VRNS - Earnings call transcript Q4 2024

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Operator

Greetings, and welcome to the Varonis Systems, Inc. Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Tim Perz. Thank you.

You may begin.

Tim Perz

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

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

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

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

Yakov Faitelson

to progress on everyone. review review to and Thank results. transition us would you to you SaaS year a and our opportunity our XXXX to We world progress I and X the positioned secure for years today Today, little the quarter the full introduced best of joining made the are data. Varonis update over good Thanks, afternoon, why SaaS Tim, and that Varonis fourth capitalize to excited by like to in ago, is time. world's been we has that the growing on

and so ARR. of is or During $XXX added ARR their customers less fast ended XXXX, better happening product secure approximately of ARR we $XXX that data This with our year SaaS is because SaaS over to company effort. allows total of million million with better offering SaaS the XX% a

easy, to the suggest that would their thank company. many make numbers providing our I platforms, our better We has a but to work been to SaaS are customers like is still to becoming we way SaaS efforts. to on well existing convert clear going it a team our hard scenes product there have for of to that And lot on these a behind a happen. that take While is moment

we Although many there benefits of realize to have more SaaS, the once complete. transition to some of started is the are realize so

expectations. a end why of key it accelerate XXXX, by time. we our our reason less into year to level to the is our our our And now This enjoy earlier reaccelerate which with to customers a previous we outlook transition than than security over better of we SaaS, rates. transition X earlier once upsell expect example, time, will we we and retention much expect market motion. can For to fully And years complete plan greater and see initial effort, in

of first our time, ARR fourth the the majority million. And results. our ARR for ARR grew to quarter base. $XXX.X to XX% represent Turning SaaS

well their was momentum data of fortify our single interest our requires them security results, offering, strategy. biggest the platform AI, SaaS the to as which deploying to is customer and of MDDR simplicity driver customer this New as and due in these Gen

continue time a existing able focus once our and and accelerate quarter, growth cross-sell reps fourth ability converting upsell convergence during SaaS healthy transition will intensive. base than way, efficiency customer resource to believe convergence this rather self-hosted and to sales customers. our on the from in While post our our drive We are are actually

continue to million balance $XXX generated million cash improved continued generation, In year. with XXXX, Posting million an results and growth Guy our of and our important flow cash last flow initial shortly. $XXX.X free meaningful and line versus is detail milestone to of company, cash $XX.X flow for more strong in will free guidance we we review free to the cash generate forward. we top plan going flow

in and like need positioned would we this I take security Now for why growing the discuss to win are best step a market. back and to data

and Varonis, This everyone way decade it use of runs data importance, that threat securing of resources to considerable to our security was large secure we environment. it's it. into for and right architecture. and did is the Varonis places, way those experience we of knows cloud learnings scalable differentiation benefit harder that environments. of automated to than world based created data to just world-class It on its more need complex data, a are but means ahead Our the not When in in also more stay every and platform transform today's because critical SaaS, only core on because secure. become created more the Varonis a an automation day, we they had scalability We

become Today, platform been fines, break the don't happens, our we our customers trying in a they font can and data spend which because and the data connected. log Companies in, work failed. automated are They more where technologies give is happening, are ask approach, stronger and address never ] the is Many many is for even everything to been and data, time but lot years, As the to insiders unmanaged AI breaches risk. AI, grow not need instantly the easily with they manual to but that our to will and understand market has more data has organizations are bad just and this important, all avoiding of stopping on value and breaches But in. these keep easier And Data technologies, for actors evangelize the about important. AI [ perimeter also have and security and data insiders it. they but it's solutions show jobs only about it dangerous. and never them. the blast attacker passes, had age makes damage on. gets much we is keeping collect for Attackers now compile lights at radius more the securing insufficient.

to as Varonis' protects goal card reliable owning as and data against automatically secured you that security platform, data, press a fraud. with is make our our unified credit

Our so wherever what and are we cloud-native we We if unified the actor leads. radius. data access automatically help minimize to gets able behavior classify and able or blast functionality coverage locate data-related it We security a an deep And understand monitor secure platform what insider access, damage. behavior. detect should because reduce emerges, in bad suspicious and at wide an are the able is scale and identity to sensitive we automatically to data understand we be can it And a data. to

RFPs brought these for into our Cloud. help data allowed are cases, additional to data platform enterprise to us do to total and Our secure center. and data we security. In the from these Expanding into do face time market and has on-prem cloud like competition discovery in we build plus and coverage market us posture when stores mix domain, projects POCs hyperscalers that management, data in functionality our vendors to in compete the sets Google actually data bring SaaS, new the has they in every wherever with where our where large or Azure still not us sometimes stores data enlarged to point it's AWS, direct vendors basic available most

risk the becomes differentiated our assessment, value So we clear. when do

finding through and fix is secure unique sensitive and data only classify work. and discover way it issues, threats data secure. not remediating at detect over sensitive is exposure to ensure sensitive manual data. automatically does located, then scale we data, is on that Varonis stop possible is not the data, Simply that Once is which

