Varonis Systems Inc at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Fatima Boolani - Citi - Analyst : Well, thank you very much. I would just start the discussion on the 30,000-foot level if you will. And I don't think there's a lot of folks in the room. We're very familiar with your story, but would love to start at the highest level on an overview of Varonis, what you do, where you operate, and what part of the cybersecurity arena you're playing in.

Question: Fatima Boolani - Citi - Analyst : You're touching on the whole concept and theme of transition and there's a model transition that's clearly in the works. But before we get into the nitty-gritty of that, I want to still take a step back and talk about the market transition, right? You gave us an overview of exactly what pin points to solve, and it's around data governance and data security. And you've been doing solving this problem for customers before it was in vogue before it was cool, right? I mean I think you're coming up on your 10-year IPO anniversary, so you've absolutely been hoeing the field on this for a very long time. But I think data security as a concept is becoming maybe more recognized in a mainstream fashion. So I'd love to get your perspective on what do you think has changed for data security to become maybe more of a thematic obvious consideration whereas historically was you had to convince people, they had a problem versus today and then why that change has taken so long, but also it seems like it's been very quick.

Question: Fatima Boolani - Citi - Analyst : I think it was always cool, too. You have my vote. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, VRNS.OQ - Varonis Systems Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi - Analyst : So just back to this notion of data security becoming more prominent in the consciousness of mainstream organizations, CTO organizations, et cetera, and more awareness from a procurement standpoint. So look, there has been actually a lot of active consolidation in the data security market, right, some larger players in the space have picked up some assets from the data security side, right? So as that consolidation happens, some of the M&A activity happens, how has that changed the competitive landscape for you when assets in the data security realm have been acquired and larger players are now maybe talking the talk. We don't know if they're walking the walk yet, but the larger players, in some ways are certifying that this is a very legitimately large problem. So how is that both an opportunity for you, but a potential a threat or risk from a competitive landscape standpoint? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, VRNS.OQ - Varonis Systems Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi - Analyst : So part of the opportunity is that some of your peers are also picking up a slack on educating the market, right? So that helps indirectly, the productivity of your sales organization because to your point, you're not actually spending. You're maybe spending less time evangelizing, educating that the problem exists in the evangelizing that you were the right solution, right? So in some ways, that's helpful. But how do you think about the potential for fractionalization of some of your capabilities and other control points. And as a related matter, when you think about the opportunity at large, I mean, it's been vastly greenfield. But just from in the trenches perspective, has the incidence of the types of competitors that you're seeing in RFPs change in a material way? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, VRNS.OQ - Varonis Systems Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi - Analyst : Guy, how does this translate into the SaaS transition you were talking about earlier, right? So if you were always doing these POCs, illuminating for customers that, wow, it's got a massive data access risk problem and your eyeballs just pop out of your head, right? So you've always been doing that from a POC perspective. Can you give us a sense of how the timing of those POCs has changed since you moved to the SaaS model?

Question: Fatima Boolani - Citi - Analyst : So I think historically with all of the experience we've had in learning about model transitions and different precedent examples of companies that have gone through model transitions. I think there's a carrot approach and then there's a stick approach. Our sense is that you've taken carrot approach, and I think you brought up MDDR a couple of times. But I'd love for you to spend a little bit of time on what is the philosophy and ethos around the transition, right? Because you do have the benefit of a captive installed base, right? At the same time, you are -- the SaaS model is helping you drive new customer acquisition velocity but the bigger chunk of it right now is still, hey, how do you up-level your own installed base to get the goodness of SaaS, right? So can you talk a little bit about where you are in this journey of conversion of the base but doing it with a gentle approach as opposed to pulling the plug on them because I know that's not been your approach. And how does this factor into the way you're thinking about the momentum on the ARR metrics and momentum of growth?

Question: Fatima Boolani - Citi - Analyst : All day. I'm here all day.

Question: Fatima Boolani - Citi - Analyst : And in the framing of some of your longer-term targets, it imply that ARR is a path towards acceleration to the '20's is ZIP code, right? What is it going to take for you to get there? What milestones do you need to hit, so we start to see more visible acceleration in the business? Because clearly, there's pent-up demand. You're doing the right things from a model transition standpoint. So what do you think some of the gating factors are that maybe flowing some of that curve up into your medium-term targets and what your medium-term targets imply?

Question: Fatima Boolani - Citi - Analyst : Can you spend a little bit of time on the relationship that you have with Microsoft? I mean, clearly, there is a little bit of a chicken and egg dynamic here with the generative AI monetization opportunity is because you do need organizations and mass to adopt Copilot so that you can be right at the front door to help do the governance around that. So fully appreciate that's out of your control, but you're ready to step up to the plate when the time is right. But in terms of the relationship that you have with Microsoft specifically around this, can you talk about some of the joint go-to-market initiatives that you have in place, any elements of exclusivity you have with Microsoft that, hey, are they -- is the Microsoft reps first call to make is, say, you better get some grownness around this environment because of all the reasons you pointed out, right? So as we think about what that generative AI Copilot opportunity could look like for you how does that relationship with Microsoft differentiate you and your ability to achieve that monetization objective?

Question: Fatima Boolani - Citi - Analyst : Exclusively or -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, VRNS.OQ - Varonis Systems Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi - Analyst : Historically, you've had very strong ties in connectivity to Microsoft environments. But I think what flies under the radar is all the work you've done around being the data security entity for non-Microsoft today's stores, right? There's been a lot of R&D effort around that. Can you talk a little bit about what the state looks like in terms of as you had a telescope on the data under management and your whole environment and your entire customer base, how much of that was Microsoft five years ago? And what does that high chart look like today between the variety of data source, stores and sources that have really propagated over the last five years?

Question: Fatima Boolani - Citi - Analyst : Okay. Guy, all of these efforts around driving new customer velocity, selling more to the installed base, layering on MDDR monetization, right? You've been able to do this while doing a very respectable job on improving your ARR contribution margins, right? We've come a long way. So can you talk about the investment priorities relative to all the tailwinds that are on the horizon? And we have seen a big improvement in terms of organizational efficiency but where do we go from here after having seen such a nice step-up in ARR contribution margins and how you're thinking about the investment profile in the near term but also medium term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 6:10PM, VRNS.OQ - Varonis Systems Inc at Citi Global TMT Conference

Question: Fatima Boolani - Citi - Analyst : And just specifically from an investment standpoint, what do you feel are your biggest constraints? I mean, from our vantage point, there has been a shortage of innovation in the platform, right? Your ability to do more automation, faster data detection and response and the MDDR, right? This seems like the R&D engine is firing in all cylinders. So is the correct inference that you are sales capacity constrained, and this is incrementally where you're going to focus? So you have a bigger or larger go-to-market footprint and any nuances you can share from a go-to-market perspective, especially now that when we talked earlier about, hey, this problem is becoming more of a mainstream problem. So maybe that takes pressure off the go-to-market organization in some ways. But how should we incrementally think about the investment dollars and where they should be or where you're thinking about allocating them for the course of this year, but also within the medium term, long-term target model?

Question: Fatima Boolani - Citi - Analyst : And what are these right spots?

Question: Fatima Boolani - Citi - Analyst : Fantastic. I think that's a good placed to put a bow in our discussion. Thank you so, so much for all of the insights. I appreciate that.