Varonis Systems, Inc.

Greetings, and welcome to the Verona System, Inc. second quarter 2024 earnings conference call. At this time, all participants are in 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 Hurst, Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter 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 third 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. Gronus 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 2024 earnings press release and investor presentation, which can be found at www.varonis.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, Jackie Fadelson. Jackie?

Thanks, Tim, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter results, our SaaS transition progress, and the tailwinds impacting our business. First, I would like to remind you why VoIP exists, and how we help our customers. Today, the purpose of almost any cyber attack is to steal data, but the purpose of the security solutions most organizations deploy are to protect their endpoints and their perimeters. These technologies are very important, but they aren't enough to protect data. To protect data, you must have a data-first solution and a data-first approach. Voronis' data-first approach helps companies lock in their sensitive data, visualize who has access to it, automatically lock it down, and then detect and respond to threats from it. To use a simple example, credit card companies keep making it harder for bad actors to get your credit card number, but they know credit card numbers will still sometimes be stolen. So they also watch the credit card transactions and compare them to what they know normal usage looks like to detect and stop fraudulent transactions. Coronis uses the same approach for protecting data, make it harder for the wrong people to access it, and monitor the data transactions to spot and stop anything abnormal, like ransomware insider threats or AI abuse. With our SaaS platform and recently released MDDR offering, we have a sophisticated and automated solution that enables customers to protect their data with very little time and effort. This allows companies to collaborate safely while also managing risks. Innovation has always been at the core of Voronis, and in late June, we achieved the FedRAMP in-process designation, which represents an important step towards enabling us to provide the benefit of our SaaS platform to our federal government customers. I would like to take a moment to thank everyone involved in the process. Now, I would like to turn to our second quarter results, which reflect the growing momentum of our SaaS platform in the recently introduced NBDR offering. These offerings are driving strong new customer addition and healthy convergence activity from existing customers. ARR grew 18% to $584.2 million, and year-to-date, we generated $67.3 million of free cash flow versus $40 million generated last year. TASI ARR now represents approximately 36% of total ARR, guided review of Q2 results, and our updated guidance in more detail shortly. This was another quarter of strong execution by our team that has risen to the challenge of a stable but a challenging environment still with elevated levels of build scrutiny. The transition to SaaS delivery model is progressing quickly Because of the many benefits that our customers realize, customers can achieve automated outcomes, which means they can ensure the data is protected with very little effort. SAS is quicker to deploy and operationalized 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 benefits over time. I would now like to turn to a couple of tailwinds that we believe will drive momentum in our business. The first is our managed data detection and response offering, which we call MDDR. This is the first managed service for monitoring and protecting data critical data, and is only available for our SaaS customers because of the visibility and automation that is built into our SaaS platform. MDDR was only introduced in Q1 and is already becoming a key driver of new business swings and existing customer conversions to SaaS. And we believe that we are just scratching the surface with this opportunity. We continue to see that CISOs don't have the resources to monitor and investigate alerts fast enough. With MVDR, we handle this for them. If we see a threat, we can stop it and simply notify the customer after the threat has been neutralized. We pioneered the use of machine learning to perform user behavior analysis and build highly accurate threat models. Our team leverages this significant automation plus our unique telemetry to efficiently detect if data is under attack and to catch threats missed by others. Bottom line, the early proof points that we are seeing leaves us excited about what the future holds for MDDR. The second tailwind, We see generative AI. This technology is top of mind for many organizations and is a key theme in nearly all conversations with prospects and customers. The productivity benefits that Gen AI brings are widely understood, but Gen AI also worsens the data access risks companies already face. Take, for example, a bank. that was piloting a GenAI tool with users on their trading floor. They wanted to make trade more productive and earn the bank more money. The traders started to use it for research. They started searching for answers on questions like, what stocks do our employees invest in? The problem is, The tools started showing names, social security numbers, 401K positions, and account numbers. The security team immediately turned it off because they were going to face major fines and sanctions. And it wasn't because those traders were acting maliciously. They were just trying to use the tool and ended up finding extremely sensitive data that was mistakenly open to everybody in the company. We believe that Gen AI adoption within enterprises will serve as a catalyst that exposes their underlying data security risks. And this is the very problem that Varonis was built to solve. As a result, we expect that as companies adopt Gen AI, they will be forced to make addressing those risks a top priority. Without Varonis, Right-sizing access controls is extremely challenging. We mitigate these risks by automatically ensuring only the right people can access the data necessary for their job function. Companies are thoughtfully considering these risks before expanding from pilots into broad rollouts. The feedback we are hearing from customers continue to strengthen the conviction We have in our ability to benefit from enormous secular tailwinds, and we are seeing a healthy pipeline build with respect to this opportunity. With that, I would like to briefly discuss a couple key customer ruins from Q2. A large Midwest hospital system became a Voronis customer this quarter. This organization was concerned about where its sensitive data was located, who had access to it, and how they would respond to a ransomware attack. During the risk assessment, we detected attacks already in progress, including an attack on their CEO account coming from outside the organization. The company was able to prevent it and ensure that account was secured. The second attack that occurred was a business email compromise that began when an employee clicked on a phishing link that came from a malicious email and the account started accessing files from an unusual geolocation. our team was able to confirm they would detect and stop this compromise before any sensitive data was accessed. Because we have a conclusive record of the data transaction and prevent any damage from being done, they purchased Veroni SaaS for their hybrid environment with NBDR protection and were able to avoid material breach that could require them to publicly file any data breach disclosures. We continue to see healthy demand from existing customers converting from our self-hosted platforms to Veroni SaaS. One example of this is a multinational commercial real estate firm that has been a Veroni customer since 2014. They wanted to decrease their infrastructure spend and reduce the time spent maintaining and upgrading their software. moving to Voroni SaaS allowed them to immediately cut their server footprint and reduce their ongoing maintenance requirements. In addition to this operational saving, they will automatically remediate overexposure in Microsoft 365. They also purchased the Voroni SaaS hybrid package through the Azure Marketplace, which simplified the procurement process. In summary, The adoption of our SaaS platforms and MDDR offerings are driving positive business momentum, and we are just scratching the surface of our long-term opportunity. We are excited to enter the second half of 2024 from a strong position to capitalize on the tailwind of MDDR, GenAI, in increasing data-centric compliance regulation. With that, let me turn over to Guy.