history leverages Switching gears. machine securing unique the been has and MDDR A fastest which deliver is our MDDR, data. in critical data-centric built and our adopted and product launch ago, on we year is for service our automated data introduced alongside of to new platforms first platform SaaS the monitoring offering top of Varonis. This learning managed embedded AI telemetry security. the the into

business new massive customer meaningful we surface this still opportunity. scratching just already We And this drive are seeing the existing conversions. and of are

front deploy growing we as AI to data during proliferation Gen prevent also of We unique more technical expanding also our more security This want impact is sets our bring SaaS AI, from and platform. our center. add which quarter to Customers The these AI and automation, the to as coverage leverage data add as network the we stronger customers help data initiatives. gets grows conversation saw effect fourth in moat breaches. we

discuss With briefly I of QX. a key to from that, wins would couple customer like

deploy became was a large They knew but Copilot, this a a business this that a XX,XXX security are privacy assessment. of to quarter, logos driver by with the and our New would confirmed momentum And looking concern. in employees big system be risk customer. data were hospital

SaaS files throughout sensitive and In of the in MDDR be a XX,XXX the the hospital they safely company down Varonis As to leader adoption. that Varonis they power week, purchased to Copilot. automation in of the a and CISO for locked labeled automatically with Gen exposed data this could result, through Board XX% SaaS. organization empowered hybrid X to their AI the and deploy success recommend Copilot The enable

see to our customers to continue to convert strong SaaS existing demand looking platform. from We

and large to reviews time have on-prem, file time, threats, automating these conversion, they SaaS with their expanded their fixing purchased cloud SaaS include them using From with sensitive shares Copilot safely ]. data a Understanding they This One ultimately to on was this and overexposed alerting MDDR will of those then Copilot data visibility classification, and X,XXX of allow entitlement exposures automatically and quarter. Salesforce. ownership a [ doing first to for converting customer employees became in in significantly and in before deployment deploy fix all XXXX, into originally bank Varonis data in hybrid Salesforce. over Varonis the that

summary, approximately our new We solution. our ARR as are customers, by simplicity excited which from generative as we of awareness MDDR capture massive completing XX% SaaS to in will With over me which was forward to momentum call the increase our unlock well and driven continuing Guy? by that, raising XXXX, In our let the many opportunity. in the Guy. we AI, look to transition benefits more turn and SaaS as

Guy Melamed

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

a I which will which We expand for with the saw X our two, time, new pleased the activity, seeing momentum currently our And fourth and simplicity first customers, quarter platform of from Copilot, which results, AI-related reflect growth self-hosted companies. is SaaS our the story One, on are existing customers, healthy shortly. conversion meaningful by which diluting driven with despite the our contribution very purchases. rate, of

our as is our of to as into raising our MDDR, We penetrate of But with expand the is SaaS our leveraging data. to new As existing data customer ARR with good of and from new growth we our base. the coming stores. force well move momentum new also within QX are we going our business continue Gen customers awareness momentum increasing will behind in very company new ended SaaS, the size the success sizable your has feel was as driven ability of a driving XX% strong majority strong result we total is our that happening TAM selling platform the been to to of the have seen and a This the results. simplicity of SaaS SaaS. Historically, because to forward. for the expansion ARR #X and customer need AI conversions, secure exceptionally and by

achieve Conversions the is require for a their customers effort see of due also At almost the of strong conversions of effort these with all self-hosted same the SaaS we customers and very do value of were little lot time, MDDR, them. help customers work very or to amount goal customers to as from because which legal checklist security on and healthy convert we get procurement work, greater and spent to SaaS this upsell self uplift cycle cross-sell. Despite the traditional a SaaS of upon of time sales to than requires part conversion, recognize the hosting. the

until the for growth our means convert addition, as during by when growth a and motion and This to In the driven serve sales conversions to to that motion on efficiency historical And expansion dilutive customers hold. ARR was upsell our to are is many transition levels. SaaS, we upsells. compared years headwind

of In time of despite the huge a we fourth team. And conversions, our effort temporary sales strong and quarter, headwind. and productivity for results these volume a we lot had had took still yet, this

platform that a almost view of we is customers SaaS teams satisfaction more when all selling Our a our also a converted, that contract. productive increased and once simpler with are primarily become our to is will on the SaaS due expect process customer customer

from year will and transition and and years leverage significant expect Because strategic our the XX% what have of this, we $XXX or by now year-end, we're earlier earlier come the completing than making ARR to initial to of model Phase accelerate year. X approximately X strength million our a total business SaaS our in than inherent allowed show said margin target last improvement. of X us our The decision

we so we at Investor our set Day target in long-term well ahead XXXX plan. reminder, by XX.X%, contribution ARR a and XXXX are margins of ended of a at XXXX XX% March that As

growth opportunity model our and margin of strategic that investments top to to developing. our to leverage improvement back we The making capture allows line continue us larger reaccelerate the percent XX-plus see to show while

the investments, conversion to grow logo time this new expect and levels these despite do. at also enable coupled more to year We healthy to sustained taking momentum, us will continue effort ARR with

better we of these protected addition, gross little and and the our position better already our our the productivity; MDDR post better further allowing platform, customers SaaS their two, believe to one, In sales better be our with retention will customers; with due us us automation to SaaS transition that three, growth increases several benefits to effort transition provide healthy on accelerating to and time, accelerate ability will over part. upsell very to including:

we're transition see want To to of expect of opportunity what we now and of. accelerating a our Phase last although strong much XXXX the greater a year year momentum expect commitment the leverage, to summarize, than ago, you thrilled a improved we're complete pace a with than business, we earlier of new full strength. X transition year business continued from We the slower as remain position told our to and with at to we in advantage a slightly SaaS we take

selling upmarket XX% new X,XXX SaaS. we also the with deal. year-over-year. to transitioning the and And approximately grew In the the successfully more year. $XX.X of while drive fourth subscription free customers, year, year leverage initial of flow per $XXX.X growth, ARR We to and cash which ability quarter, generation up in XX% customer grew year-over-year ended as ARR platform from last line larger flow, was metrics $XXX.X the million, increasing we margin moving million cash XX% organizations top illustrate this year-over-year. million generated are These to

customers for the as at more retention retention which cross-sell XXXX, year-over-year. FX, prioritize was fourth total In net to SaaS. converting activity and of adjusted gross dollar-based X% customers up XXX% reflects rate end self-hosted reps for million, the steady upsell $XXX.X limited were subscription revenues quarter, Our and

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

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

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

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

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

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

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

year-over-year recognized XXXX our result XXXX, we as will I SaaS the results. million. now of subscription revenue headwind recognition our compared upfront rate increased growth having a recap year XX% $XXX briefly which approximately of are a Total our in versus XX% XXXX, revenues products. booking mix, to ratably to had as our full grew In to sales on-prem

to compared for X.X% was XXXX. Our full year X.X% operating margin

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

our now Turning to initial guidance. XXXX

our guidance for similar year, a last year. a flat the reminder, point ARR reflects to approach as the As initial new starting we used ARR net that

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

of of $XXX we million non-GAAP million; million, XX%; XX%; representing cash the of $XXX representing ARR to of $XXX XX% XX% net This million to income $XXX full of per expect flow million $X.XX to the total assumes in million, $XXX revenues For year million growth to to million; growth shares free to outstanding. XXXX, of to operating $X.XX. of $XX.X XXX.X million diluted income range $X.X diluted non-GAAP $XXX share

the our In completing majority step We billion which seeing. are way growth in of Operator? function to time flow in SaaS encouraged and free ARR will are our finish summary, excited show company be the with would to XXXX are the happy the our coming SaaS transition take $X position forward to we we change look new our questions. on momentum customer target. by accelerate we XXXX, that, better continued the ARR to improvement first from for cash we and believe With to

Operator

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

Unknown Analyst

time talking we're conversions stake here. to accelerating going could the of we're on sitting are there we results Copilot upside you Maybe where and ARR congrats Just incentives? conservative at maybe through X? sales here around now This accelerated Matt. you some about on growth, Or and is approach? that And that the would about if flat to net Richards care from a line on or Phase [ for the a uptake are and great. year Mike talk new be be any might how that looking either detail And be that ] base? assumptions Is

Yakov Faitelson

Thanks question. for the

protect make to the avoid that what customers we that is primarily, this and the a think they And everything base data is sure within compliance breach, I are that doing. don't want fines have effortlessly. acceleration

in we this lot our that expansion natural of lot platform, covering functionality, have data the way a deep just in just of So a automation stores.

data they customers times, AI for many just bat. automation the everything, they everything it's just and and get Just hard with we right make understand time, to -- off security problem need the And that inevitable. but provide

robots on primarily everybody but work like You them, on see Copilots you will to take they what daily end anything agents they a will disaster. going all able can get not and it that see to need Copilot what's that up by a design, only these the in with that to data And get medical be these get, basis. we data we do that the to

demand So in front. the we see this just cold

Guy Melamed

of so, XXXX conversions, the we of And of converting doing customers in learned a terms saw lot the success to existing a lot. In we SaaS. our during process

when look associated the making the learnings, support our really we allow at earlier this sales year in to and customer for moving renewal process investments we're So additional and more to SaaS. paperwork transition, success, support and we strategic even legal to time start with some those process to to plan

good overall, very our SaaS to opportunity X feel SaaS earlier of realize than we our and transition our to plan. our the enable initial earlier the years previous benefit year a company So expectations than and accelerate about

Operator

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

Hamza Fodderwala

areas front? investors on think product more about? focused to that on way, I the this I'm So Is can about be surpass Because And another the do with existing the comments get momentum down the it key broadly, about then from a quite as growth, once like that? sustain Is level, confidence there you we But base? you're going plan. pulling just going how to ability forward earlier to that SaaS X come seems a confident on. conversion it ahead confused AI this are your SaaS this sort cycle by in your think renewal of renewal to customer talking durability right, the year mid-teens initial more little That's get from of really process. transition of you largely you're more of you complete. we deals? that's Are on spend the the are years transition, high X

Guy Melamed

of first the game, the So of all, then customers renewals, and talking about about that to want We a move. them for there's on-prem additional SaaS, paperwork to that move different security benefits from we're But make the it's a year. of in when from no-brainer talking part And renewals the sometimes, within It's to expire we're that a is of sure SaaS. to actual obviously, of we're ahead the checklist process. you the terms perspective.

