Varonis Systems, Inc.

and welcome to Verona System Inc. First Quarter 2024 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, Mr. Tim Purge, Investor Relations. Thank you, Mr. Peirce. You may begin.

Thank you, Operator. Good afternoon. Thank you for joining us today to review Varonis' first quarter financial results. With me on the call today are Yaki Fidelson, Chief Executive Officer, 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, 2024. 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 It's also available on our first quarter 2020 for 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 Fileson. Yaki?

Thanks, Dean. And good afternoon, everyone. Thank you for joining us to discuss our first quarter results, which represented a strong start to the year. In addition to discussing the results, I would like to review our SaaS transition progress and the key drivers of our business for this year. But first, let me remind you why Voronis exists and the problems we solve. Data is valuable, which is why bad actors want to steal it. Companies invest in security, to protect the data, but securing it is very difficult. Voroni solves the problem by helping companies locate their sensitive data, visualize who has access to it, lock it down, and detect and respond to threats on it. And because of the sophisticated automation that we have built into our Voroni SaaS platform, customers spend very little time and effort to protect their data, and now, With MDDR, we reduce this even more. This allows companies to collaborate safely and get the most value from their data while managing risk. Our first quarter results reflect the sustained momentum of our SaaS transition and the positive reception of our managed data detection and response service, or what we refer to as MDDR. ARR grew 17%, to $560.3 million, and we generated $56.4 million free cash flow this quarter versus $35.7 million last year. SAS ARR now represents approximately 30% of total ARR. Guy will review our Q1 results and our updated guidance in more detail. I want to express how proud I am of the Voronis team While the selling environment had stabilized, it remains challenging, and the Voronis team executed well during the first quarter, and I believe that we are only scratching the surface of what lies ahead for us. The transition to a SaaS delivery model continues to show momentum because of the many benefits that our customers realize, and I will quickly remind you of a few. Customers can achieve automated outcomes, which means they can ensure The data is protected with very little effort. SAS is quicker to deploy and operationalize because of significantly lower infrastructure and personal investment. And SAS is easier to maintain and upgrade. Additionally, there are three key benefits that we realize they are shorter sales cycle, larger initial length, and margin benefit over time. In addition to our SAS transition, I would like to discuss There's three additional drivers of the business that I mentioned last quarter, which are our MVDR service, the adoption of enterprise-generated AI, and increasing compliance requirements. Today, I would like to focus on MVDR and Gen AI. Last quarter, we introduced our MVDR service, which is the first managed service for monitoring and protecting critical data. It is a paid service, that builds upon our proactive incident response offering by providing service-level agreement and around-the-clock coverage. It is important to note that this service is only possible for our SaaS customers because of the visibility and automation built into our SaaS platform. We just began selling this offering in the first quarter, and we have already started to see great momentum with it, so let me explain why this is already happening and why we view this as a game changer for our company. MTDR is a natural evolution of our platform and fills a significant unmet need in the market. One of the challenges pixels face is that they don't have the people to monitor and investigate alerts fast enough. Now with MTDR, We take this burden on customers and put it on us. If we see a threat anywhere within our MDDR customer base, we can stop it and simply notify the customer after the problem has been solved. We can do this because we pioneered the use of machine learning for data security and user behavior analysis, giving us years of experience building highly accurate threat models. Our team leverages the significant automation, plus our unique metadata telemetry, such as data sensitivity, access event, and permission that allow us to detect if data is under attack and to catch threats missed by others. I've also been asked to clarify the value our MVDR service provides to customers that already have an endpoint detection and response service or a managed detection and response service? The answer is actually very simple. When the perimeter fails, we believe that we are best positioned to save companies because we have been monitoring the data inside that perimeter ever since we started. Companies sometimes pay millions for other threat detection and response services, but when an incident happens, the services that don't focus on data can only show you when the attack began. We struggled to answer the most important question, was any data stolen? MDRs and