages of mix, bookings quarter even Fourth and The X.X% reflects year, XX% SaaS. incremental the ARR

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

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

a on-prem are increased XX% million. $XXX.X a recognized compared which to XX the headwind our year-over-year the recognition booking of from XXXX our million result was to CapEx revenue results. Total million of full December subscription year. our the versus recap upfront to XXXX, For of months rate had we briefly ratably last in generated sales In I will X% grew as $XX.X compared year cash XX, to to XXXX, $XX.X now we revenues compared SaaS $XX.X million having XXXX, and million last approximately as operations generated $X.X same products. growth our ended year period in mix,

to of which mix, our X.X% sales margin increased a upfront for of our to XX% on-prem XXXX. operating SaaS in to a we margin full booking fully subscription result having Our operating the are as products. compared In recognized compared approximately ratable versus headwind as our recognition year had X.X% XXXX, was XXXX,

Turning now to our XXXX guidance.

responsible continue factoring be includes which XXXX. throughout our take approach multiple in philosophy, layers ] deals of the guidance We cycles and continuation would a to [ to long deal of

has flow to growth, top balancing leverage cash line generation not Commitment and Our margin changed.

While committed at and also tailwinds the investments we that Star guidance, our capture Yaki are we see launched we to in capitalize These longer-term discussed. ability the already same also the our shows the business. of while to on order opportunity time, in to invest that opportunity that into our secular see metrics we which and baked an in business providing improvements the health transition, being accurately measure the generating metric. When this transparent invest North to to

turn our basis. we of provide final attention also of the of will now [ we time, monitor metrics providing main SaaS total As will the transition, of At be next Phase transition. X phase SaaS with SaaS an that effort transition, the measures progress revenue total metric a as on completing final XX% same to ARR throughout quarterly focus to which towards you help SaaS ] is this our progress time phase, the ARR. In that of we this that percentage XX% as is this a be provide the the and our mix

we Going vast to customers forward, purchase new our offering. of expect majority the SaaS

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

cash of million, ARR of XX%, XXXX, of flow million to the representing million, expect grow flow, Operator? the our we $XXX which representing $XXX Revenue regulation as our $XXX of the For platform The of happy to million that, full AI to new transition, and ARR SaaS growth our confidence of growth million tailwinds of $XX momentum $XX Free Total income in of cash to North metrics: and look XX% take excited beyond. adoption assumes shares operating MDDR, questions. per the ARR, of million, we star us and generative to $XXX year $X.X XXXX Non-GAAP net of contribution the million. three in gives Non-GAAP with ones benefiting range outstanding. In margin. progress we to This transition diluted by $X.XX. stage initial income X%. to are $XX.X to of summary, diluted increased transition, With existing data-centric is XXX.X million our customers convert the coupled $X.XX the the finish and to million to will share X% we and of SaaS free be

Operator

comes RBC. question Hedberg from of [Operator Instructions] Our Matt line first the with

Matthew Hedberg

little congrats specifics But the a And on generation those. [ one more of ], past First But can were cash this of the is bit to Microsoft to free channel. interesting news the in that Yaki, bit go-to-market the momentum, the I see for partnership? both the of it's momentum I about great equally you about maybe pipeline the off, some know SaaS think result way is more flow. the there functions sort impressive. any talk guess generating? maybe the about releases quarter, is a Microsoft question,

Yakov Faitelson

copilot for tremendous of a innings, early but still with essentially, coming but opportunity productivity organizations for Microsoft is lot It's risk. a

not So access data what related get the that to business that can is for data are and that the them. is using is us, that digest that they control user can is of Copilot is for control. to access the security XX% like any they without they can on get product the going a and access a model is average happened This data relevant

information They policy, create think product high-value that know a So you out are. completely this will happen. massive risk. what they is label staggering where rate, don't not And will of

a bad they And like So automatically, blast the need damage hands organizations. order massive it'll you that close radius actor, the inflict on in is a the if us. recognize other that in thing, of tool to

teaming are with them. we So

going are power that up in They and we make also they foundation to unleash and they're well, that mass you conversation. But are in risk, good but will ahead that to be release are as this it's to still we every very tools. It's the think not control it, before this data distribution of with of organization in will getting understand this this a make really to early that positioned the with product. we innings. sellers the important order sure with they going the to these unleash of coming to well teaming over that need still and of come are -- We it to understand well. really It's the do are the risk sure