So documentational It's there's not technological what are want to we And want we about the year. a lot of. a It's that of that we did challenge documentation. be a that's renew challenge. conversation to to earlier customers more than last ahead of start with why

that kind of care component. of So that takes

we growth upsell you'll really look none customer, lack reps about within of opportunity. We're want really pleased the new of them dealing make customers to upsell actual sell. an of talking first the and growth, kind the ACV, you sure of subscription move and to then, are XX%. only to of you're was XXXX, customer our conversions you with platforms on-prem because the them with When growth the kind additional start When at new to SaaS, that the at outstanding. growing And

SaaS and doing a a there's planning we're XXXX. become in move and can what on we company, lot fully through So that's that of once goodness happen

Yakov Faitelson

is the SaaS and It's in the between important self-hosted to drastic. understand the that discrepancy value

unique of AI, proxy label we effort radius. the and of a at the once the terms data blast protected. call about all protect get in and second have backed the we this in speed the And more data world think the just it by want repository, value that operated I where and have avoid all you'll you I the the When is what reduce are sure in And what data of like data abnormal understand everything because very XX/X, data. You're you XXx are these and accessing human to proposition works eventually to do at none. more in well. built have do Snowflake, more really, how for you our IS. very value you Copilots. or data talking innovate to you any SaaS have the just and there fast we nonhuman, any customers customer going, It's repositories, we much that classify talking automatically to the make cloud that to very And is to that cloud on-prem, understand DNS the is ability experts that identity, the architecture everything that we breaches look and customer -- they intent look on There and way space. breaches, about just can you're the behavior, so XX% you data that on this

scale. well of for other the that it's massive can works And bid a extremely us, thing it problem scale, we this that architecture

is we stemming for we that innovation customer bought extremely more organically can and call really and what the it probability more. our of believe on that they to believe high if we terms and to that expand innovation have customers come relevant can in everything So we to innovate just what it's that

Operator

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

Saket Kalia

of there's logo needs getting accomplish Any of terms sort goal happen products new Maybe new successful of color a year. bit much this like coming very that? interesting would helpful. little from to -- Great. you Obviously, bring how that you It's on is that the plus dovetailing maybe to that in for up that MDDR. what additional the very a conversions new? team versus new topic. component of kind super Maybe be back someday. just off maybe hear just ARR Can a Guy, unpack last growth Okay. to idea to of XX%

Guy Melamed

about at see really in percent it and the kind look you back talked -- if tale you of and look of performance behavior When prepared we to the going and remarks, our XXXX Saket. X XX-plus Absolutely, kind about the of a you the in companies. at discussion

You how see the new is performing. business

see in increase the You ASPs.

grew fact see the that ACV. XX% in new You business

type pleased is We're All well. that very performance. trending with very that of of

in came XXX%, you at at When post that look improve transition. number, NRR should believe the we the NRR and

show of So to value really, transition. to we're of kind we're only we And tailwinds that of simplicity go we and them behavior NRR. lot set kind that to additional try that's when we the transition, as and of there's better we the to the the the XX-plus where continue up a of which and expect up but and Copilot, of that we in are, XXXX, durable, to speeding licenses, a increase are look as be customers, ourselves them can can to complete we with why once working we kind also put value where and growing we them to at us company, quickly the of those as the as And to gets kind believe fact that you customers and expect provide we sell believe not our percent. be the MDDR move that

Yakov Faitelson

simple. it's But very

of many much buy, breach, the permissions If file X on or that what just is on on XXX, you levels. are AI Snowflake, then enhancing perspective so which we super databases. behavior them. And do you the more shares, that But but and intent, is that send doing needs can is and with on us your and critical. your working friction. with the AI, and bricks, do can is And thing a the on that analysts is our on our at that productive. and protecting the anatomy the level almost it in data this is the from for a SaaS AI One of happening happen abnormal be so people salesforce.com to is what MDDR the happened everything robot are is other that for thing tactic customer It's will to completely reduce we we only thing first

a doing there to getting is stopping sure X, just just strong So very place day that no this super do there no. proposition. is monitoring is happening which to And reason no -- automatically the we're is -- value to very, locking what We is and that very, deployment for without a business any nothing make it data, process. the is just customer, say fast from can everything to

Operator

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

Brian Essex

stick customer talked And that, Phase help to I X pursuing X, X I on understand of versus to great over think guess the convert. the you Yaki, see phase more Phase aggressive customers as the we've to where being more SaaS either to or or push Guy kind Phase growth on them and reacceleration from you're incentivize what about comfortable a here. previously should incentives customers year aggressively Could bring little us how comfortable you But are a seen platform, get get base can of kind the comfortable little customer platform? I so. platform? attrition see or investors that over us learnings the talked how of durability like? won't about get And we conversations for you've get accelerated those those you past we think or your bit maybe of you learnings the from some how insight to from do what of

