VRNS - Earnings call transcript Q3 2024

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Operator

Greetings, and welcome to the Varonis Systems, Inc.

Third Quarter 2024 Earnings Conference Call. [Operator Instructions].

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

begin. may You

Tim Perz

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

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

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

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

Yakov Faitelson

our Thank you key to of for quarter and I everyone. our third good Today, and Tim, transition results. our review discuss today the joining afternoon, Thanks, SaaS us progress to like business. drivers would

would First, on Varonis solve. as I to calls, we exists do remind why the and problem like these you often I

valuable data business. people, is its any the most to assets of Next

is for cyber organizations data. their and focus bad target for the on it So attacks primary and perimeters securing attacks. Most endpoints many leave actors on but cyber gaps

With the visualize emergence data-first inception their the of our AI, taken cloud expansion customers sensitive of but improved, risk respond which approach on our detect to and threats has and the locate we increased. to data of and collaboration allows and company, productivity sensitive have the access generative Since greatly a the it, to have it overexposing to security, data, who lock it. has down of

way. can their use our safer SaaS we MDDR time protecting a Varonis effort our Now the customers spend and more and save of managed platform, more in much with allows even data automation and Simply put, much collaborate our protected. make offering, data call time them them which detection organization and the to less response

ARR will as more logos from third guidance review our AI. and our million strong perpetual activity the million our and ARR quarter Gen year results underperformed our $XX with of healthy maintenance momentum detail from approximately to expectations, total small both growth cash our our subscription performance while customers. contribution led business growing XX% Year-to-date, $XXX our new SaaS. results. platform free quarter by approximately last federal represents $XX.X in MDDR on-prem updated conversion in enterprise business this and flow was versus million shortly. our reflects as Guy from to we which in Turning or grew our SaaS million, of contribution of a offering now $XXX XX% well generated

ensure and continue to Our operationalize they deploy outcomes, SaaS SaaS lower protected are is quicker and with many means significantly momentum to achieve effort. maintain is customers a to infrastructure and personnel to SaaS very as customers is automated of and investments which reminder, because gain our transition data benefits realize, upgrade. with the little easier

the benefits shorter we realize Additionally, X initial larger continue sales are lands benefits over to and margin key cycles, time.

the user transitions continue for offering MDDR, first organization grows MDDR top telemetry, And unique dangerous early threat data Generative analysis offering are solutions. At important our of introduced on use an contribution and address struggle automated day. in more more beginning to every from year, very customers. of Security This protects managed proof for experience problem to because therefore, we in benefits the This quarter, models as With by stop the our to for see available MDDL, breach platforms a breaches. It well a protecting more so built and highly we threat they the monitoring data leveraging with data service happens threats potential and threat as as SaaS of second to way. must the environment these as our stretched actors. only quickly behavior to of AI and critical see we accurate SaaS when building the teams detect and and today's in and our respond is SaaS counts.

immediate for becoming in wins MDDR full customers only conversions. SaaS impactful and driver been new MDDR key quarters, selling a seeing business are have and we benefits of While is X

that and said, we the changer a just are believe is As scratching surface we previously opportunity. game we of this that MDDR

These well large key of understand discussion with mind in and our starting that understood of Gen Generative a AI tailwind and language is productivity prospects of the benefits and customers. The the Another are are risks. theme companies we have top rapidly impact models. related topics remain and discussed to AI

is organizations mitigate that that but is people do access AI controls create Generative of tools the must only can In to These positive need Varonis automatically control, increasing happening. pump. easier. the is data machine the an the what Varonis our the AI access makes they and through small reminder, or job bad to utilize benefits Generative using or insider data outside have impact reported ensuring information monitoring a access health and be the directly of their preventing these which Generative very they native the from metrics. AI. Once actor attacker job organizations, right access As the to to bypasses it perimeter or attacks. makes lock optimized but third to risk usage risks, immense create tools which compromised user or determine do employees controls cyber either a out will is easier the and much available of identity AI AI the quarter, It damage early. that to for risk threat