We are excited opportunity. very the about

Operator

line Our next Kalia question from comes Saket the of Barclays. with

Saket Kalia

a for higher-level protection? maybe products of SaaS data are see still some but SaaS your TAM there with customers. mentioned early I with transition, to I of you on customer time a where transitions a in spend total couple expansion customer question. SaaS? anecdotes bit you lot move Varonis' think examples, expanding Do you see here the some a think of areas you of know expanded what of Yaki, other that you, you it's addressable little can spending here of starting the understanding software that out often have And are in market. that the

Yakov Faitelson

very it's And course. Of tangible.

you this, value it that way proposition. from the the is So see only stemming

First, it's classification, customers. We And can many data for tremendous amount threat of the so detection much but just more the MDDR, also cover repositories, automation, can response, with do the data we ease, automation. protection. the the more with

what of team see but we in they of product to a completely as organizations aggressive, the also TAM oriented are going in And make the critical world-class more So repositories and and that have mass they see they if hit can extension take if see of going critical But more they terms cycles are not all and the future. the security operational release now innovation Snowflake have us coverage load and it really is to buy a will data now, the in to on all, lot sure the release very you you will the are and with will, a you data. you marketplace. we that

to We it. are going protect

and not Just value you data data a will have have in automatically if without will a you effort. terms not breach, probably, breach the of Varonis, any have today, you most

just You buy to platform. need the

expand So a innovation, it's reality it's that or of the value, drastically and repositories our automation, coverage the to distribute terms also it's thought from and commercial easier everywhere to way make from the much can marketplace. from increasing really the you take and a just it or in it for to us data

And have see We things our innovate. you'll excited are is more very related data, about stuff situation With like connectors that. copilot, and that the you ability CoPilot. like to to

expanding need. definitely the it's So

Operator

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

Hamza Fodderwala

throughout more with drive for conversations up year ramp conversation Varonis? your often that coming Yaki, the for question is for do deployments. a data with on just obviously of you're prospective expect data their that and for customers AI We're to that. governance how curious, around focus customers, and lot seeing Big how and And sales security you I'm generative you. companies focus these prepped ultimately getting business? as more having your

Yakov Faitelson

applications, all and you same fraud data the infrastructure, which they IR has all it's organization ledger issuer with extremely This can data. company, you is It's Then every single data part can almost have us, bank they can and security, potential way a have This perimeter can is or will of always on the every in you A ] understand the set that it's make you for get is the more And for do seeing we service. world that really devices will to sophisticated every breach, you that more conversation. upside dollars. up you a data I breach the bring tell they will have happened a And that SaaS, can't but a the with and have them breach, manage probably, a you your is really the data. pay data sure other people will the anything, most -- that and don't can stack. guys lot system we'll down or that you they damage layer. fast. The credit they well. account, about they of objective and transaction share and sometimes, data on lion's with give is avoid the very ask provide deliver a millions see that main tell bypass it's obviously, coming almost a they of it's the need Everything identities your business to never objective? you They what and spend think the And if will So the breaches. take if they sometimes really damage make an uptime. what on sure be And the to say security, other smart super very about reality the people today with to organizations, the [ the modern will security cause not have you breach, root that them, but without understand card data. it. Constantly the detection you small, very

organizations think It's problem organizations, it. hundred will the So we once, or understand And -- it's things exposing get that it. thousands it because the accelerate definitely I everybody see Copilot get and ransomware, it's really, they will [ of ]out it's definitely, like like if Copilot. then

going is blast expose radius. So to the really Copilot

forces And we a can So with also we're over for we very Microsoft. that excited be are feel that it's time, good us. joining -- it opportunity