Guy Melamed

have the everything provided them way, of for took put there far of lot with the on-prem gives our benefit offering SaaS better the a is a make the learnings in allows And them, MDDR for previous benefits. subscription. -- X protection. for seeing offering, automated X and them. the it It's we a of and is is that's customer what our And product product how do that And that the those of we is by the there us at better is work you that -- the our things a platform we the to not the definitely them lot sure an can with we're the of only better one from the things that tell So is of for and do lot that forefront transition. I SaaS

new sure kind the thinking want So the right business. the we about to make our move, XXXX, for in from a we've we also that way incentivizing do commission it way. about that -- think conversions and of on that made the sure kind when with we're without neglecting of we're we team And sales it, perspective, customer

it's new at sure that the business we everyone's XXXX. make absolutely interest, a transition everything, in that they it's win-win -- making complete to forefront is best sure So of but the the we're and in

Yakov Faitelson

just is this But massive a architecture is problem was build undertaking for customers. robust data so for scale, innovation you moving now, us then as very hard because the massive to happened a dividends scalable paying at what know. very It fast and

of money not robots to around data breach just probably, new just this became automation. you clock. all these everything robots, the and have cards customers with data problem, a our world it's and this with features our make -- have against -- So will Human for and sense problem almost most the that sure just AI, and have new protect makes them security the all we it cannot in to just customers move solve

Brian Essex

maybe more seen helpful. I converting customers? SaaS have confidence can you a that aggressively maybe lack is of them mean, platform and go resistance That's that about the from to gives you resistance it you MDDR? Or

Yakov Faitelson

it can and massive As MDDR the have almost we see these moved you is the This get much everything such and and that breach. value a data the is all customers automation value And you can wants see, we frictionless offering And is thought. stores every faster organization avoid. than way, data cloud strong big you expand. remediation is to what a then all breach in

you don't this I a of make relatively And You We to in that, an compliance want all in cloud. in is with do tell sure for value team. we'll it, do make be sure to to and them. is we why This way lean today, to what have sure make time have accelerating just go don't breach, a adding you doing a But need and want are to to do want you, make to data effortless the in CISO this are to they we in -- of order I to doing that we are need order to customers, we SaaS. it. our it we put sure

Operator

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

Joel Fishbein

color you in way, how and the for the challenges pipeline the currently you. some can that you around backlog? via to conversions, more pipeline want any quantify just I just health but have that I'd love and the it and Guy, having if backlog some the understand is? I you're understand

Guy Melamed

something the When kind of the say weighing look with. have talk think I you that they're I you business at that the it's wouldn't when that. new deal on I we at the wouldn't we look pipeline, can not about conversions, When pipeline. behavior. say we growth But a healthy

existing customer of earlier conversations our think the And otherwise. what good we we the on ourselves we in have We before, both We're the trying mentioned of where new conversion. a with SaaS. I to lot on for side feel XXXX, customers I start up existing the would and with to setting today, terms than process, as on conversion very customer are

Operator

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

Joseph Gallo

You there? quantitative in. of expect you for XXXX? provide growth And most in ARR innovating what ServiceNow, done adding then see benefit seeing trying of those outside do can to stores, areas Salesforce, to can job whether disclosures guys Copilot, just which of the have Databricks, a data to you see most buckets Just traction the it's see cetera. Snowflake, on protection and you nice you're different et Any

Yakov Faitelson

Yes.

you think this we over where just I overall, But demand, of all them, see happening. in released of the it terms see breaches that because are that coverage. We early. is some it's

data, from data is security. a we it ] itself you all mental not to sure of I acute discovery think we sure need side automatically. see is breach really marketplace can an think realization will need about and the the posture. that do the just data the data automatically you work value, time, not that adding that make make clinical with there it's for security understand the that the shield And Most that they have that remediate is by [ can don't

we all is you the all we from data the most Thinking remediation, clinic, are stores. Once repository, patches is ransomware interest the we It's that automated doing UBA, clinical. can [indiscernible] around have on-prem. it. the Most what right. PII. or it happening apply apply see in we if data you from coming everything features, demand the But everywhere. Salesforce coming on over it's still where see about the can of attacks And these of is

also it's us are the RO we for around well And stream. thing works extremely -- that in other everything identity that doing the

look our the we most and we breaking compromised are you of in. actors a This catching identity. anymore, a compromised that get today are times bad for they get traction us. threat. before and once once MDDR, is So they at there What insiders just them the most is before in, no obviously, they them perimeter data they not data. also a And happens actors big lot times get bad to relogging getting when -- catch -- to actually something We identity, the get of many there is that's are is

Operator

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

Roger Boyd

to back quarters getting that to the change platform? that conversely, conversion. SaaS to like been how there the to Or the around attach more have of And sell couple at time ability dynamic right? any change guess has increased I ago, the conversions? to it's was But Guy, those focus of get I of any now wanted I attaching I you're And to on seen to come a conversion and the there wanting more that am platform optimism required conversions. that of of you more conversion. effort if so, there pricing