grow taking that, confidence subject couple is to I seeing became wins a of medical are we should a briefly with momentum customer QX. to its adoption give major large we AI This additional from Varonis increases. With A company to regard many So see our customer results, key around to would us Gen in are organization is like state quarter. expectations focused discuss this contribution deploying to customers a data that approach after privacy the and behavior but our automatically their risk better copilot team to wanted protect to Varonis, as in it down successfully data through They are continue they ensure Microsoft also locking using on protected and M&A. to being lock monitor data their grow prior was tried bringing [indiscernible] down and the DLP to to solution. it visualizing their when attacks. regulation They and data data to the its able ransom multiple wanted the we

the meet and will databases. sensitive for package data to employee, customer Ultimately, they adapt Our every at risk Salesforce including with GitHub, ] scale with exposures the assessment the Copilot, anyone regulatory This Coautomatically was allow hybrid its Microsoft SaaS and of on voice purchased Varonis open MDDR, this XX% reduce payers revealed shared over XX,XXX the safely over to requirement. [ Internet.

on-plan unmonitored environment. their XXX for access activity change saw perpetual This demand was user company MDDR locking example convert to was the existing large audit while data of vendor classification a also Microsoft protection. One has organization looking to continued a down Varonis been We license Varonis this environment. with customer strong data to that looking with its using insurance overexposed in their since XXXX SaaS the Windows customers

in confident their databases Our in existing regulation DLP leaves with quarter to numbers assessment trials and SaaS that or to momentum our automatically unlabeled significant the hybrid security we head SIM over MDDR terabytes XX data drive uncovered locking fourth summary, from to turn will in scale, tailwind this compliance we that also the in us data It employees. down Microsoft addition after of with and proactively MDDR Gen capture and they social sustained XXX of at their SaaS protect hybrid on call me for environment. In data-centric purchase their with capitalize Guy? excited monitor that, quarter. to one our ultimately package our the identified are market Varonis let we all ability opportunity. With Varonis their into Guy. the platforms saw as we're MDDR risk the Varonis to open files increasing and AI to MDDR vendors paying

Guy Melamed

transition. joining MDDR across adoption quarter, Thanks, of the Thank These since strong with coupled embarking a When the was Yaki. SaaS performance trends AI. Good and the us reflect afternoon, from business our for contribution today. SaaS strongest the you everyone. at Gen Varonis this looking results small on

representing Our positive to ARR. We existing to tailwinds we are noted maintenance SaaS contribution from gain out including now on a many customers transition secular confidence and we the continues and a impact continuing our from total saw momentum our XX% of conversions both close strong performance year and company year, us look have this new quarter gives have logos of to this conversions, SaaS perpetual business. as increased customer with our the

to strong was quarter our business business driver the and early our enterprise of conversions very with from contributions activity AI new metrics. Our strong healthy this Gen reported performance

Our our underperformed by federal business, dollars. million several expectations however,

to our decided changes, year position us forward. federal will and capture believe have market next make business expectations better FedRAMP with to opportunity that those changes team the to management authorization of going our We to coupled

quarter SaaS at detail. key more again, The in Looking the drivers MDDR. and were,

alert. X momentum The not wanting hardware; or the respond the of subscription and Our together offering automation to simplicity shorter of SaaS when of story, platform the positive one, to the cycle and deal. offering, pushbacks the to manage sale continued not eliminates two, together on-prem SaaS to count compared our head with drive platform biggest the and having MDDR

around expectations to in As Gen very sizing was which our where we to timing it our in is the early quarter up every curve, the nearly conversation, first believe few to still Gen have began keeps said AI customer quarters, its adoption contribution come measured results. in for results. our AI us a to of contribute and but continues this We the

This tailwind early us not quarter that adoption, still with coupled raise performance, time. full contribution confidence The in this allows gave over our it material AI very Because we're to pipeline as our guidance. updated additional its QX our year in increases us healthy should Gen guidance. from benefit its assuming ARR we is strong adoption

As in access we be to the increase more of our our we consume look SaaS. platform customers anticipate as increase in to continues of list ahead to more SaaS sizes to fourth upon customers cases, quarter, XX% deal and we in price converting line to XX% some with conversion the of that platform. see Pricing

