Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' second quarter financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer; and Guy Melamed, 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 third quarter and full year ending December 31, 2024. 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 second quarter 2024 earnings press release and investor presentation which can be found at www.varonis.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 Faitelson. Yaki?

Thanks, Tim and good afternoon, everyone. Thank you for joining us today to discuss our second quarter results, assess transition progress and the tailwinds impacting our business. First, I would like to remind everyone why Varonis exists and how we help our customers; today, the purpose of almost any cyberattack is to steal data. However, the purpose of the security solutions most organizations deploy is to protect the endpoints and their perimeters. These technologies are very important but they aren't enough to protect the data. To protect data, you must have a data-first solution and data-first approach. Varonis’s data-first approach helps companies locate sensitive data, visualize who has access to it, automatically lock it down, and then detect and respond to threats. For example, credit card companies continuously make it harder for bad actors to access your credit card number, but they also monitor credit card transactions against known normal usage to detect and stop fraudulent transactions. Varonis employs the same strategy to protect data; we make it more challenging for unauthorized individuals to access sensitive information while monitoring data transactions to identify any abnormal activities, such as insider abuse. We provide a sophisticated and automated solution that enables customers to protect their data with minimal effort. This allows companies to collaborate safely while managing risks effectively. Innovation has always been at the core of Varonis, and in late June, we achieved FedRAMP In Process designation, marking a significant milestone that enables us to offer a SaaS platform to our federal government customers. I would like to take a moment to thank everyone involved in this process. Now, I would like to discuss our second quarter results, which reflect the increasing momentum of our SaaS platform and the recently introduced MDDR offering. These products are driving a strong addition of new customers and healthy conversion activities from existing clients. ARR grew 18% to $584.2 million, and year-to-date, we generated $67.3 million of free cash flow versus $40 million obtained last year. SaaS ARR now represents approximately 36% of total ARR. Guy will provide further insights into our Q2 results and updated guidance shortly. This quarter was a significant achievement for our team, executed remarkably well in a stable, albeit challenging environment characterized by heightened levels of deal scrutiny. The transition to a SaaS delivery model is progressing rapidly as customers experience the many benefits. They can achieve automated outcomes requiring minimal effort to ensure that data is protected. Tasks are quicker to deploy and operationalize due to lower infrastructure and personnel investment, making SaaS easier to maintain and upgrade. We have identified three key benefits from this transition: shorter sales cycles, greater initial length, and managing benefits over time. I would now like to highlight a couple of tailwinds that we believe will drive our business momentum. The first is our managed data detection and response offering, known as MDDR. This is the first managed service dedicated to monitoring and protecting critical data, only available for our SaaS clients due to the visibility and automation integrated into our platform. Introduced in Q1, MDDR is becoming a significant driver of new business and existing customers' conversions to SaaS. We believe we are just at the beginning of this opportunity. We know that organizations often lack the resources to monitor and investigate alerts. With MDDR, we can assess threats and neutralize them while notifying customers afterward. We are pioneering machine learning for user behavior analysis and developing highly accurate threat models. Our team effectively utilizes significant automation alongside our unique telemetry to detect if data is under threat and identify vulnerabilities that may be overlooked. The early performance we are seeing is promising, and we believe it will bode well for the future of MDDR. The second tailwind is the rise of generative AI, a topic often discussed by many organizations and a significant theme in nearly all our conversations with prospects and customers. The productivity benefits of generative AI are well recognized, but it also exacerbates data access risks companies currently face. For instance, a bank piloting a generative AI tool on its trading floor aimed to enhance productivity but ended up revealing sensitive customer information online. The security team had to disable the tool to avoid significant fines and sanctions. This occurrence wasn't driven by malicious intent; the traders were simply using the tool, unaware of the sensitive data they were inadvertently exposing. We believe generative AI adoption within enterprises will act as a catalyst that highlights these underlying data security risks, which is precisely the problem Varonis resolves. Therefore, we expect companies adopting generative AI will need to prioritize addressing these risks. Managing access controls without Varonis