Varonis Systems, Inc.

Greetings and welcome to the Verona Systems fourth 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Purse, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' fourth quarter and full year 2025 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 31, 2026. 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. The reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2025 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 Fiedelson. Yaki?

Yaki Fiedelson Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Over the past year, we have talked about Voronis as a story of two companies. The first is our strong SaaS business, which reflects the present and future of our company And the second is our legacy on-prem business, which is serving as a headwind to our total company ARR growth. In Q3, the headwind was especially pronounced. As a result, we are now disclosing additional metrics. The purpose of this is to allow investors to understand all the drivers of our business. Guy will expand upon this later. In the fourth quarter, our SaaS business continued its momentum, and our decision to end of life our self-hosted platform combined with the lesson we learned in Q3 led to a record number of conversions. In Q4, SaaS ARR was $638.5 million, or 86% of total ARR. Q4 SaaS ARR increased 32% year-over-year, excluding the impact of conversion and total ARR increased 16% year-over-year to $745.4 million. Now, I would like to give you some additional color on last quarter decision to announce the end of life for our self-hosted deployment model and the decision to transition our business to be 100% SaaS by the end of 2026. Prior to the introduction of Voroni SaaS, we believe our self-hosted software was the best way to secure data. But the downside of this software was that it requires significantly more resource to do so. Our SaaS product is fully automated. It is a different to our self-hosted solution, a self-driving car to a bicycle. You can get to the same destination in either method, but with one, you do the majority of work yourself, and with the other, it gets you there automatically and with minimal effort. We can do this because we build our SaaS platform using world-class architecture, the newest technologies, and the lesson we learned was securing data in large, complex, dynamic environments for thousands of customers. This allows us to protect our SaaS customers in ways that were not possible with our self-hosted solution. For instance, we can only provide MDDR to our SaaS customers because of the automation and centralized visibility within our platform. It is important to understand that for most other companies, that underwent SaaS transition, the technological gap between the self-hosted and SaaS product was not as large as it is with our platform. This provides our SaaS customers with much higher satisfaction, which leads to higher renewal rate when compared to our remaining self-hosted customers, many of which are what we call single-threaded customers. This means they only use Veroni's self-hosted platform for a single use case on one data store. And because they don't use the full data security platform, they began to show a greater resistance toward paying a premium to move to Veroni SaaS in Q3. In order to move quickly and maximize customer retention, we are focusing less on uplift for conversions of our remaining on-prem customers. We believe we can show even more value to SaaS to these customers and then have opportunities to upsell them in the future. In the fourth quarter, our decision to end-of-life our self-hosted platform was a catalyst that caused many of our remaining self-hosted customers to convert to SaaS. We converted approximately $65 million or one-third of our remaining non-SaaS ARR in the quarter and believe that between $50 to $75 million of the remaining self-hosted customers will convert by the end of the year. At the same time, we continue to see strong demand from both new and existing customers because they can secure data with minimal effort because of our automation. Other DSPM tools may be able to identify a portion of sensitive data, but no other tool can find sensitive data in a complete way, fix misconfiguration at scale automatically, and alert and respond to threats, delivering automated outcomes like Voronis does. Within our SaaS portfolio, MDDR and Copilot continue to show strong adoption trends, and Voronis for cloud environments continued its momentum, which was driven by the investment we have made in our platform to expand our use cases and protect many more data platforms. We are seeing this demand because customers are realizing that visibility alone is not enough, and classification without protection is liability. Automation is necessary to achieve real outcomes. Early conversation with customers on our database activity monitoring and email security products underscore our belief that these are strong fit for our portfolio in 2026. We expect our reps to put significantly more focus on new business and uplifting SaaS customers. Over time, we believe this focus will help us unlock the potential of these markets. Now, I would like to step back from our near-term results and discuss why we believe we're best positioned