SaaS same metrics should the up of These grow ARR last $XX year-over-year to phase free be was that generated which we balancing period cash dollar momentum third showing and XX% flow generated $XX.X the top million demonstrate growth year-to-date, further during quarter, the XXXX million conversion over expect acceleration the with and from in our ramp-up improving We flow with to generation XXXX. In commitment will this each year. transition. in grew million, and quarter of cash not terms $XXX linear line

Turning more our now in to quarter detail. third results

margin. our flow the a leading As starts ] cash ARR and of reminder, free contribution are the North transition indicators ARR, X [

income experience will our contribution the stable, have the the faster resonating we results. QX a times, trajectory following maintenance converting well, up performance year-over-year, SaaS. The our transition, traditional progress while third As environment well statement our reflecting these million, positive the revenues strong view more in headwinds SaaS metrics, $XXX.X XX% increasingly many we higher were quarter a NPDR perpetual are but as we and and to macro in as we said light. confident through business the to from we of total feel remains

revenues SaaS rate the During as recognized our upfront quarter revenues mix. services sales the as renewal maintenance and by the again subscription were XX%. to our $XX.X having in quarter, majority of growth decline were million XX% recognition which SaaS revenues to and subscription had compared driven customers X% on-prem $XX.X we SaaS last with and third maintenance versus a quarter, million, of as same approximately our products. Maintenance perpetual million, of services were by year-over-year, Term the our license In year, increased are $XX.X revenue We result headwind year-over-year a our were the ratably converting revenues platform. the over declined rates to booking

be increased and support SaaS the $X.X hosting includes the costs. Operating to million, to Moving small down in-process be head Gross in in compared of line quarter profit is a the the the quarter. third R&D gross Gross million. asset a year-over-year acquired the associated the results count expense increased was to totaled headwind of within forward. This to mix with development million third $XXX.X statement, margin representing income approximately and expenses strong XX% non-GAAP purchase continues due $XXX.X during revenue discussing I'll going to research sales and for due the third change and transition made of quarter the expenses margin XX.X% of higher quarter XXXX. a

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

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

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

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

is securities, September XX, of and billion cash long-term million of XXXX, included securities. in had within As we deposits $XXX.X $X.X marketable marketable cash, equivalents, which short-term

million of the September, reflects issuance early convertible which balance Our of notes $XXX.X liquidity already from strengthens position healthy in also net our proceeds successful sheet.

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

updated Turning more detail. now to our in guidance

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

business. reception the $X.XX. to expect growing growth of of us for cash million and SaaS performance business in strengthening representing income to XX% tailwind happy questions. to For now flow of performance looking since strongest our $XXX shareholders. With across Roni $XX.X cash ARR to $XXX.X on strength by share million the be to revenues for $XX was unlock meaningful million, when million driven diluted tailwinds the the the secular The total that, million, year range $XX.X transition. MDDR to million summary, generation. Varonis benefiting our to demand growth million, XXX.X diluted This our This $XXX And and $X.XX XXXX, customers, this and non-GAAP strong of income position we these net is to company outstanding. In of ARR $XXX of to embarking value our Instructions]. was quarter, of per Operator?[Operator our take XX%. Free will we our the SaaS, shares million the XX% million flow operating non-GAAP to $XXX.X at representing XX%; assumes full

Matt question first The RBC. from is from Hedberg

Matthew Hedberg

the years, put of a that finer here, to could think time? there's I guess lot expand I one point about I do over on you It's aspects although what are on I Gen to one. Yaki, customer were we you spending. question the couple I another think I positively hard talk to to but wanted if contributing focus how guess Gen of AI couldn't but early Gen AI portfolio help if forward just attribute look impacting AI, a unpack. products to hear about to results. And mean spending