Guy Melamed

conversions see SaaS we're years at to don't at higher the list change very of in lot XXXX, is we healthy pricing. about mind, talked we convert We're announced in seeing the healthy any conversions XX% We on-prem pricing. seeing price ARR. terms of our customers. the ability transition SaaS X the in No, the only uplift XX% of fact a We themselves. of the the We're ago than about subscription. on of XX% terms keep the already and beginning good feel to But that

completing we'll complete execute believe quicker of that's the in the we is our XXXX, customers order think X our consideration. that than have X and value coming with that can, a if very years in kind to we So we magnitude X can the years. many shorter be talked transition ago. than to proud way you -- getting And of. we thought what ARR we in dollar our to XX% within SaaS, decision year of the involved when from majority about to about we feel years the and and of of the SaaS something into what That's initially get if transition a year so to you kind take

platforms. with protected So pricing The in It's to our that we're well. pleased to be customers, additional to SaaS, feel ability We also us. and very an holding opportunity very for is them convert. they'll to we better our it's convert more their there's benefit sell move better once

are everyone. So still we're with optimistic that very that's happy we where And we're it's and with XXXX. into going far, for win-win why so with a

Operator

Our Shaul next line TD comes of Eyal from Cowen. with the question

Shaul Eyal

and it you're your Our could headwinds whatsoever when perspective about even from seeing characterize with to Microsoft would products. we are about you I compared checks that Copilot think their be seeing you and as also indicate potential from seen that Microsoft's XXXX talk Can in us a growth, tailwinds Purview. relations guys the it beyond?

Yakov Faitelson

partnership have Primarily, a with basis. it's them. we good on working So a case-by-case

with remediation, well works well in very UBA, is very good with have different proposition We It very But a completely primarily have of maybe completely equals the proposition at X customers. value them, we customers, XX% classification that's everything to partnership we related extremely work detection, very Purview. we're plus well the more together. -- But using We accurate Microsoft, just than X the I feature X. it's anything, scale. by for Varonis value automated label, and show threat and terms a them but now, And good their together. work overlapping

Operator

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

Robbie Owens

meaningful? time little that may elaborate was or meaningful the quarter. you it made, saying you that you talk this comments quarter-over-quarter become that AI quantify a be the first it about contribution hoping for more made around could was anything Can more I bit it changed

Guy Melamed

solution we ARR both packaging incentivized the of and the could and in Copilot of but look the kind the of MDDR and we platform allow customer our at strong could we a raising growth, it individually, it, these kind said sale kind should we've when MDDR approximately really and really And so price be AI packaging every of hard at worked driving accelerated at And about customer like And for it to Copilot awareness throughout business. DatAlert, past we our is it's X that our growth behavior be worked it this driven And as selling of look part well. When it's that well really new of which driving the MDDR packaging X and of it exactly Absolutely. we in the pinpoint really offering. way it. Microsoft look vectors as to X And Copilot. XXXX, Gen we with was talked sold when way as by demand XXX SKU. QX. And both have XX% for and our

can be information to try as as and transparent as as possible. we really much provide we So

interest can trying customer protecting that When to of when users XXXX, XXX is we compare a more increased spent by time new nearly So Microsoft added lot a which by X we provide metric. out. at Copilot. we you Microsoft look driven we XXX% XXX in to really we think I the offering that stand think protected have and XXXX, And

durable. trend end at that, is we working really, Copilot and customer this the day, So it's of and new and of the is both are momentum the the MDDR really clear well, that believe key drivers very

Operator

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

Jason Ader

wanted of faster-than-expected sure was in other anything I FX there miss the is, was Or thing SaaS? purely transition or elements the a your so to else? some the the revenue first relative the function to make quarter to of guess guidance, to I that

Guy Melamed

back go QX. SaaS to XX% our QX, of of you for actually got talked a When mix ARR. a guidance XX% about we SaaS we And for

to headwind headwind, is So our there's of which $XX million X% of guide.

difference of times on headwind So fact able because recognition subscription many quicker we about move between we're the to the And that recognized SaaS revenue get is versus we talked the we very ratable. that the upfront the is move, more revenue on-prem that we revenue were quicker. happy so recognition, which

quicker, us moving be investors QX. in and happy, happened continue on what be will of because we're revenue to happy, will the I that So we fact all of if miss think that's

Jason Ader

so All but understand headwind, And I'm bit on a headwind. right. struggling ARR Great. I the the then revenue little

just like like just in with about even normal uplift headwinds? it you and understand make there fully the the I the there? somebody. conversion, correct, when a I some uplift, price wanted sort puts convert SaaS Because uplift you're to price takes sure So an a you is because talk hitting Can seems of

Guy Melamed

XX%, you our about over keep that kind look X the X-year X/X do But lot mind a XX% talked we thing conversions. that at fact a in to we when customers that we're converted of uplift, it's is the existing period. of the approximately when So the

extrapolate you a So period, basically that somewhere gets is in that take X-year ]. over XX% the that if you XXX uplift it [ NRR number, XX%, you and which

And at to we we and a talked significant on is now we where how a MDDR message QX saw about new the a and in being the resonating increase point somewhat the the the of customers. saw well simple so kind of the you conversion drag when in to new customers Copilot -- business, especially look how is

accelerate our year. the the X/X customers and strong to X-year period. of conversions we But yes, the that's uplift. And and end from X at part of the we that over be done we're only XXXX want very So we in seeing the of transition pricing our getting in approximately day, more a are reason with uplift converted