Operator

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

Brian Essex

and dollar retention and, I customer 'XX? how for of drive better as into net that, to might a calculating would I traction Guy, upsell factors we cross-sell, that you guess kind that go we it's mind little look a might bit? that we fiscal how guess, growth, your about whether unpacking expect maybe think And into rate

Guy Melamed

had Absolutely. of at you were XXXX, When factors there basically that NRR an two in look impact. kind

the six months year. the to was friction the The first of related the transition in one first

definitely We're deal an and sitting impact macro of factor we here and one second in factor the environment, in started definitely only of about NRR. SaaS today happened of there. And second through in in lot year. the we the and had cycles But at mix go talked that terms friction was sales scrutiny, impacted out remember, you the longer a of year. that's which kind terms the total that months XX% the ARR, a If first we lot had six to

tremendous SaaS, We're them kind at our with customers, look the we natural protected continue them converting make to and been to lifetime that us believe generating whole value terms them customer and in we simplicity of I generates both happened easier existing for platforms. that that. It opportunity now we're the as with really about offering. the can very land, customers, much the think opportunity on are changer XXXX the as to game conversion MDDR excited a kind you accelerate to having extremely a of very encouraging the for new in the happened it's and But additional with better the -- way, sell And lands offering way. with SaaS of protected better larger terms that fact look at the in And we product even our in for which in us of of is them XXXX. of that in in customers terms a the they're us. offering a to

and larger into to an are our for NRR those grow of opportunity higher levels. All us

Operator

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

Joel Fishbein

Guy, wanted be priced? that terms And color -- how revenue? the to to looks on MDDR give like you curve think time little offering. ask wanted in us to will then of what Can about just you do a the I I adoption

Guy Melamed

very proactive a have extremely offering reception response time date, the look some at the question. and has customers now, we've you offered for It's quite kind of it positive. our When to been incident way good received the team

And you from now the our there, generate we've generate terms uplift to all customers. of for is the time. a look of it expect the So kind we in provided what we I healthy MDDR, can service some as we're right doing ASP and that quite charging think for at

become and to would that help actually appealing opportunity the for so that with expect beneficial a to a multiple time, it's on So over for want company. be service in also can that it customer and improved customers, don't protected over time. but increased customers is at believe and renewal software margins. we time, It closing can MDDR it platforms same generate feel can We help would only the with And the that is help us with extremely not can we value that upsell licensed our rates. rates platforms. We to see additional

plan option customers. all to a comp to MDDR it think I our way we've in XXXX the an the on structured So introduce our fronts. of it reps those for makes has The no-brainer

to benefit this a benefit customers, a think So significant organization. I the And expect but adoption it's extremely healthy our as an year. be also I for for us

Operator

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

Andrew Nowinski

ARR to ask wanted I total guidance. about

mix so XX%. is your positive revenue have The SaaS drivers outlined many guys You different of growth tonight.

pace over fastest think seen we've last quarters. it's X the the I

getting lands You're SaaS, mentioned. getting on you're XX% that price [ as ], you to XX% uplift larger

course, drivers, fairly with new deceleration. You growth but outlook got your the a expect ARR -- year? growth just implies and Microsoft deceleration we would MDDR why ARR your in integration, service, for this the a those I'm given of steep

Guy Melamed

look and math and think at, makes understand I that the when the you're you doing the So you it numbers sense. I at look math, that completely

you do prepared reconcile extremely bullish we've provided. to look the had want we remarks, that when I think I guidance tone, at that and the with

and we've at the So favor. today, we've tailwinds happen that we've us when everyday that had talked and the from drivers before. our Copilot, shorter many there's the three never look the things MDDR, -- changer what never Yaki larger end just the for us, sitting months on are we up seen is months the here remember, on and we really But breaches additional so SEC as cycles in game years, for working there's about Apart increasing seen you cybersecurity deals. is our XX sales which introduced. believe to regulation have a to which you also

looking It's us that bake it. the philosophy the look in here assumptions data years. into many the in sitting you we've kind seeing something to without done that many, have and right we not when guided of at past positive supports the that for past now in at for guidance So our

that a be I've talked our long believe kind seen of over we of about, favor that as our past. the as ahead really year a have those the the are sitting trends February, We're haven't that and favor for year as in see year. progresses. working in we'll update And mentioned, it's past, things a us. in will in We there's I starting So the here happy year. point we that of our work the guidance we But lot there's done to in