Yakov Faitelson

the Matt, primarily think exposes you smaller on security problem more But is of in we're now are reality related be it's almost using just have beginning, problem, now just XXX. that you massive But have see And the copilot they [indiscernible] going the X see part it's I the growth and unstanding what solving is data sales of are and you there saw is becomes problem, to so it, of have this the using that obviously, work knowledgeable The to IT it. it's immediately at POCs hands to that blasters. the we are you eventually, the every inevitable. that once life. starting

policy critical that in wrong see a get, to just of get lot starting intent, generate of just it's to and the critical data shouldn't a people losing data, the they they of dangerous clinical So terms of we data. just generating using need to lot don't outside extremely

protection using you're are to they AI trying a So organizations are it but extremely hit within -- critical to Gen just and and solve it, on when buy product moving well now POC they [indiscernible]. for of beginning, to Copilot lot starting solution just was buy are generate stage, mainly the We us. the at urgency and for it and to unbelievable just mass demanding the workers that knowledge

Operator

The next Morgan Stanley. from question Hamza from is Fodderwala

Hamza Fodderwala

Yaki, at we're contribution in least quite with today. permissioning lot data you Jenai and Guy didn't I problems Copilot. and it's a commentary, with this some of but over terms the early of the opportunity teased bit leakage seeing of size the but know a innings,

case are Gen You've program had readiness customers like of some for already AI there's where partners studies using with some customer your Varonis ePlus.

there. not your momentum would of percentage I'm coming you be you're say give related revenue this themselves to ARR prepare is customers AI Gen seems of pipeline to today, there forward? some just to what Gen contribution if curious sort to for So you and willing trying going AI for

Guy Melamed

year we've a talking about This Hamza, been time about different. for is slightly now. copilot

think and I noted you of that, kind why. here's

it's our really But amount for talking LLMs, This and our deals it, are very lot small not should every around to increases. at conversation close. into gives customers quarter. fact it's as a guidance. quarter the look quarter, started also not Yaki we and we've the But Einstein comes in on, us about others. When see talked confidence this finally this with that we our still us closing customers. started see material just close the mentioned, in A benefit said up some And of immaterial deals see QX to as amount early close, is still some Gen amounts again, built a started that it's you as but AI adoption the lot to we increased it. it as Microsoft pipeline, deals we why internally to CoPilot, about which and it quarter, includes we're Salesforce, any baking But the we

Yakov Faitelson

and the every will once just believe and are in exposing center And it the it just of it using positioned very times the malicious can the big secure people and the time, so can that data intent, to any be are game tremendous. conversation. over is that But worker, make that be be data But inevitable knowledge it's the use are well the future robots productivity enough and hands it's protect problem, organizations overexposed. We front believe we these that we it's security sure of to that -- in many dangerous. within will that part organization, fact use they very, The in just fact and we -- of it it. you IT,

Operator

from The Saket next question from Barclays. Kalia is

Saket Kalia

to something this investors that that people I maybe how bit. lot that Matt's To new gotten the process around particularly question net out And AI, I does but through point, ARR little come in how conversion. conversion is, from has demand figure what gears look earlier much excluding generally could unpack, of I've from are of but disclose Guy, activity. a the that Gen just of trying switch isn't course, we to lot a think a

can is a that way you that us there So talk about to qualitatively.

think ARR base year a next with talked the we good that lot you things AI. about other conversions any as plus new Just plus about sort Gen of of net

Guy Melamed

of the very SaaS in the Saket, the we've and MDDR. we've what and that this When the had I at and biggest talked one you string strength from definitely with a easily. momentum misconceptions plug conversion, that it just think you the very this a conversations the quickly the it the came of the conception it quarter, lot about investors Excel and and lot platform is drove happens look

value time to sales it, conversions to $XXX see have talked conversions And to talk really but one people -- shorter by buy have the and strong don't gotten you the and the activity, on that's of to the That's the value -- have and do takes ARR momentum and being the elements logo buying are or approximately SaaS a why day, new and it lot That's to support second total our our customers that solution. The more without we with legal play. the very a the about MDDR SaaS plug are SaaS. conversions we and provides But biggest customer, XX% of what to It's it. SaaS flip being last of that's of of conversions, not and why about end and customers. the driven hardware it they it time converting million, at take a them. to what's enough also to of SaaS look really is logos, kind quarter, commentary pushbacks the We business. last gave the was quarter end you offering, that wouldn't the because the at time, the But X the continue driving the proposition drove new eliminates And cycles the not at day, really MDDR offering. this willing we've which we customers. when

Operator

question is next The from Brian Essex of JPMorgan.