to help companies safely adapt AI and prevent data breaches. Varonis was founded on the belief that managing and protecting data would be impossible without automation. Over time, our growth has been fueled by the constant balance between productivity and security. The emergence of AI is accelerating both the volume and complexity of data in an unprecedented rate. The scale of data growth is matched only by the AI ability to increase the sophistication of modern cyber threats. Cyber criminals are leveraging AI agents to infiltrate organizations with minimal human involvement. Recent incidents such as Chinese state actors using cloud code to breach major corporations, highlight the sensitivity and ease of these attacks. Most of these AI-powered attacks start with social engineering. Attackers aren't hacking computers. They are hacking trust, and users cannot tell what's real or fake anymore. Cybercriminals are using AI without guardrails. Companies want to adapt AI as quickly, but struggle to due to concerns over data security. The deployment of AI agent raises critical compliance questions. What data does the agent has access to? Is that data sensitive? Is the agent behaving as expected? Most organizations struggle to answer these questions for human users, and the challenge is amplified as they must now secure exponentially more AI agents. Agents are nothing without data. The more data agents can access, the more useful and more risky they become. They operate faster than humans, collaborate autonomously, and maximize their privilege by design. AI security depends on data security. In addition, companies will need guardrails and controls around their AI agents and tool sets To accelerate our ability to help companies safely adapt AI, Varonis announced today that it has acquired Altru, an AI security company. Acquisition strength Varonis' ability to protect enterprise for emerging AI risk by combining Altru's end-to-end visibility and guardrails for AI tools with Varonis' ability to protect the underlying data and identities using by AI agents. all to add end-to-end visibility and control across AI lifecycle. It inventories AI components and infrastructure, lock it down, monitor AI tools, and automate compliance. The acquisition reinforced our data-first strategy and extended our platform to secure all AI systems and the data powering them. Our SaaS platform allows for much faster organic innovation and integration of tagging acquisition, which enhance our customer ability to stay ahead of bad actors. Since launching SaaS, we have gone wider and deeper to help our customers stop breaches everywhere, and we can now tap into more budgets than ever, including data and AI security, database activity monitoring, and email security. We have unified unstructured, semi-structured, and structured data security into a single platform, which is essential in an age of AI because AI uses all data types. When you combine Interceptor, which is our email security offering, with our SaaS platform and MVDR, it becomes a force multiplier, stops threats even faster, and keeps threat actors even farther from data. With that, I would like to briefly discuss a couple of key customer wins from Q4. We continue to see strong demand from new customers, and one example of this was a healthcare service organization that was performing a risk assessment during a multi-cloud migration, and realized that the native tools were insufficient to lock down their data. As a result, They launched a DSPM RFP process and ultimately chose Varonis after we immediately uncovered several hundred critical misconfigurations, many of which were automatically fixed. We also identified over 900,000 exposed PII records and executive strategy materials. Varonis' simplicity, advanced threat detection, and unified interface automatic remediation of decisive against competitors, and they ultimately purchased Veroni SaaS with MDDR for hybrid environments, CoPilot, AWS, Azure, and Google Cloud Platform. Also, Unix and Linux, as well as Universal Database Connector. In addition to strong new customer momentum, we continue to see existing customers realizing the benefits of SaaS. One example was a hospital system of 45,000 employees that originally bought Varonis to remediate overexposure of on-prem HIPAA data. As they began the cloud migration process, they noticed gaps in the ability of native tools to remediate overexposure and label data at scale. During our cloud risk assessment, we discovered over half a million instances of HIPAA and PII data open to everyone in the organization. Our ability to identify and remediate these exposures led this customer to convert to Veroni SaaS with mDDR for hybrid environments, co-pilot, and data lifecycle automation for Windows SaaS. In summary, We are excited by the performance of our SaaS business, which is being driven by the automated value proposition that we deliver to our customers on top of our scalable architecture. We look forward to continuing our momentum and ending the year as a fully SaaS company, which will unlock many more benefits as we capture our growing market opportunity, and we believe in the path to achieving our 2027 financial target. With that, let me turn the call over to Guy. Guy.