Operator

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

Fatima Boolani

you. forward hoping expected accelerating Guy, you transition the to this of timeline. for did because the us I degradation is how year more you're fact you was actually that the much margin operating this one's anticipating that could pull help due that is unpack for

So of of in is impact certainly, much mechanical artifact appreciate to in tied parts business? you the said But sort believe I to we versus pertaining certain reinvestment. on of a some desire this that. comments your P&L remarks prepared just mechanical that degradation to a basis how to some year-over-year reinvest the of the organic

directional great. So on help that would be just front some

Guy Melamed

advantage ahead take but day there and That's combination on a in cloud it's ] recognize they're versus very sale is question. it. it of the way [ in kind ARR terms of where some up there's costs us, in way expense good this tremendous the of to the think And understanding you the of want ratable opportunity we a a and accounting terms I that the of of the the of recognized a of also

you on free margin that couple we years, look leverage we've of cash last very growth the at make focused been to of sure top and kind the philosophy when So show our line over generation. flow and wanted

we provided as we Day XXXX, we feel March XXXX. the margin think guidance by about in kind about extremely today, during the here that sit confident a of Investor XX% ARR I contribution of

significant progression, levels So there well. significantly contribution we've kind from as ARR of of flow, free moved to XXXX guidance improvement shown XXXX from of in guidance and when levels improvement 'XX you terms has as an XXXX the at the even in 'XX a the improvement look cash well. margin and to XXXX, there's

So what I of line we're investments XX-plus want of that a we ARR growth return to of today that making some the think of ahead the to top is are percent. see kind

advantage So about, definitely to for us the And there to with advantage take I tailwinds of. a a larger we've opportunity. of that that investments think the believe opportunity is we talked tremendous take making we're

Operator

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

Roger Boyd

conversion Guy, I math. back wanted to to go the

kind of the know you a back little any you skewed that will takes conversions ramp-up, and to the accelerate. without converted I I which any $XX in behind you're of on sales expecting But sort the cut formal SaaS assumptions that towards puts think of expecting around what renewal the you're license over terms You And Apologies from term here of rough it. alternatively, in this, half kind be XXXX? year missed year. this of go-to-market noted if million timing, to really it

Guy Melamed

is out That out total XXXX we will at million. We of means XX% finish for basically so And $XXX XXXX. end Absolutely. at finished our percentage with by of SaaS of the ARR. SaaS ARR XX% XXXX assumptions million of total that SaaS $XXX

in that million have XXXX, increase a SaaS of XXXX. SaaS ARR million in increase significant versus that we the basically $XXX a generated So significant of $XXX means

new the So sold as obviously, would well. SaaS but pretty our significant that the to of themselves, assumptions are be in conversions that increase there significant also customers will percentage some be

and they the I customers from reps think in getting because top is feedback SaaS terms offering product. And of -- renewal. our commission a that better the a retire understanding from our prefer the perspective, overall we're of anything on that it's quota that on

uplift from So that that that existing retirement. get on in an conversion, that goes towards the they customer quota

win-win expectation win-win. team, XXXX incentivize. the way XXXX, that's million an surprise a is of win us level the of in actually for that's great for a it's So It's to and customers, best for conversions of -- acceleration that why the a our and our by $XXX kind that And and it's end it's bring win a to sales SaaS in of a for we the saw which this would been our year. has

Operator

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

Chad Bennett

that Guy, way opportunity, and deal? maybe of Is of ASP is question, quantify in see there about traditional MDDR size difference MDDR the just or difference. SaaS prior any deal the a how to versus a you just uplift talked when kind kind material the you