Brian Essex

Maybe terms Yaki, don't if we the up I I [indiscernible] And the about phase quarter, going said then a that X Stage then Phase is had the where X think stick. last you analogy caught you so or phase talked there in thought it you well. the transition, of of is know transition either talking with and great guy I about was

smoothly that don't use that transition You it And how have how need mean, converts, pipeline? in the maybe runway like going easier have way. customers much existing that can left how that you do to you're for feel do it put over that you visibility stick. still case? those now, I much you with I those Is is the if converting

Yakov Faitelson

anymore, were not our the best are is and your times have In you value outcomes, many that no we proposition get login. perimeter their bad ability none. second actors, once of to to to overall reality an The the identity, there bet. breaching in And and is is terms SaaS

do the security platform first last thing to need that save So you. data-centric really and thing the you is -- will data

our provide, the this customers this anytime that it's automated -- a automated So testing outcomes value, it's just or game we -- changer. the

a the with the what remediation even MDDR just depositor the robots basis, the more [indiscernible] are just also to we and us mind covering stuff blowing it's value and automate ability catch that just And proposition. we to and on is the all whole way user data our have released You MDDR. We weekly everything. with

the to most customers architecture, these automatically, once it get understand that of of of a literally the just doing lot the primarily can So outcomes automated conversion. nothing value to but value high-quality regular is it appetite take and generates do SaaS

Guy Melamed

One back of thing when you asking But the the SaaS. under huge I second of X very we the SaaS our of fact kind the product. expect the and that kind customers because approximately milestone take and it's commentary add, of wanting and transition, we at from in and terms better good it's the a we a that proposition SaaS are think to of kind look a about when to years many to switch gave us. to and question coming of much for for announced we're That's if a XX% step at a be for just into business transition, value we

generation noted you of extremely we kind doing flow. at with correctly, of been when that So had And very look this it's through progress that significant healthy. happy transition, cash you progress We're the have with the we're that we are.

but the you free and so we've our healthy. We're on progress levels getting far. with continue with path we're that. at happy guidance very that We to that flow, the and look we had think when are happy can cash better, very upping So very do

Operator

Fishbein from Joel Securities. is from question next The Truist

Joel Fishbein

Yaki, call business the the federal on that you underperformed. mentioned

or more bit something that a there's get going for love execution still you're whether there. curious there. it. on sort a was Just or there, self-inflicted I'd track if business. not color little I appreciate good to FedRAMP. It's of I area really been on of know

Guy Melamed

accounts mid-single-digit a percentages things out great by several vertical million That keep let's federal underperform of for But that's take did perspective. question. that. dollars. in ARR. So business total The I'll

we in when start the the we've picture-perfect was was been remaining supposed strength had across the to of for quarter of transition enterprise have segment. If by driven it XX% continued since look and So would this the what did the that federal us. business, this do, a was best quarter momentum the

in from forward. the new capture business, better us a with bring opportunity management to these next believe year that team. to of that years we for will underperformance federal FedRAMP after So market position several coupled we And going expectation decided authorization changes, the

Operator

Citi. The next question Fatima of is Boolani from

Fatima Boolani

back understand related curious switch, not is that year just double some an ARR on the as understand your the in your a to much like matter, that you're and intact? installed actually wanted of momentum at converted, I conversion flipping still to the respect a mix full question I'm base base seeing to XX how Guy, has for it's for guidance with earlier SaaS of but

Guy Melamed

we very when customers conversion SaaS -- total XX% ARR, we existing look kind can't are similar amount. terms QX get again, was converting to that percentage dollar the in at to were of getting without you our where of to So having out conversion definitely QX from