EDRs can reveal how a bad actor gained access and what tactics they used to get in that cannot tell a customer if any data was taken. The situation is that discovering a bank was robbed but having no certainty about the most important elements, whether money was stolen or if the vault remained secure. This blindness is why organizations with sophisticated security stocks can still feel victim to data breaches from insider threats or attacks bypass the perimeter. Without Varonis, data is usually far too accessible to anyone or anything inside the perimeter and isn't closely monitored. This means more data is likely to be breached and companies have a harder time quantifying what was taken during the breach, making the liability much higher. Varonis customers automatically shrink the blast radius, which reduces the potential damage that an insider can do, and forces bad actors to work harder to get to sensitive data, giving us more opportunities to catch them. With mDDR, we often catch bad actors before they get to data. And because we watch the data, we are able to quickly quantify the damage. This means we can stop the breach and limit their exposure and their potential liability. This is why no matter what platform a customer has, they will still need MVDR. To finish our bank robbery example, Moronis MVDR watches the money around the clock and can tell the bank manager that their money is safe and the vault is secure. Now, I would like to touch on our generative AI opportunity This technology presents tremendous productivity opportunities. But in order to reap the benefits of it, you need strong data security. For example, AI can reveal critical data to the wrong machines and people because most generative AI tools utilize existing access controls, which most organizations have in lockdown, leaving them overexposed. Companies also need to prevent sensitive data from being used in large language models, and hackers will leverage these tools to steal important data more easily. Bottom line, generative AI is forcing organizations to take hard look at their data security strategy. This is why we continue to see generative AI coming up in so many of our customers' conversations as organizations try to understand how they can safely realize the productivity benefits. So far, companies are taking a very careful approach and are thoughtfully considering these potential risks before expanding from the pilot phase into organization-wide rollouts. As a result, we expect the near-term adoption of the wide-scale Gen AI to be measured as companies gain comfort around how they can secure their data. Overall, the feedback we are hearing from customers only serves to strengthen the conviction we have in our ability to benefit from this enormous secular tailwind. Our partnership with Microsoft is progressing well, and one month ago, we announced the industry-first cybersecurity solution for Microsoft 365 CoPilot. This will be sold as an add-on to our existing Microsoft 365 staff package and allows organizations to monitor co-pilot data access in real time, detect abnormal co-pilot interactions, and automatically limit sensitive data accessible by both humans and AI agents. In addition to the enhancement to our platform, we are seeing GenAI act as a catalyst for conversation with prospects, and although We aren't yet seeing material ARR from Gen-AI-related deals. We are seeing healthy pipelines built with respect to this opportunity. With that, I would like to briefly discuss a couple of key customer wins from Q1. A large university and their affiliated hospital system with 6,000 employees became a Veroni SaaS and NVDR customer this quarter. A broad mandate to secure sensitive data led to a risk assessment where we discovered 4 million sensitive records and 2 million instances of student and patient PII exposed to everyone in the organization. This university evaluated several CSPM and DSPM and legacy data security solutions, but ultimately purchased the only sub-package with MDDR protection for the Unix and hybrid Windows environment with our automation and unique data-centric telemetry, HonestMDDR will supplement the existing MDR and MSSP vendors by providing protection that is focused on securing their most valuable asset, the data. We're also seeing strong engagement from existing customers. A broadband provider initially became a customer in 2014, with the goal of identifying and remediating overexposed sensitive data and enhancing their spread detection capabilities. With our self-hosted offering, this required some customer effort and meaningful infrastructure investment. This customer converted to Veroni SaaS with NVVR protection for the hybrid Windows environment. They will benefit from our automated remediation and will realize infrastructure savings while freeing their security team since we monitor and respond to alerts. In summary, here is off to a strong start, driven by the automated outcomes that customers receive from our SaaS platform and our recently introduced MDDR offering, which we believe is a game changer for our company. We are excited to capitalize on the tailwind of NVDR, GenAI, and increasing data-centered compliance regulation as we capture our significant market opportunity. With that, let me turn the call over to Guy Gagne.