Varonis Systems, Inc.

Greetings and welcome to the Verona Systems Inc. fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Tim Purse with Investor Relations. Thank you, Tim. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' fourth quarter and full year 2022 financial results. With me on the call today are Yaki Fidelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws including projections of our future operating results for our first quarter and full year ending December 31st, 2023. Due to a number of factors, actual results may differ materially from those set forth in such statements. These factors are set forth in the earnings press release that we issued today under the section captioned forward looking statements and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2022 earnings press release and investor presentation, which can be found at www.veronis.com in the investor relations section. Lastly, please note that a webcast of today's call is available on our website in the investor relations section. With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Fidelson. Yaki?

Thanks, Tim, and good afternoon, everyone. Thank you for joining us to discuss our first quarter and full year 2022 performance. I would also like to provide an update on our new SaaS offering and updated outlook. We're at a very exciting time in our story as we introduced Veroni SaaS to the world nearly 100 days ago. Veroni SaaS is as big a milestone for us as the first version of Data Advantage, the birth of our company. At the same time, there is a lot of uncertainty in the world, whether it is inflation, raising interest rates, growing layoffs announcements, or just general economic slowing. In the midst of all of this uncertainty, One thing is certain. Whatever will happen in the world, people will eat, sleep, and create data, and that data needs to be protected. Turning to our fourth quarter results, it is still very early, but the initial reception to our new SaaS platform was encouraging in that business performs better than we expected, though of a very small sample size. At the same time, The slowing macro environment continued to impact our customers. Our fourth quarter ARR came in above the high end of our guidance range we provided you last quarter, although our reported growth remains below the goals we had at the start of the year. Guy will review the quarterly results and our outlook in more detail, but the initial performance of Voronis SaaS gives us additional confidence in our ability to weather this current economic environment and emerge from this transition with healthy growth and profitability on our path to achieving $1 billion in ARR. Now, I would like to take a step back and take a moment to remind you of the importance of what we do. Data is the most valuable asset for any company second only to its people. If you have data, someone wants it. Everything depends on it. But data is completely out of control. Companies don't know what data they have or where it lives. Employees have too much access to weigh too much data on too many systems. This is a problem for every organization today, regardless of size, industry, or geographic location. When we started, we needed to evangelize the problem. Today, everyone knows. The data security is important, but without Voronis, they struggle to locate their sensitive data, see who has access to it, and safely lock it down without disrupting their business. Securing data continues to get harder as massive on-prem and cloud repository grow. In the past few years of hybrid work, cloud and remote device usage exploded and together expanded the attack surface by order of magnitude. whether it is APTs, cyber criminals, or rogue insiders. There will always be a vulnerable system somewhere in this massive attack surface, and all it takes is one compromised user or machine to inflict significant amount of damage. While the means attackers use will change, their end target data is always the same. You can replace an endpoint. You can rebuild an infrastructure. But once an attacker gets to the data, it is all over. You can't unbridge data. This is why data protection is the most important security problem to solve. With SaaS, we reduce the customer effort needed to solve this problem with significant automation that is built into the software. Although there are many benefits customers get from our SaaS platform, I would like to outline the top three. First and most important, customers are much better protected with much less effort. Voronis has much more automation to find and lock down exposures that come from oversharing, unneeded access, and misconfiguration. We have more visibility into usage and behavior on all data stores that matter the most, which enhances our ability to detect and respond to threats. With our enhanced visibility, we now offer proactive incident response for SAS customers, providing another layer of protection, again reducing customer effort. Continual automatic updates enable customers to stay in front of new and evolving threats and regulations, and all of this is delivered faster. Second, SaaS is easier to deploy and has significantly lower infrastructure costs and should result in quicker time to value. And third, SaaS is easier to maintain and upgrade, which saves our customers time and headcount, two of the scarcest resources for any CISO. I would like to spend another moment diving deeper into our proactive incident response, which is a key differentiator for Voronis SaaS offerings. As part of the Veroni SaaS subscription, customers get air cover from our world-class incident response team to proactively watch suspicious activity, investigate alerts, and notify customers of potential incidents. This will reduce the pressure on customer security teams and improve their ability to stop threats. And the ability to provide this across our entire SaaS customer base makes the service orders of magnitude more powerful. On top of these critical benefits, we are making it easier to consume Varonis as we are doubling down on the bundling strategy we introduced at the beginning of last year. We have seen great reception from customers who received Varonis platform protection upfront and from our Salesforce, who benefit from a simpler pricing discussion, both in the initial deal and the renewals. The new strategy, is a win-win for our customers and our company. Our customers receive more value from our platform in the initial deal. For Salesforce, it is an easier story to tell. Our customers know that Voronis protects their largest and most important data store and application. They know the business outcomes that Voronis helps them achieve. This is what matters to our customers and why we are doubling down. on our platform selling approach. Our updated packaging ensure that customers receive an autonomous data security platform that will help them achieve their business outcomes on day one. Now that I have provided you with an update of how we are making it easier for customers to see value on the Varonis platform, let me review some of the benefits that we should realize through our SaaS offering. First, we expect SaaS will result in a shorter sell cycle. Risk assessments, the core of our go-to-market motion, are expected to be quicker and easier to deploy because customer infrastructure requirements are greatly reduced. Along this, our updated product packaging should help simplify the pricing discussion, which we also think will result in shorter sell cycles. Second, Our new customer lens should be larger, driven by a platform selling approach and a 25% to 30% pricing uplift, which is justified by the product's lower total cost of ownership as compared to our on-premises subscription offering. We expect that quicker time to value and improved customer satisfaction will lead to greater customer lifetime value and even better renewal rate on these larger initial deals. And third, SaaS help us to innovate faster and support our customers more easily, which we expect should benefit our margin profile as we scale. It is still very early in the transition, but we are beginning to see initial proof of these benefits. Before I turn the call to Guy, I want to briefly discuss a couple of key customer wins from Q4 that illustrate them. A global packaging company, over 4,000 employees, became a Voronis customer this quarter. This organization wanted to improve its ability to detect and respond to threats on sensitive data and intellectual property and comply with GDPR and CCPA privacy requirements. This deal was originally an OPS deal that was switched to a SaaS deal during the fourth quarter of because of infrastructure and resource cost saving, they could realize. They purchased packages to protect Windows, Microsoft 365, and Active Directory, and we're already in discussion to supplement those threat detection capabilities with Edge and to protect their Exchange Online and Box environments. At the same time, our existing customer base continues to serve as a key growth driver. A couple of weeks ago, a healthcare organization, originally a customer who purchased a double-digit number of perpetual and OPS licenses, upgraded to our SaaS platforms, and will protect its hybrid Windows environment with the power of Voronis SaaS. This renewal was a win-win for the customer and Voronis. The customer will benefit from greater automation and reduce its total cost of ownership due to low infrastructure costs. We will recognize an uplift in ARR as a result of the conversion. We are excited by the initial reception of the Voronis SaaS and look forward to sharing how we see this driving our durable growth in the coming year at our investor day on March 14th. Finally, I would like to thank our team for their tireless effort this past year, and we are excited to make this transition a success in 2023. With that, let me turn the call over to Guy Geist.