So commentary of when from in the seeing want offering. And came the again, the on SaaS even we we've where XX% business, manner shorter deliver SaaS that of XX% finishing end, us sales the we're the same gave on at same year. looking the end to think in other We're lot to the mix about that as talked QX, to kind delivered metrics of in [indiscernible]. that And we of at to gives confidence of the now year. be we fact look kind the we a the that metric new that we quarter MDDR and cycles strength

Operator

Roger Boyd from The from question is UBS. next

Roger Boyd

engagements? to when that but I bring are where of typical ways know MDDR, you do there's alternatively, color to into you size be you can see you're a point the quantify to of Or ACV uplift customer you give that we the a might able on variety monetizing getting business? any

Guy Melamed

to offering. of more Roger, the customers able ways extract is the multiple MDDR. through lot bundle, our and from things we've are dollars basically, a be It's buy to that one MDDR desire our about a there part of the to talked

the If much ASPs. is a trust, platform, we of part additional what will We higher see And the matter. they more reduced doesn't provide end value price money. the for the consume if to at at it think that But licenses really price. a that separately increase the wanted MDDR they you many what us allows and buy is value, platform you to of actually we the are our as our of buying day, better it have want to bundle, pay get and of a customers it of getting we more and want to without that happening actually

at the day, X Don't everyone of the look at beginning forget, end the here. When we only full the at adoption the of we wins it had introduced of NDDR, quarters. we of year. kind So

well force introduced force, our cycles, helps it very no-brainer. was is is great. well it to adopted to sales the our January on the first very that by customers the by is a sales adopted provided the value on helps the time conversation, customers, So It sales it's was because

MDDR help our at single a of haven't can that but doesn't the We color happen it in at something to think And about end customer the numbers. end that. of of lot because I of terms We've day all we overnight, it's quantified with be that the we're providing the lot talked the It every needs day, of have. a customers.

Operator

The next Andrew question from Nowinski Fargo. from Wells is

Andrew Nowinski

Varonis logo just the can I'm a and I defining adds I look LLM material Jenny. just on want they define from have to they're out tell customers existing you're ARR. based support? get of you you a number material LLM your trying buying an new measuring might how for like. mean you an understanding of guys you guess what that better on when impact impact also impact that get it a to I understand Or in how roll are

Yakov Faitelson

for the thanks Well, question.

the at exposing really people queries of to and data. This population, POC, more They we when sense because but as departments, need that in we while to problem customers these is we make what it knowledge assessment the a make the a intent times, lot, it. And intend. process copilot are Historically, that themselves workers. will access it to way, customers we pick once lockstep a to more if sure understanding to the pipeline We queries product back are in not the our with times risk and be damage. very and need really that tremendous big that well. many analyzing prospects and lot right broader just they we how in the They that able to audit right they was many looking they're need tools see the activity. call sure very see The make and using contending can the product -- purchasing see to goes buying every release just is experiencing also just release just Copilot must a understand that that time a they see IT only before they

Guy Melamed

kind add. to SKU. look thing we as at When One we and a a talked it lot of the we Copilot, about have separate it,

we Office the a lot can of as is with protection about customers help dollar it dollar part customers. additional quantify value and the the Copilot. that that them terms. fact terms they have has copilot true have MDDR, functionality, The talked have the lot when we've And it XXX, a materiality, of We the selling we when but Copilot to new in quantify in

kind looked was material sold stand-alone, before, in said that in We is near medium-term of our the and copilot -- a tailwind when of didn't I that So it at will the gives closed remarks. impact. it as in have in and as part we see a deals related QX, copilot way a a there that difference, SKUs did prepared confidence future. were that to increased us become But

Operator

question Joseph next from Jefferies. The with is Gallo

Joseph Gallo

appreciate I budget ARR trying your guide us? anything any is expectations for note just environment. XQ to relatively to to else for business XQ where the federal And new but Just net commentary then similar understand on earlier, overall the XQ. your

there's be So anything of. we should just understand trying to if else aware

Guy Melamed

it that's Gen positivity philosophy and our in of same really of and under and translate hasn't at we until staying why philosophy look been changed, data, we're why any AI see we has we assumption for that We've guidance, been always kind of didn't we with in bake QX. kind contribution. bake the philosophy into don't always when additional any that the So the that's

that of expect where business terms this is If of move SaaS. we we've seasonality to budget to of quarter that QX budget largest seen flush flush, not But when quarter. something year, the changes commentary year. obviously haven't past. the provide and the any same the regular terms it's we is we In in in seen the the post within be we see we'll anything, There

