Varonis Systems, Inc.

Greetings and welcome to the Varonis Systems Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in 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 the star zero on your telephone keypad. It is now my pleasure to introduce your host, Tim Purse. Thank you. You may begin.

Thank you, Operator. Good afternoon. Thank you for joining us today to review Varonis' Fourth Quarter and full year 2024 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 first quarter and full year ending December 31st, 2025. 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 2024 earnings press release, and our investor presentation, which can be found at 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, Dean, and good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full year 2024 results. Today, I would like to update you on the progress of our SaaS transition and to review why Voronis is best positioned to capitalize on the growing opportunity to secure the world's data. We introduced Voronis SaaS to the world a little over two years ago, And we are excited by the progress that has been made in that time. During 2024, we added over $200 million of SaaS ARR and ended the year with approximately $340 million of SaaS ARR or 53% of total company ARR. This is happening so fast because our SaaS offering is a better product that allowed customers to better secure their data with less effort. While these numbers suggest that providing a better product is easy, there has been a lot of hard work going on behind the scenes to make that happen. And I would like to take a moment to thank our team for their efforts. We still have many existing customers to convert to our SaaS platforms, but it is clear that we are well on our way to becoming a SaaS company. Although we have started to realize some of the benefits of SaaS, there are so many more to realize once the transition is complete. For example, once we are fully transitioned to SaaS, our customers will enjoy greater level of security with much less effort, and we expect to see better retention rates And over time, a market into which we can re-accelerate our upsell motion. This is a key reason why we plan to accelerate our transition time. And now we expect to complete it by the end of 2025, a year earlier than our previous outlook and two years earlier than our initial expectations. Turning to our fourth quarter results, ARR grew 18% to $641.9 million. And for the first time, SaaS ARR now represents the majority of our ARR base. New customer momentum was the single biggest driver of these results. And this is due to the simplicity of our SaaS platform and our MBDR offering as well. as customer interest in deploying GenAI, which requires them to fortify their data security strategy. While our existing customer conversions continue in a healthy way during the first quarter, these conversions are time and resource intensive. We believe our sales efficiency and ability to drive growth from our base will actually accelerate post-transition once our reps are able to focus on SaaS upsell and cross-sell rather than converting self-hosted customers. In 2024, we continue to balance strong top-line growth with improved cash flow generation, and we generated $108.5 million of free cash flow versus $54.3 million last year. Crossing the $100 million of free cash flow is an important milestone for our company, and we plan to continue to generate meaningful free cash flow going forward. Guy will review our results and initial guidance in more detail shortly. I would like to take a step back and discuss the growing need for data security and why we are best positioned to win in this market. Our worlds run on data, and because of its importance, everyone knows that they need to secure it. When we created Voronis SaaS, we had the benefit of more than a decade of experience securing large, complex environments. We used those learnings and our considerable resources to transform Voronis into an automated data security platform based on a world-class, scalable cloud architecture. It was critical that we did this in the right way because every day more data is created in more places and it's become harder to secure. This means automation and scalability are not just core differentiation for Voronis, but also the only way to stay ahead of today's threat environment. As time passes, the need for automated platform and the value we give to our customers grows stronger. For many years, we had to evangelize our approach, but now the market gets it. Data is where the damage happens, and stopping breaches is not only about avoiding fines. It's about keeping the lights on. And in the age of AI, securing data has never been more important. But data has never been more at risk. Today, bad actors don't break in, they log in. Attackers instantly become insiders and can easily collect data because the blast radius is unmanaged and everything is connected. AI makes attacker job even easier and insiders much more dangerous. They just have to ask the data and AI will compile it for them. Companies understand this and spend a lot on perimeter technologies, but breaches keep happening, which show that these technologies are important, but they are insufficient. Many organizations are also trying to address data security with manual work and point solutions, and they are failing. Voronis automatically secured data with our unified platform. Our goal is to make data security as reliable and effortless as owning a credit card that protects you against fraud. Our cloud-native unified data security platform has a wide coverage and deep functionality to secure data at scale wherever it leads. We automatically locate and classify sensitive data, and because we understand what an identity can access and what it should be able to access, we are able to automatically reduce the blast radius. We monitor and understand data-related behavior so we are able to detect suspicious behavior. And if a bad actor gets in or an insider emerges, we help minimize the damage. Our platform has allowed us to bring our unique functionality to every enterprise data domain, from on-prem data stores to SaaS, PaaS, and hyperscalers like AWS, Azure, and Google Cloud. Expanding our coverage into these additional data stores has enlarged our total available market and brought us into new projects where we sometimes compete in RFPs and POCs, these point vendors that do discovery and basic posture management. While these vendors help us to build the market for data security, in most cases, we still do not face direct competition when it comes to actually securing large datasets wherever they are in the cloud or in the data center. When we do a risk assessment, our differentiated value becomes clear. Simply finding sensitive data does not ensure that it is secure. Once sensitive data is located, remediating overexposure at scale is not possible through manual work. Varonis is unique that we discover and classify sensitive data automatically fix issues, and then detect and stop threats from data, which is the only way to secure data. Switching gears, a year ago, we introduced MDDR, which is the first managed service for monitoring and securing critical data. This offering is built on top of our SaaS platforms and leverages our unique data-centric telemetry alongside the AI and machine learning embedded into our platform to deliver automated data security. MBDR has been the fastest adapted new product launch in the history of Roins. We are already seeing this drive meaningful new business and existing customer conversions. And we are still just scratching the surface of this massive opportunity. The proliferation of AI is also expanding our technical mode as we leverage our unique data sets to help prevent data breaches. This gets stronger as we add more coverage and automation, and the network effect grows as we add more customers to our SaaS platform. Customers want to deploy AI, which also bring data security conversation front and center. We saw growing impact during the first quarter from these Gen AI initiatives. With that, I would like to briefly discuss a couple of key customer wins from Q4. New logos are the driver of our business momentum, and this quarter, a large hospital system with 10,000 employees became a customer. They were looking to deploy CoPilot, but knew that data security and privacy would be a big concern. And this was confirmed by a risk assessment. As a result, they purchased Veroni SaaS for hybrid with MVDR and CoPilot. In one week, they automatically locked down 43,000 exposed files and labeled 98% of their sensitive data for the power of automation in Voronis SaaS. This success empowered the CISO to recommend to the board that the company could safely deploy co-pilots throughout the organization and enable this hospital to be a leader in Gen AI adoption. We continue to see strong demand from existing customer looking to convert to a SaaS platform. One of those was a large bank with 6,000 employees that first became a customer in 2019. Originally, using Varoins for Visibility into their file shells, understanding data ownership and automating entitlement reviews over time, they have significantly expanded their deployment to include data classification, alerting on threats, automatically fixing exposures on-prem and then doing all of this in the cloud before ultimately converting to SaaS Discord. On conversion, they purchased Voroni SaaS Hybrid with mDDR and Copilot and Salesforce. This will allow them to safely deploy Copilot and find and fix overexposed sensitive data in Salesforce. In summary, we are excited by the approximately 50% increase in ARR from new customers, which was driven by the simplicity of SaaS and NBDR, as well as generative AI, raising awareness for our solution. We look forward to continuing our momentum and completing our SaaS transition in 2025, which will unlock many more benefits as we capture our massive opportunity. With that, let me turn the call over to Guy. Guy.