Operator

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

Unknown Analyst

[ converted. of have Mark that into behavior ] customers for the just digging Fatima. Maybe on is This

of you we observed behavior time some we're of the and in of expansion of should think in year the the And 'XX? with adoption line, Now you're of into NRR And X? learnings are that accelerated well the seeing the the transition then converted calendar some trajectory of additionally, base installed share maybe can what cadence transition, X? how through year patterns and

Guy Melamed

and I'll good address them questions, try very one and Look, by one.

transition when beginning the all, only look behavior, you of XXXX. of kind at of First at the we announced the

analyzing years history customers the how we have for the analyzed, ] customer we actually that that don't of NRR progresses base. the full XXXX data But there. had XXX [ that there. numbers of of enough set we numbers seen the existing X nicely than higher, because the SaaS So a there's have from really, we're behavior only not full We are reported higher

So that existing our have as we additional that sell gives confidence the the us a to transition, we licenses to lot complete ability customers. of

is the sell of automation. the ton and that great just richness opportunity additional The platform automation, they a about with back to platforms. to the could need And talk sure We base. we of come that them sell there's we make They the the to MDDR, automation them and to feel move SaaS. get we

So reason want we move overall, that's can part we to XXXX. quickly we optimistic. in feel the as of very that And as

Operator

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

Andrew Nowinski

$XXX about million. to maybe it wanted XXXX mean, the I another just ask looks $XXX in your guidance million about in of SaaS ARR conversion. you assumes this I about size like added and

think I SaaS. still about ARR. you you And more said of just significantly your customers convert to So have left X/X to

you this of as that in it's year massively what SaaS I pretty increase, So you versus what to big a confidence guess guess, customers well. XXXX? can I chunk saw conversions gives the you

Guy Melamed

we kind our coming did we when get XX% we in Investor remember, total to to XXXX. transition XXXX, complete company you SaaS. if transition defined in Day of our XX% the from of outlined we So when March to And of the completing ARR plan

XXXX, of XX% the that number see kind from Now obviously, about and we of at the year we talked SaaS. of being to expect complete, we the in coming end ARR

approximately perspective, by numbers increase. is SaaS assumption ARR And a a to that significant it's mentioned, going million from $XXX be So the as you year-end. is

here versus to sit XXXX, transition think we $XXX we we point million But the we $XXX we in than to ARR the point the can numbers SaaS you're that. million and XX% you where by the As And for year better starting actually we're starting XXXX, for here today it today, in sit sit do getting but a a that's about and transition today, had perspective the is get meaningful talking of from here the that completing increase XX% I assumption XXX. between when is completing XX%. our as of us. anywhere thinking

Yakov Faitelson

to to the we the make important narrowed that we parity of gap can the and we automation the understand between SaaS of really and OPS very it's migrate SaaS. to sure Because a fast lot build platform, lot that a

in that So we the automated we want sure to migration make itself, more way. work a frictionless,

Operator

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

Rudy Kessinger

it's more have As start so going wind ARR year, going you're down back question -- and the and/or logo year, start really cross-sell, sustain net Hamza's new obviously earlier. this to conversions, guess -- guess, growth next down pick new up to but to if not ARR upsell I I winding going you're to to discounted profile, simultaneously

time, to do to Like support So profile? focused up that growth this are 'XX on into how there is happens? ensure upsell so make you're do make sustainable conversions if sure heading you at your that same sure you, pipeline reps cross-sell year, pipeline and heavily that that building how the

Guy Melamed

XXX of let's was growth the [ all, about with XX%, first We finished So talk XXXX. our ARR of NRR ]. year and at

the the do basically was new you drove the business. XXXX when in the you what see business the math, driver, that -- So

have Copilot and favor, in puts think position bake it sell kind simplicity position. we the of that to the to customers can actually lot that better in I So a a MDDR complete our you much if the a it And the platform and to the conversions the new puts the that continue are with and of do better we us transition, that when generating, in and you the we there's tailwinds that when in working upsell. headwind you eliminate and and are

I to of look position think the we a that So can much to at NRR from. understand the to platform this get to believe can that much XXXX look if it's you that transition. it better go results growth you where in the allows healthier drivers transition, the post at the -- came where company of post And look we richness kind back and with numbers how

Operator

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

Shrenik Kothari

transition, focusing of key a of about your security eventual and seeing resources the all driven the presuming benefit you do and AI sales and expansion, features on like accelerating engineering on mentioned course, security, freeing that inflection? sales AI And concentrate mentioned then up You like this and SaaS you this converting data just to you the residency, here. of requirements? focusing on really since into I'm have conversion specialized intersect pre better roles see advanced plans, demand Could particularly I kind specifics? thoughts Are that. sales AI around large specific anticipating more than that understand force and regulatory that. of on-prem logistics of reallocation comment you that's how help part resource the us of with transition, Phase appreciate X around pretty might Rather these and accounts, in some which your repurposing

Guy Melamed

us XXXX. said, And we're that when something look you have at convert that's target comp customers with SaaS. what not in the new the seeing the and each the drove can simplicity years we that ahead. the focus kind So have we believe platform, new has in that losing rep of continue of XXXX to customers in specific didn't plan, that a With their customers. the that the on self-hosted And to is we XXXX. tailwinds And we