Guy Melamed

the we adopted and teams here the today, you get can early just same to and put to go it even in we don't value but just tell couple the as time, quite our end spoke the does And because uplift. with to need actually our But SKO number day, the a and customers I win-win already that It's MDDR actually the of a and quotes sit of it's less provide the [ early. -- significant during a with ago, an at we've vesting some a about We've very protected. so we nice customers. they of want it be positive yet that at people way. of a the they've weeks very back had uplift, still, us that ] sales generate healthy that's I to the seen pretty of seen but where allow

Yakov Faitelson

is that and service be win-win of are using get completely managed security providers customers protected and there little can terms value with The data us. at many is in they that times breaches

capabilities, the you most it. for good the the thing footprint other as a MDDR, you platform [ ], get for you CII And [indiscernible] budgets get more there So much value. for our but a And we order as you to with more need more invested analysts. licenses AI will, are our also have customers regarding in bundles, just the to from not of us, if our

software. are We selling

to much, interfaces the and robots that people services that productive learn and doing much, the response really build repeatedly make system, they and professional The robots incident what more it. they provide very can -- we we much fast. and So sure learn our behind build are be

oriented. is data a we and but the driver beginning, It's think response unique attachment to it's has ] manage the offering that that detection tremendous this more first very So [ is It's that bundles. opportunity, something just buy budgets. we that to think tremendous

Guy Melamed

we'll And and the what in just more year see. to much color provide happy be through on as to about sample size go the of uplift we and more we of that, touch MDDR the terms kind we the meaningful, see that becomes

Chad Bennett

maybe follow-up. quick then And just one

seen to flow kind transition, whatnot. conversion. year data is have and have deals in XX% in business repository case of volume from SaaS just deal that of seeing Just amount full good through are you you're Yaki, we've or the Maybe XX% ecosystem in a uplift standpoint? use pretty Is a of mass data cases the a of of realizing maybe deals of any significant? the new -- that quantification more are terms opportunities new use -- three you decent that I now SaaS been a you on we on and -- are Microsoft critical But of repositories two there of now outside these that just there that know for or

Yakov Faitelson

classification we oriented. people context, three Threat control data that obviously, doing is give making that then and without is right then the The robotic and only that depositor. Yes. remediation accurate is holy sure can every things a and the are the response, we of grail to data, it detection doing of access data access extremely any processes, right are data well the breaking business very protection. which And into of

position fast. SaaS structured in semi the [ the We and they IS to Blob in is And NAS ] e-mail in these very biggest we and moving data, AWS just the But have more sales -- bring this ] with everywhere just to don't they are coming [ into and the and And are breaches, you protection world up even now it make user. breach, of the look help get. effort, Google answer now the structure application they all to credentials, getting automation [ databases, put ourselves. and going product really folks are of and AWS, taking they're in will phone. is And at they it them, we data level to almost you it have we Because we ] one fast best thing other SX [ to cases. set data to And devices level move repository the one from are that ] and organizations repository to we We need this that becoming three us Box doing the use always are we're in, and ], will get this of if all have And enrichment. need amazing are you a of we and needs applications we they the and as try and more go the [ really everything is how ] [ all data very, and world. Azure, that someone some done, you most protect the then they going we we also, the than any go, to. the other. very are data And in are aren't RDS from these Azure very, moving and we to on-prem storage for repository sure we with places that do went automatically. Azure, on then is use of have to have This

Operator

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

Jason Ader

like for doesn't much in Just the in do wanted ahead incentive to customer. your that switch convince I to XX% new them? how [ version, have provide know ] a you the for process of how try price incentives of little it with to people to XX% to term much expiration seem you to that to an practice, ask work over SaaS kind uplift, does you a existing bit of Do conversion the terms of wait customers?

especially base? customer what of where the you with are half talked So as things the you doing XXXX, existing of that the second activity kind some accelerating think some specific about you're about

Guy Melamed

XX%, incentive them I'd actually money. significant the a of So by cost saves Jason, start saying to is customers because convert uplift XX% that ownership our that, total for

price they terms of getting could in they're pay people. especially And of hardware, yes, So better it on save MDDR, save at on the the product. even save list. they much, the end the on more the much and with the day, they and offering. more our But a them