Operator

The with from question William is Ader Blair. next Jason

Jason Ader

I had to you through on relative just SaaS thinking actually it providing I from side, it should I and the probably guideposts most from any revenue us we this elements we're if know And to outperformed the you're stabilize, can same Could any that? growth, expected guidance, the down but what be are year. about down maybe XXXX. just specific probably this year thoughts would impact think will how what revenue not margin like operating XXXX? early mean, you But transition on growth more? And primarily, the transition assume, XXXX of last was in on you I it think, see then wanted some XXXX? help go thing. people year, -- operating SaaS margin for

Guy Melamed

by margin North So Jason, I'll of the cash contribution X kind reemphasizing ARR Stars, which start and free are flow.

the highly so business. I looking the subscription on-prem think regular margin of at would that the not statement really revenue operating reflective and ratable of the and highly, it at regular SaaS a revenue within highly, metrics not -- standard recommend the versus relate I transition recognition revenue of is misleading margin anything very upfront financial recognition to of because because through are operating through looking

think contribution the I more free generation, at really cash having a obviously, want of contribution desire margin generate was showing kind the you So it's throughout we've grow, been to progressing we And this one from to ARR ARR that's to of look And it nicely when look believe talked our company margin, cash. but commitment, leverage about the an and nicely. We're when also at XXXX. moving year. that, generate free flow. essence improvement flow, of cash We compared I when our nice actually to at healthy continue very look show

we'll we'll In provide quarter entering on we strong is finish kind the color, the Obviously, can terms the overall, provide a color the trends as we we're well. and pipeline more good We're and year. of see believe we QX. largest focused, color feel in of do very and QX XXXX additional with that But into of QX. XXXX quarter, the as we getting QX

Operator

question is Sandler. from next The Owens with Rob Piper

Robbie Owens

for one quick a me. just And

small in your out the you you on that called prepared quarter. Could remarks asset a made elaborate think I you purchase that? during

Yakov Faitelson

Yes. us bought small a our map. that just of can help road accelerate We programmers team

us map, [indiscernible]. time acquisition accelerating many market. the just we have very and It's a this lot just road to We shortening exciting and new was -- features help just products in have a a small that

Guy Melamed

some statement the to just give from And color financial side.

we As Yaki [indiscernible]. purchased said,

cash totaled small as market. amount MAX is the $X.X a flow the on our helps And at And the time Jake asset immediately. technological is tuck-in. statement, a million. this From mentioned, full So perspective, shorten income to expensed purchase

don't the of acquired process will any ARR material non-GAAP you asset that or item. the expense R&D the see within amount expense of So of in size research expense We line very small expect because purchase.

Operator

The next Tilton is Joshua Wolfe from question from Research.

Joshua Tilton

is, is possibly enterprise that a And clearly co-pilot from going guess it as that I calling this very kind guys this adoption guess a you to interpret than some And Gen cycle adopt lived for I can thus the AI hype guys want feels mainstream of was me, are out of on a guess, or came contribution positive in maybe bit co-pilot we my to and it type ago. months it's like to question it AI. strategy, when you I island XX competition. more One little prior secluded need

the there to to It why your adoption my data. I you story their the more when landscape head competitive become is this part because especially mainstream, you XXXX curious the the reason I'm you on-premise as feels deploy the technology, customers that question for fact no maybe as that increasingly after see changes is, data security into for business. was think how secure how security just of market, really more had like all positioning about competitive so think once noisy. coming and on-prem. And the getting more as it you companies there Copilot opportunity want core competition ways loved look offering, And the many an I that we are is was guess data