So expense making some the sure X since seeing I are -- look We very hiring a the conversion. documentational When it's purpose we to in over the sales not way. the everything getting we've cater doing we're of we're top. of same. well at XX.X% we're started that the We're at margin. margin, the day, things of changing end resources the you think did the progressed on we -- that not doing challenges and it's the force, very for But hiring, -- also at can transition, additional last the with staying that and framework already we're of the that years contribution is the ARR prudent and like ARR the the we're contribution some

thinking to bringing the free doing, and cash very everything doing some about we're -- with of line flow. the the well leverage, we're it So bottom

are [ free where flow being from $XXX.X transition, So we number years at X doubling cash million into last think the ], about that year.

easy I possible. trying that the customer as the smooth experience is all is and think we're doing sure as that to make for

to And the of XXXX. some lessons implement that we from trying XXXX, in took we're

Operator

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

Joshua Tilton

hear can Guys, you me?

Guy Melamed

We can.

Joshua Tilton

X-parter. a maybe have just I

The already but beat kind a first you one out, is and accelerate you transition, on are to apologize times initial of -- I guys tracking here, of your on to SaaS. convert the dead ahead horse this call, the decision to plan to pointed many

where change necessary it second in is to the XXXX just you incentivize more the this transitions the previously guess were guidance you challenging ARR to how rest order for that's is hit to So of how you the they needed you I that felt point question the trying did I'm making the in gave my to transition? actually understand, something contingent accelerate part acceleration then in of than like you for conversions And quarter to an or tonight? us

Guy Melamed

-- you the first. with start I at when guidance look let's think

And kind from when the point. regulation, the basically, as threat at previous can whole. here the for a XXXX, sit us, benefits we Gen gave a lot I that environment, for increased that that demand become that we the MDDR, had think philosophy goes contribution today, tailwinds on the look you in it new guidance as ARR the is of AI, starting there's the for XXXX, whether we based year same of we net meaning Varonis think So it's

the So I in -- And think it's done you look past, more than we'll as we the be update progresses. year. point at year guidance as happy our have starting for guidance, good it's to when the a the

So that takes the of of question. kind guidance care

there's the said said we at look I X last we I'm what when new -- think not don't we're what in think I versus quarters. anything conversions, saying you what the now versus over

months ARR questions is from finishes company. business conversions the what's process. and to lot kind about of that the conversion You the happen heard over talk conversions leading driving a lot us the of got when what driving the fact going that last the what's thought is and the company We a couple are of investors what's that not

And couple you growth I XXXX numbers. XXXX at that NRR at numbers when that new is look the the and in understand we've look think the said reflected the number, the you in at last ARR with in driven business. look of the you quarters you actually What's and the number over everything

in in I investors' that to be best think It's our we're our every than way, the in in quicker protected, a we're best making best sure in on-prem sure a way transition, customers interest subscription. our if customers' interest, that make the accelerate interest. it's it it's on And we they interest. month's it's the best right that prudent very much way, strategic in but better could stayed doing company's

Yakov Faitelson

the software, where do can rig the architecture, the breaches. we value [ all this the are cloud we to compliance everything. we our realize the it's is very, almost it is very the value. that it they in What our there, to have just to see bring order else. top cannot this time, do is and And the functionality that in works be SaaS They they on want thing ] value overall put software. We lean to there, to nothing need they way of data get only customers And buy a team. is Once to need with customers. to Once

As trying that is want This is many, I the are sure to they value XXx do, it's we make said of the before, this cases. want many what to really to we many, -- be. where more in are and effort, we XX%

for this us. and everything So customers is is there, we easier much are -- much is for everything easier our once

Operator

the And with line & our Needham of question Company. comes next Dezort Matt from

Matt Dezort

I AI Gen about right. wanted pipeline. to ask All the

X across when with And in balance since looks Copilot more you what sort the seeing what uplift MDDR, sounds and included being for it is your how with like those in more are curious bundled deal? existing of like? Just it's new and a customers, opportunity

Yakov Faitelson

is believe almost that's And eventually that exactly we every Copilot knowledgeable will I expected. think so This far working we have. is that something worker as

more lot shouldn't that you do. you within more many security becoming it. organization, of As times, bringing employees you data that This things data are ignore a out, the evident, can't probably shouldn't roll you get, they and robot doing Copilot it

also the So but it's believe them. Varonis that for that is hands the you knowledgeable will be of the AI, deployment innings of Microsoft worker. But in it I eventually, can foundation early secure see for every for still in

everywhere. that and will customers, can prospects So all and need organization AI Every is you see it's to protected using over. these existing us

Operator

turn like for over Thank call closing And would I the this session. back concludes you. the Therefore, to to Perz question-and-answer Tim comments.

Tim Perz

investor conferences. for Thanks at this Varonis. forward interest the everyone the in quarter to meeting We look

Operator

And this your for today's lines you this conference, concludes you Thank and and time. gentlemen, your may ladies disconnect at Thank you. participation.

Varonis Systems (VRNS) 4 Feb 252024 Q4 Earnings call transcript