So an it's incentive. definitely

look at our the of And renewals, if when we we As take look customers. from our kind the we queue offering. really at

period, then and wait conversions. about the talk would to want until renewal the they customers Some

can SaaS you to they they be that's ahead it that don't of want a comfortable. I in they now. most tell would sure We subscription work a they and pretty renewal on-prem they with they protected make is Sometimes, time, process. side customers wait, getting that renewal but a that the automatic want have our way want the to on feel

the about but for going get too to is Obviously, getting There's ask a upsell, renewal, sense understanding want the conversation price Getting PO. requires conversion kind You the of the of TCO would you them just uplift, the a pure in terms over on. you types what not [ much of straightforward. position money renewal in ] pretty the it general. but make for how saves offering most talking them,

additional protection platforms. and sets it's there's up better on opportunity want our see So better happening It's value, upsell it's more the additional that the automatically. not they providing effort But much we there. And of they'd would fact an more. a convert protected product, for to them customers. because be and to purchase can them they

the But talked we happening conversions That's in the well part historically, second it's as a seasonality, our about why of conversions it's more towards see you very from the accelerating the Phase Obviously, the renewals second part of we obvious the I year. win-win within happening also of year. kind the we accelerating we're perspective, time reasons. on why the So for year and that. way that's and spent look at focused and the have, so

terms year, this to with here we have at and every conversions sit So we convert in expect as our year, up. a by end we But million pace as picks single than more getting to to SaaS of the of saw higher dollar this customers today in XXXX. $XXX of expecting we're expectation I think

Operator

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

Joseph Gallo

just bolster recently, have of or the as you think a talk And upgraded then should about growth Can new you in about metrics or traction how then just Cloud? as DA profile? any launched the protection, cloud. quantitatively, for we ARR Snowflake over you're protection size guys from DA time qualitatively You mix percentage And products Cloud? DA seeing many you've Salesforce

Guy Melamed

remember, where offering whole, you our platforms SaaS have offering about as the now, at that some they a buy through customers quite that we're on Polyrize the talking terms if in for definitely the Joe, of there. the to additional SaaS platforms conversations we're only on-prem, time with have and we that the and looking not we but offering used also they're acquisition seeing

of the introduce fact healthy. the I think with products to in believe helping kind until that far, off in saw the definitely Office the as QX, they talked it adoption So the that happy of very we do But we're we was and much engine. new we in terms think takes and and saw progress automation take as XXX we overall, conversations. better can the it It's we so time we increase XXXX. Obviously, about can we've with

benefits are in very much understand They there. this. Our with line reps the

talking about asking to it Our customers are us about and it.

So overall, far. progress with we're so happy the

Operator

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

Shrenik Kothari

[indiscernible]. kickoff and energy about you level earlier the the talked call sales event So of in Yaki, the

incentive So regarding about just ramp for Phase one follow-up the half question Sales X the second to previous specifically. force the

any due are yet, they commissions. uplift the kind not selling And so implemented [indiscernible] momentum have naturally you was from far, additional of monitoring Of SaaS SaaS. course, to for higher

And margin first does framework elaborate around drive incentive which of incremental and adjusting motion force the OpEx, this your half? half lines? tying you the also, time kind and assumptions can go-to-market dynamics sales guidance, how related into these second incentives conversion for you're So on

Guy Melamed

take I'll this So question.

actually sense conversions the incentives In reason And incentivize you in that terms it's whether this about at to that way, are seen the We the in from reps because conversions lot perspective to happening tell positive it's didn't the the for throughout it we conversion. on benefiting momentum we the on in discussions the natural fact it happening XXXX, put additional a that had from XXXX. internally definitely momentum of stage way. work and uplift current dollars to we've commission see the very a XXXX, in of and a I year could what some natural fact and any to makes talked the the a with is

healthy of additional additional uplift. and top There's we've for on then XX%, increases their anything some renewal are additional retirement conversion higher that But XX% those uplift. XX%, goes amount beneficial if licenses, that's that So and seen reps. our very quota a users, than actually definitely towards that requires XX%, platforms,

if and XXXX see will. the that that. those in and work happening put customers to Obviously, it's we need a currently benefiting accelerate on force the need because is structure see to our we way any sales with do start didn't is we with any incentives But uplifts. money related So to that I to benefiting there, don't our

