Varonis Systems, Inc.

Greetings. Welcome to Varonis Systems' third quarter 2025 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 star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Tim Purse of Investor Relations. Tim, you may proceed. Thank you.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' third 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 fourth 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 on our third quarter 2025 earnings press release and our 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 Fidelson. Yaki?

Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our third quarter performance. We finished the third quarter with 76% of our total company ARR coming from SAS, which means that we have now completed the SaaS transition in less than three years and more than two years ahead of plan. In February, on our first quarter earning call, we noted that Voronis is a story of two companies and this remains true today. Our SaaS business, it drives our momentum as SaaS customers benefit from the simplicity and automated outcomes of the platform and our on-prem subscription business that drags on total company ARR growth and mask the strength of our SaaS business. Let's start by reviewing our third quarter results. ARR increased 18% year over year to $718.6 million. However, in the final weeks of the quarter, we experienced weaker than expected renewals in our federal business and our non-federal on-prem subscription business, which resulted in Q3 coming below expectations. As a result of continued underperformance in the federal vertical, we will be reducing the size of the team until we see improvement. Now that we have completed our SaaS transition, we are now announcing the end of life of our self-hosted solution as of December 31, 2026. We expect this to result in increased uncertainty with our remaining OPS business going forward. In each of the first two quarters this year, we saw improvement in our growth renewal rate across the business, which is why the reduction in the renewal rate that happened in the final weeks of Q3 was unexpected. To account for this recent change as well as our decision to end the flight of self-hosted solution, we are baking in additional conservatism to our guidance and have assumed even lower renewal rates in our OPS business for the fourth quarter. We are also taking thoughtful and prudent steps to manage expenses across the business, which includes a 5% reduction in headcount in order to reallocate our resources where we see the highest return on investment. I will review our results and updated guidance in more detail shortly. Despite the softness we experience in our OPS business, we again show strong demand for SaaS platform during Q3. This is happening because customers are able to secure their data with significantly less effort. Within our SaaS portfolio, the rise for cloud environments continue to show traction during Q3, which was driven by the investment we have made in our platform to expand to additional use cases and protect many more platforms. Our ability to protect cloud data represents a significant growth opportunity for us as we're just beginning to scratch the surface. Because the transition is complete, our reps can put more focus on new business and upselling existing SaaS customers as we believe this additional focus on upsell will help us unlock this market potential. Now, I would like to take a step back from our near-term results and discuss the opportunities we are excited about moving forward. As I have said in prior quarters, bad actors, not breaking, they log in. Once an identity is compromised, there is no perimeter, and companies need a sophisticated data security platform to keep their data safe. Varonis takes a data-first approach and helps companies locate their sensitive data visualize who has access to it, automatically lock it down, and then automatically detect and respond to threats on it. Performing only one or two of these tasks is insufficient to secure data. What sets Varonis apart is our ability to successfully do all three of these tasks on data everywhere. Our SaaS platforms and NVDR have significantly reduced the amount of effort and resources needed to secure data. AI continues to put a huge spotlight on the need for data security, and the CISOs that I speak with want to ensure three key things. They won't have a data breach, they won't face compliance fines, and they want to secure their data to enable safe use of AI in an effortless way. Addressing this problem has always been difficult, and in the age of AI, it becomes even harder to secure data without sophisticated automation. In the third quarter, we continue to see demand from companies looking to protect their data to safely realize productivity benefits of CoPilot, and we believe we are still in the early stages of starting to capitalize on this tailwind. In July, we announced and update to our strategic partnership with Microsoft and are making significant investments to deepen our integration with them to better enable customers to securely adapt CoPilot over time. We believe these investments will ultimately better position us to capitalize on this massive opportunity. In July, we announced the release of our Next-Gen Database Activity Monitoring, or DEM, which stems from the acquisition of CYREL, Varonis Database Activity Monitoring provides a cloud-native agentless solution that offers next-generation database security and compliance for the AI era. Unlike legacy database activity monitoring tools that are slow to deploy and offer limited compliance value, our next-gen DEM solution is part of our broader SaaS platform, which delivers rapid deployment, real-time threat detection, automated remediation, and deep visibility into sensitive data access. This provides customers with automated security outcomes on any kind of data using our unified SaaS platform. Earlier this month, we introduced Varonis Interceptor, which offers customers a breakthrough AI-native email security solution designed to stop data breaches before they start and stand on the recent acquisition of Slashnext. The introduction of Interceptor is a natural evolution of our platform and significantly expand our total addressable market by connecting the dots between email identity and data. We believe We will dramatically increase the value for MDDR service and help customers stop threats even earlier in their attack path. With that, I would like to briefly discuss a couple of key customer wins from Q3. We continue to see strong demand for new customers, and one of these was a thinker company that wanted to replace its limited DSP endpoint tools with a data security platform. The incumbent classification vendor, could not scale, failed to provide forward and complete classification scale, and also failed to automatically remediate risk or detect threats. Varonis was able to quickly discover overexposed PII data and credentials in plain text that were surfaced by co-pilot users. Varonis also automatically remediated this exposure and provided a current and complete view of their cloud data under a single dashboard. They purchased Varonis SaaS with MDDR for hybrid environments and co-pilot Azure AWS ServiceNow, Snowflake, and databases. We also continue to see our self-hosted customers looking to convert to SaaS. This quarter, one example of this is a global financial services company that has been a Varonis customer since 2010. As a heavily regulated organization, they have historically used Varonis for compliance and auditing use case. They wanted additional visibility into the IaaS data and wanted to simplify the ongoing maintenance of its deployment under one unified SaaS tenant. They evaluated a number of DSPM vendors but it did not provide the breadth of support and automated outcomes that Varonis did. This organization upgraded to Varonis SaaS for hybrid environments and copilot, Active Directory, Exchange Online, Edge, Unix, privacy automation, and Varonis for IaaS. In summary, although we are disappointed with the performance of our on-prem business during the final weeks of the third quarter, We continue to be encouraged by the strong demand we see for our SaaS platform, which now represents 76% of total companies' ARR. This demand is driven by the automated outcomes and scale that it provides, as well as customer interest in deploying AI initiatives and securing data in the cloud. With that, let me turn the call over to Guy. Guy.