Varonis Systems Inc at RBC Capital Markets Technology, Internet, Media and Telecommunications Conference Transcript

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

Question: Matt Hedberg - RBC Capital Markets - Analyst : Let's maybe start, Guy, with you. You guys delivered a really strong quarter. I thought -- really beat all metrics. You raised the '24 outlook. I want to get -- the stock, I just think is a really interesting opportunity here because I think there's been a lot of enthusiasm in the stock for quite some time based on all the products you guys have developed. But maybe just start out with some of the demand trends that you're seeing. Like I said, it was a beat and raise quarter. You've always got a bit of a conservative stance to guidance and outlook, which has proved successful over the years. But just level set us on what you're seeing from a buying environment perspective. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 7:40PM, VRNS.OQ - Varonis Systems Inc at RBC Capital Markets Technology, Internet, Media and Telecommunications Conference

Question: Matt Hedberg - RBC Capital Markets - Analyst : The fact that you led with MDDR, I think when I talk to investors, it's like, well, tell me about [Gen AI]. Tell me about -- which is important for you guys. But the fact that you led with that, I think, to me speaks to the opportunity for that. And Gen AI and Copilot, that's great. But it really is about in terms of like monetizing the platform today, MDDR. I'm going to double-click, David, with you on that. But I just always find it just so ironic that the government -- and I know there's FedRAMP steps that the fact that like that they're not using Varonis to a greater extent. I mean, I see it as a real opportunity.

Question: Matt Hedberg - RBC Capital Markets - Analyst : Okay. Great. Let's double-click on MDDR, David Gibson, SVP of Strategic Programs. What was your title when you guys went public? It's evolved over the years a little bit. (multiple speakers) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 7:40PM, VRNS.OQ - Varonis Systems Inc at RBC Capital Markets Technology, Internet, Media and Telecommunications Conference Well, you're actively involved with DatAlert and DatAdvantage and now MDDR. Talk about why did Guy mentioned that before other products? Like what are customers saying of why that is such a game changer?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Not only an ROI, but it's making them feel a bit more secure.

Question: Matt Hedberg - RBC Capital Markets - Analyst : I mean, we could spend this whole conversation on just this. But I want to go back maybe to Guy. The SaaS transition has certainly been a key focus for you guys. And we think SaaS becomes half the mix within the next quarter or two. I mean, it feels like that's where it's going to happen. Can you talk about some of the progress that you've been making in SaaS and where you see that going in '25 and '26?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Can you talk about some of the pricing uplift you're seeing when that's been successful? And to what extent has that been a driver of your growth thus far?

Question: Matt Hedberg - RBC Capital Markets - Analyst : It feels like that -- I mean that as the transition accelerates, I think we think there's probably some natural acceleration of the business. But it's interesting, only a quarter of the business has actually converted thus far. I mean when you're talking to customers, David, especially when MDDR comes into the conversation, the 25% to 30% like-for-like is what you noted. I mean, is that where the conversation starts? Or is that where it's sort of like -- well, that's just to kind of get in the door and then we talk about further expansion beyond that?

Question: Matt Hedberg - RBC Capital Markets - Analyst : The only thing that stood out to me, I think you guys talked about having some success with Copilot in 3Q, you didn't quantify it...

Question: Matt Hedberg - RBC Capital Markets - Analyst : How do you -- so I guess like double-click on that, like a year from now, like could it be 5% of ARR? Could it be -- like what could drive further adoption there?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Why would you not take that in terms of like what's the resistance [to -- I mean, is] it just Copilot...

Question: Matt Hedberg - RBC Capital Markets - Analyst : David, we've been talking about competition for a decade. And it felt like the market wasn't -- maybe it wasn't ready for Varonis a decade ago, right, in terms of like data governance, data security, and you guys were really evangelizing a category. Today, it feels like a lot of people are talking about your market. Could you talk about the competitive dynamics? And like now that you see probably more people in bake-offs, what are your win rates against maybe some younger companies that are coming at it like from maybe a different perspective?

Question: Matt Hedberg - RBC Capital Markets - Analyst : I always think it's like the granularity that you guys get to is far superior. And then from a classification perspective, I think that's where you guys

Question: Matt Hedberg - RBC Capital Markets - Analyst : Guy, one of the questions that I get from people really across the software landscape is how do we think about '25 guidance? And you guys obviously haven't guided to '25 yet. You typically take a pretty conservative stance to start the year and end up beating throughout the year. Could you remind us about how you thought about ARR coming into this year from like a net new perspective and how that might help us think about some of the building blocks for '25?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Yeah. That's how we thought about our 2025 estimates. And candidly, it was pretty close to where we were before, but it feels like that's a pretty -- it's the right approach in this environment, but I thought that was a helpful framework. And then revenue follows from a lag perspective [when] I think about it.

Question: Matt Hedberg - RBC Capital Markets - Analyst : That's great. I'm going to ask one more and then we'll see if there's one from the group. How should we think about the strategic rationale and potential use of the convertible bond that you guys issued? I believe it was in September. Was it September?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Talk to us about that. What does that imply? Or how do you think about that?

Question: Matt Hedberg - RBC Capital Markets - Analyst : We'll see if there's a question out in the group here. [One] participation. Thanks, [Michael]. Unidentified Participant Thanks. You guys talked about most of your growth coming from new logos, right? The 18% ARR growth versus the 107% [NRR]. For the new logo piece, when you guys win a new logo, is it typically there's nothing there. It's a homegrown solution? Or is it a competitive displacement? And just to follow up on Matt's question, do you guys talk about a competitive win rate? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 7:40PM, VRNS.OQ - Varonis Systems Inc at RBC Capital Markets Technology, Internet, Media and Telecommunications Conference

Question: Matt Hedberg - RBC Capital Markets - Analyst : And then you wanted to -- just a little bit more color on win rates. I think you said -- Unidentified Participant (technical difficulty)

Question: Matt Hedberg - RBC Capital Markets - Analyst : Have you talked -- my head is like spinning with this week. Guy I can't recall, you talked about MDDR is still early. Have you talked about number of customers that have adopted it or any sort of --

Question: Matt Hedberg - RBC Capital Markets - Analyst : Yeah. You've got some rapid adoption of other products too. So maybe with just 90 seconds to go, what I've liked about Varonis is it feels like there's a series of S curves that you guys are always sort of like you don't have to hit them all. You're trying to hit a number of them concurrently, though. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 7:40PM, VRNS.OQ - Varonis Systems Inc at RBC Capital Markets Technology, Internet, Media and Telecommunications Conference Maybe, David, you talk to customers every day, like when we're sitting here a year from now, you're going to be like, Matt, like I was really surprised that that's happened from a customer. Like what do you think that could be that positive surprise with all the irons that you have in the fire today?

Question: Matt Hedberg - RBC Capital Markets - Analyst : And then maybe, Guy to close, you've helped us think about an ARR framework. You mentioned you're investing in the business. How do we think about kind of balancing growth and profitability when we think about like ongoing margin expansion?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Well, I think the 10th year we've done this now. You passed your 10th year, I forgot it was in February. So congrats on the first 10 years of a public company and best of luck for the remainder of this year. Thanks again for the time.