And terms XXXX more I dollar has about versus I of and conversions years also actually as X Phase within the accelerating talked year. kind the think previous single magnitude themselves, as that the uplifts, we accelerating Phase see throughout increase we those X year year. the in within where of every

can where provides less them very SaaS because necessarily we than need much can offering MDDR is in to better it provide protection the offering. better and the customers those on-prem a that that's in us a us past. people an offering, from actual puts the the And protected. I customers, for can value that They good upsell think to we subscription And product provide game to don't with our teams a customers the have because and the product it benefit think position to provide have that place. same I changer in better is be

of all think positive advantage I are to that those take we want of. So

Operator

JMP from with of Securities. comes line next the Suppiger Our Erik question

Erik Suppiger

need to And be you the that if term, of with that you not On to going or across the base? using longer that IR you your have? you would you additional get would can that you team MDDR penetration just say what add did do think look people? customer service, Is you type

Yakov Faitelson

the obviously, is the team more terms AI cloud profile in But the terms early the of just using an people, still people, we'll significantly our is in of have IR we moving better. penetration, this of forward. service, communicate we from as when It's productivity need but will thing

You're productive. talking be about more Xx -- it can

software them, So It provide customers analyst, and have, be with they to a for this for sure that to robot. key is for the are analyst. world-class The make the partially will key SLA, a SLA very us. many to an a us using we is premium strict a be with service will it will

this works. people much the The software productive. is much, So is it be to more way augmenting that

Guy Melamed

the on give additional into look the are in to kind we color And I expense want Obviously, some side our at already guidance. this. terms as baked of expectation of our investments

we provided response success, but customer IR, years definitely a some we team the additional in couple incident in investment built So of proactive have now. for

just charging we're for Now it.

can terms of it margins. So in from actually benefit we

see still company. expect a MDDR So changing that, over that will have margins. and as I software before, mentioned time we don't software-like We we're us

Operator

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

Brian Colley

directly I'm looking before Gen to So customers in curious security uptick deploying that's enhance if AI. they're you've to the data related their pipeline seen any

could realize just what in to Gen terms to all the AI rate think but see early, growth it's I how trying try still So of impact [indiscernible]. you

Yakov Faitelson

with to be will to conversation. it. every of it lot we up to control, a the are need it's If opportunity but think many way end hands this users if will actors, bad forward we that just definitely with move coming risks, up lot People that you to and we and confidence the solve security we excessive big God This a -- What terms data for forbid is -- say risks it's overexposed of need will it's be ahead going on of realize to can risks The never AI data it positioned with basis uniquely problem. this be going understand a that and every of they in daily just people but a almost with #X with these know, conversation. comes risks. comes of in access security it's that and tools in

Operator

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

Rudy Kessinger

in good the with exact you're that quota on customers their point And new guidance? your impact ability QX? net renewals. them Guy, And amount Does a sales to for I uplift is giving on relief converted you new ARR reps, know then your million color, are into not how and $XX focus starting you're on deals? but that factoring giving

Guy Melamed

Well, part I'll your second of with start question. the

the make customers. account is can plan focused they to offering to allows don't is managers sell SaaS that verticals new the if tell to been set able to. not I tap think and comp customers. opportunity XXXX the to sell had us you be I we've we've never and on new customers that into significant that extremely way acquiring up markets will money The

couple forefront XXXX, over we've years, can of that's actually of and customer new on the the importance in at I you our been last that So doubled the philosophy tell acquisitions. of down the

opportunity conversions, a of much lot offering is a a leverage of a way. perspective In and product we product in our the is because financial there terms want offering to as and SaaS from much to the SaaS us more better customers with well convert a the provides for that update seamless

us, a there's much a for benefit and it's product for better So our customers.

