Varonis Systems, Inc.

Greetings and welcome to the Verona Systems first quarter 2023 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. It is now my pleasure to introduce your host, Tim Peirce, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' first quarter 2023 financial results. With me on the call today are Yaki Fidelson, Chief Executive Officer, and Guy Malamed, 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 future operating results for our second 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 first quarter 2023 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 Fiedelson. Yaki?

YAKI FIEDELSON Thanks, Tim, and good afternoon, everyone. Thank you for joining us to discuss the first quarter 2023 performance. I'm happy to share the progress on our SaaS transition, excited By the initial SAS adoption, we saw and feel optimistic about our ongoing SAS journey. So let's start with our first quarter results. The reception of the Veroni SAS continues to exceed our expectations, and this quarter provided us with additional proof points that our strategy to transition to SAS is working. Our first quarter SAS mix came in at 37% well ahead of our guidance for 15% and ARR grew 18% year-over-year to $478.1 million. We reported revenues of $107.3 million and free cash flow of $35.7 million. At the same time, the economic slowdown continues to impact our customers, and as a result, our near-term growth remains below where we believe it can be over the long term. We are still seeing additional scrutiny on deals in Europe and North America, but Voroni SaaS has come out at just the right time in an environment where all spending is being highly scrutinized. Voroni SaaS offers customers a faster time to value with drastically reduced overall total cost of ownership because of the lower infrastructure and hand-count related expenses required to operate it. We are pleased with the team's performance despite the difficult macro backdrop. And though we are only a quarter into the year, we are raising our SAS mix and ARR guidance. Guy will review our Q1 results and our updated outlook in more detail. Before I talk more about the progress of our SAS rollout and what we are hearing from customers, I want to remind you why Voronis exists and the problem we solved. Data is the most important asset that a company has next to its people, and because of its importance, data is a prime target for bad actors. At the same time, data is out of control. The growth of the cloud and remote device usage has only made securing data more challenging. Varonis helps companies locate sensitive data, visualize who has access to it, and automatically lock it up. This allows companies to collaborate safely and get the most value from their data, while at the same time managing risk. Recent events made it obvious how hard it can be to protect data from risk of insiders, but it's less obvious that outside attackers become insiders when they compromise the system or a person. In either case, without our solution, employees and contractors can always access more sensitive data than they should. Now, let's turn to some of the feedback that we have recently begun hearing from customers who are using Veroni SaaS. As a reminder, last quarter and at our Investor Day in March, I spoke about three key benefits our customers get from our SaaS platform. First, customers are much better protected with much less effort with our automated remediation and proactive incident response. Second, SaaS is easier to deploy and has significantly lower infrastructure costs. And third, SaaS is easier to maintain and upgrade. At our investor date, I spoke about three benefits that we expect to realize. One, shorter sales cycle. Two, larger land. And three, margin benefits over time. While it is still early, We as a company and our customers are already beginning to see evidence of these benefits. One example is a specialty chemical manufacturer with 1,000 employees that suspected that they had issues with overexposed data. But prior to installing Varoni SaaS, found it difficult to visualize who had access to data and configuration risks, let alone remediate them. The first day of installation, Voronis enabled them to see exposed sensitive information that was open to the entire company and even sensitive files that were open to anyone on the internet. For this lean security team, stopping at visibility alone wouldn't have been enough. Manual remediation was a non-starter as it does not scale and never ends. Before installing Voronis, This team unsuccessfully tried to use multiple other point solutions that did not meet their needs, due in part to their lack of automation. Leveraging the power of automation with Voroni SaaS has allowed them to classify PII, alert around ransomware, and most importantly, remediate overexposed links in Microsoft 365. In the end, they purchased Voroni SaaS packages protect their on-prem Windows and Microsoft 365 deployments. Another example is one of the country's largest convenience store operators. This company was performing a gap analysis on its security architecture and realized that it failed to understand who can and does access data in Microsoft 365 and also had no way to locate sensitive data in their environment at scale. They could not see links shared with anyone on the internet older than 30 days, and there was no way to remediate old links without breaking collaboration. Prior to bringing us in, they were trying to address these problems using Microsoft's building functionality, but this proved to be manually intense and ultimately unsuccessful. Once they installed Voronis, this organization gained real-time visibility into these overexposed links. Not only this, but our proactive incident response team identified and stopped a live ransomware attack on their network. The customer had a number of perimeter technologies that were bypassed, but because we look at the data, we found files that were being encrypted on the networks and immediately locked the bad actor out, stopping the incident. What started as a data classification project quickly expanded into much more. This customer purchased Voronis SaaS for Windows and Microsoft 365, which allowed them to realize the benefits of proactive incident response, reduce infrastructure spend, streamline the procurement process, and simplify the ongoing maintenance of the Voronis deployment. In addition, this new customer wins. We also had several existing customers convert to Veroni SaaS this quarter. One of these conversions was a Fortune 500 insurance company that first became a customer in 2020. As we prepared for renewal discussion, a customer mentioned a multi-year plan to migrate its on-premises data center into the cloud and wanted to leverage the power of Veroni SaaS. Prior to the renewal, they had 13 on-premise subscription licenses after the renewal, the purchased Veroni SaaS package for Windows, Microsoft 365, Active Directory, and Exchange Online, as well as DA Cloud for AWS and S3. As a result of this conversion and upsell, we recognize an increase in ARR of greater than 30%, which gives us additional confidence in our pricing model. We are in discussion to protect the Salesforce.com and Jira environment as well is expanding into additional geographies they have in Europe and Asia. In my conversation with customers, it is clear that the simplicity and automated protection of Veroni SaaS is resonating, which leaves me feeling optimistic about our outlook in spite of the economic slowdown that is impacting our customers. With that, let me turn the call over to Guy. Guy.