Varonis Systems, Inc.

Greetings and welcome to the Verona Systems, Inc. second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. A 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 Pears, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter 2023 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 future operating results for our third 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 filing. 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 second 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 Feidelson. Yaki?

Thanks, Tim, and good afternoon, everyone. Thank you for joining us today. Our second quarter results reflect the strong adoption of Veroni SaaS and provide further validation that our strategy to transition our model to SaaS is working. Customers are adapting SaaS at a rapid pace, which benefits our ARR performance and customer generation. I'm proud to announce that our SaaS business now represents approximately 10% of total company ARR. Our second quarter SaaS mix came in at 58%. Well ahead are guidance of 35%. ARR grew 17% year-over-year to $497 million, and we have generated $40 million of free cash flow year-to-date, up from $3.9 million for the same period last year. The strong execution and the pipeline we see ahead is allowing us to raise our full-year SAS mix, ARR, and free cash flow guidance. Guy will review our Q2 results and our updated guidance in more detail. We continue to see the economy impact customer purchasing patterns with high level of deal scrutiny and longer sell cycles. But we are encouraged by our second quarter performance against these headwinds. I feel increasingly confident about the trajectory of our SaaS platform and the overall trajectory of our company. Today, I would like to focus my time on why our offering is a must-have and why Voroni SaaS continues to resonate with our customers and our internal teams. The recent Pentagon Bridge, in which Jack Teixeira, a 21-year-old guardsman, allegedly leaked sensitive intelligence on social media sites. He's a perfect example of why organizations need Varonis. The incident highlights why insider threats are the most difficult risk to defend against and can do the most damage. It appears that the Pentagon did everything right with its perimeter control to share a world in a sensitive, isolated information facility that guards against electronic surveillance and suppresses data leakage. That means no USB keys were going in or out, nothing could be uploaded to the Internet, and no transmission could take place. Still, none of its perimeter controls could stop this threat. Peshera was able to transcribe and take photos of classified documents because he had access to information that wasn't necessary to do his job. Perimeter controls by themselves do not address the problem that Voronis does. which is to ensure that only the right people have access to the information that they need to do their job. Despite the industry buzz around zero trust, this incident seems to be a failure in taking a zero trust approach to the data. In many organizations, the focus is often on safeguarding perimeters rather than protecting the target itself, the data on the inside. You can patch your systems, secure your endpoints, and dock USBs, and even properly train your employees using phishing simulations, but if your most important data is not locked down and monitored, then you open yourself up to massive risks. In our risk assessments, we find that employees have far too much access to sensitive data all the time. Providing visibility during a Voronis risk assessment which is a crucial step in our sales motion. It is helpful for companies, but just begins to scratch the surface of what needs to happen to properly secure data. Varonis helps companies locate sensitive data, visualize who has access to it, and automatically lock it down. The ability to do all three of these is what makes us unique, and this allows companies to collaborate safely and get the most value from their data, while at the same time managing risks. Veroni SaaS allows us to do all of this for our customers faster with less effort and with a drastically reduced overall total cost of ownership. And this is why we are seeing such strong adoption for our new SaaS platform. At the same time, the operational simplicity of Veroni SaaS also allows our internal teams to be more efficient in supporting our customers and introducing new product innovation. As a reminder, the three key benefits that our customers get from our SaaS platforms are, 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. Three of the key benefits that we realized are, one, shorter sales cycles, two, larger initial length, and three, margin benefits over time. We saw further evidence that these benefits, these quotas, are very encouraged by the continued feedback we are receiving from customers As an example, a large public school district with approximately 4,000 employees became a Voronisatz customer this quarter. Earlier this year, this district was the target of a ransomware attack, which led to a compromise of hundreds of thousands of files that contained sensitive information about students who attended the school. The security team knew they had gaps. But the breach forced the organization to reevaluate its approach to protecting data, which was through manual effort from its internal teams and consultants. Due to the high-profile nature of the breach, they needed a platform that would provide immediate time to value. Within two hours of installation, this organization gained visibility into where their sensitive data was located and who had access to it across their Microsoft and Google deployments. While visibility was important, our ability to automatically remediate overexposures and quantify the risk reduction over time was critical because of the lack of resources. They purchased Voroni's SaaS package for Windows, Microsoft 365, and DA Cloud for Google. The simplicity of deployment, fast time to value, and significantly lower infrastructure requirements of our SaaS offering were essential in meeting the organization's timeline to fix its access issues before teachers would return from summer break. We also saw an increase of existing customer conversion this quarter. One example is a Fortune 500 healthcare company with 35,000 employees that first became a customer in 2021. They originally purchased seven on-prem subscription licenses to protect their on-prem Windows deployment. As a large healthcare company, they are subject to significant regulatory scrutiny and needed to ensure that they had security and privacy policies in place. With the Voroni self-hosted deployment, they were already reducing risk by remediating global access and shrinking the blast radius for Windows on-prem. The success that this organization had with Voronis and the on-premise Windows environment drove the request for the same protections on Microsoft 365. Voronis SaaS was a clear fit for this organization. Automatic remediation in Microsoft 365 and proactive incident response team will drastically reduce time to value and the scalability, performance improvement, and significant infrastructure saving will meaningfully reduce the resources needed to achieve these outcomes. On renewal, they converted their on-prem Windows licenses into SAS equivalent package and purchased an addition SAS package for Microsoft 365. These customer wins illustrate the momentum we are currently seeing with Veroni SAS and underpin what is giving me increased confidence in our ability to capture our significant market opportunity and deliver value to our stakeholders as we execute on our $1 billion ARR target. With that, let me turn the call over to Guy. Guy.