So sure the million $XX I'm is not starting right that point.

the historically in remember is QX quarter dollar dollar QX terms seasonality terms. of largest our to in of that business a is the year. the And been within terms, where has have then lowest in You there

QX, it up So dollar in quarter with small year. it term the starts throughout a picks then and

we of we this -- with, to the year. the end assumes consideration. this needs the our kind for QX point starting by as think So want into terms expect is that QX of saw million of than to actual progression expect be should But dollar $XXX guidance expected we with to we QX, finished get good starting dollar well I at a to the baked point to just significantly higher of XXXX end same that million in year offering XXXX terms, that in $XXX the a SaaS and as QX, be get the

Operator

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

Robbie Owens

some last comments there, down new ticked year-over-year I the down of a have want noting to drill subscription bit and down years. numbers that the little four on ticked frankly, your net for

the for cycle and this SaaS? churn? comments customer the it was was around curious to end, is some Guy, the Just know with color, you your change. of in retirement? Or the in talk just guess, I to year. way friction that more regard did incentivized Is SaaS sales shift timing the acquisition force sales about I to throughout with new it terms So earlier, quota Because of

Guy Melamed

value no at SaaS versus for offering. are kind opportunity greater new that comp of of And our increased has been mix new lifetime of look to customer significant as of very, you a kind I an of structured strong managers been mentioned think there we've But I not the how -- philosophy the our that's existing account be think I plan matter existing our us. customers. don't has before, And definitely much the in with trends. business, seeing to we're new sell in make will very money where able both terms they business underlying never there's XXXX, why if kind customers, with

that to important when in you it's think you it a XX% where simple uplift, have to exercise it's time. an automatic way you put cost. PO. subscription customer, benefits, when renewal. them to I to have we and in note you and happen the an the But about Renewals to XX%, them a convert get in get plug talk you not about excel you a It's talk requires try the on-prem that then that

Yakov Faitelson

parts. transition terms It different of that the different contract review. Look many it's this you security in just proposition, moving I will terms is that, tell so a in value completely of though, at different.

-- to in ground magnitude is terms of to sitting are order The it you today, support great, to of the faster just it is need to you so I things the think than the I a will that here SaaS. There will that but -- great It a so far the overall anticipated, tell the it need many logo. we right make -- do works. it. daily sure moving details. that will focus to fraction customers. it's attention in that of self-hosted platform you you cater the with the versus do on just much it's order way ticket, is common the And it's automation, just work It

way focus it. laser you're the Just -- have on doing you

Guy Melamed

on of new to customer And just touch adds. kind the

new SaaS to and been to I open we it's but new opportunity for still markets of haven't early, able up think customers does sell to kind that before. us

is the years SaaS our will of they're ahead. SaaS at support years look to you allow which healthy. of think sell fuel in very new I higher ahead, through we of customers advantage kind offering kind look to you As take the generate additional business growth us to at ASP, the the when that and this the the And offering, -- that as will continue

Operator

line Our final the comes Josh with of Tilton Research. question from Wolfe

Unknown Analyst

Josh. for on Patrick is This

one up clarification composition path year, what the with look quick targeting transition time Rule me. targets the of XX are way in transition change like? XXXX we a the long-term should a now the the Day? XXXX? provided should that you think exiting being And that Analyst now of Just the for moved does And line the about all to at

Guy Melamed

reduce bringing cut it transition still kind four and the $X laid not period billion happy March and talked at actually that I of one the transition to year extremely changing but we're that's the target, we're not and about very we're years, these that. year whole XXXX, think excited to XXXX, We're lasting of we in shorter by that years. we five When plan out about one

rest the is intact kind So of staying

Operator

would turn Thank back at for Perz you. There this further are I no And closing like comments. over floor to questions the Tim time. to

Tim Perz

at of Thank you the quarter. in interest we to conferences you the with forward meeting look all Varonis, this for

Operator

This concludes today's teleconference.

time. You may this participation. for lines Thank your your you disconnect at

Varonis Systems (VRNS) 5 Feb 242023 Q4 Earnings call transcript