Yakov Faitelson

whole just and each We see analyze around landscape. where that of more our there we and every products competition. spend and the that awareness we notion -- POC. of is what of that have are lot we and organizations through sell sophisticated But just see we attacking data one, data noise, point, this most to and security many is do constantly are We losing a proposition. this breaches lot Most how have breaches data. breaches on a data, are is change legs At know competitive no and

[indiscernible] in you only doing streams organizations something think of people problem additional understand to marry what center is a solve. competitive becoming have them is play see And you a if of sure find lot right to need the with in and they make really lot need to need security are I that of So order landscapre. that this data front volumes the complex access you to and nothing data and the stores massive extremely and to a that understand you and whatsoever to you have can It's that data a data well. that normal to behavior security. But critical to solve very expecting data this problems assets. we the And with

Operator

D.A. Rudy is question Kessinger from from Next Davidson.

Rudy Kessinger

amount than I down questions you I the from in same [indiscernible] you about perpetual the look in numbers on your contribution said If to term QX. Guy, just conversions QX to towards as and higher of growth. response to was lot did you $X step a million QX QX about earlier, investors in a here, get QX ARR the question and the QX. at in converted

like chunk you more. numbers, those converted So it a looks from good

lean customers. has notion existing prior retention and versus the you've more of QX your how and started as I'm QX how conversion So into was gross trending just it curious to in quarters been

Guy Melamed

over at we XX%. they're When rates, look consistently our renewal

seen from the item, what the with way, When own there, of perpetual. at decline conversions our when conversion. revenue look you that SaaS. at happen that more customers from happy and you services the you we're maintenance that of I we're maintenance the that tell a have there. can coming that's you you're the when to increase maintenance there's seeing actually kind headwind in at line of conversions, item convert no look of the decline reason and because line look And perpetual we in that when part is So of seeing majority you

with customers, was So the We're customers can't what customers I with enough. happy conversions, this think at When drove in the momentum at sales dollar we're -- force with when new increase again, way But and customers, customers. emphasize new converting. very what the new it look we very happy the is I our customers MDDR. you look our was our healthy quarter, this you new way in and our selling adopting to saw are and growth the it

Operator

The from next is Robert Shrenik question Kothari W. from Baird.

Shrenik Kothari

portfolio there. your dynamics that sense kind the context mentioned product please competitive new complement being that if certain about convertible of reach your of refocusing Any in capabilities, kind So chime market And data you to expand provide potential might basically, not, avenue, either core areas overall just aligned can or be free and provides. technologies of Guy, with M&A you in. that specific upsized offering right? existing segments Yaki, provide or one or our And notes strategic on you the feel security with flexibility in offerings some focus, eyeing it

Yakov Faitelson

meat lot logical value. things is of very, software business the to with bone data unique of can production that of a that the up security do this we of outcomes. that just in built lot the a provide a that think just with I very a asset lot And just platform provide a order extension. activities, on automated very take telemetry lot There that opens interesting

We business accelerate can there. look and engineering have of we a will and we see a map But opportunities capacity people, our organization us sense that also good lot something that makes and great consider. at shoot team we to road we help

Guy Melamed

XXXX. the To convert our in look how at it. convert kind we add due more of some of August Obviously, XXXX coming terms on was and in

healthy as opportunistically of larger that But that But necessity beyond Rather, allocation this what's talked risk note ARR been has us but is the important of than grow a M&A, last is convert look fact sets at us about So really we to or obviously a profile I up minute way market. nothing wait decided crazy didn't billion think a $X capital be we've at bigger $X the did never to opportunity flexibility. But to levels that allows in business. really more additional our not that the the we achieving and favorable for convertible raise today. to changing as with target. this our ARR allows offensive to very the want to billion doing us to the slightly deal Yaki is think it mentioned,

to emphasize So I just want that.

Operator

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

Tim Perz

Thanks We interest and this the in joining quarter. today. for conferences to forward speaking the with at look appreciate Varonis, everybody us

Operator

Goodbye. This concludes today's teleconference.

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

Varonis Systems (VRNS) 29 Oct 242024 Q3 Earnings call transcript