is exceedingly challenging. We mitigate these risks by ensuring that only the appropriate individuals can access the data necessary for their job function. Companies are carefully contemplating these risks before transitioning from pilot programs to broader implementations. The feedback we receive from customers continues to bolster our confidence in the significant tailwinds we can harness, and we are building a healthy pipeline pertaining to this opportunity. Lastly, I would like to share some key customer wins from Q2. A large Midwest hospital system became a Varonis client this quarter. This organization was apprehensive about the location of its sensitive data, who had access to it, and how it would handle a ransomware attack. During our risk assessment, we identified attacks already in progress, including one aimed at the CEO's account from an external source. The organization successfully thwarted this threat, securing that account. The second attack involved business email compromise, triggered when an employee clicked a malicious phishing link, leading to unusual file access from a different geolocation. Luckily, our team was able to confirm and stop this breach before any sensitive data was compromised. Their proactive approach, supported by our thorough records of data transactions, enabled them to avoid a material breach that could have necessitated public disclosure of any data breaches. We continue to see robust demand as existing customers transition from our self-hosted platforms to Varonis SaaS. One instance is a multinational commercial real estate firm that has been a Varonis customer since 2014. They sought to minimize infrastructure spending and reduce time spent on software maintenance and upgrades. Transitioning to Varonis SaaS allowed them to significantly reduce their service footprint and ongoing maintenance demands. Additionally, they’ll benefit from automatic remediation of overexposure in Microsoft 365. They also procured the Varonis SaaS hybrid package through the Azure Marketplace, simplifying their purchasing process. In conclusion, the adoption of our SaaS platforms and MDDR offering are driving positive business momentum, and we have just scratched the surface of our long-term potential. We are excited to enter the second half of 2024 from a strong position to capitalize on the momentum stemming from MDDR, generative AI, and increasing data-centric compliance regulations. With that, I’ll turn it over to Guy. Guy?

Thanks, Yaki. Good afternoon, everyone. Thank you for joining us today. Our second quarter performance gives us increased confidence in our full-year trajectory, driven by our SaaS platform and MDDR offering. At the end of Q2, SaaS ARR increased to approximately $210 million, or 36% of our total company ARR, bolstered by strong contributions from new customer acquisitions and conversions from existing clients. This momentum, combined with the tailwinds Yaki highlighted, allows us to raise our full-year ARR and free cash flow guidance and also to increase our SaaS ARR expectations. The key drivers of our business this quarter were SaaS and MDDR. With each passing quarter, our narrative becomes increasingly strategic and straightforward for customers. SaaS eliminates two major concerns: the resistance to acquiring hardware and limited personnel to manage the platform. SaaS obviously requires less hardware and considerably simplifies maintenance and upgrades, while MDDR removes the need for teams to scrutinize alerts since we handle that responsibility. We are observing that the value proposition of our platform, along with the clarity of our messaging, is shortening deal cycles compared to traditional on-prem subscription deals. Generative AI remains a pervasive topic in almost every customer conversation, reinforcing our belief in its potential as a secular tailwind. Consequently, our pipeline remains robust as a result. Consistent with previous assessments, we have not factored in any material contributions from generative AI into our reported metrics. As we progress into the second half of the year, we anticipate further conversions of our existing on-prem subscription customer base to our SaaS platform. Pricing is aligned with our anticipated increase of 25% to 30%. In some instances, we see deal sizes increase even beyond that as customers adopt more of our platform upon transitioning to the SaaS model. We expect that the ramp-up to this phase will not be linear, with increased momentum expected in each quarter, particularly in dollar terms, through 2025 and 2026. In Q2, ARR grew 18% year-over-year to $584.2 million, and year-to-date, we generated $67.3 million of free cash flow, up from $40 million in the prior year. These metrics indicate our commitment to balancing top-line growth while improving cash flow generation during the transition period. Now, turning to our second quarter results in more detail. As a reminder, leading indicators of our transition include ARR, free cash flow, and ARR contribution margin. As we have stated multiple times, advancing through this transition often leads to headwinds in our traditional income statement metrics, yet we view this positively. Compared to three months prior, we feel increasingly confident in our business trajectory following our Q2 results. Although the macro context remains challenging, it is also stable, and SaaS and MDDR are resonating well in this market, driving positive business momentum. Q2 total revenues were $130.3 million, which represents a 13% year-over-year increase. We experienced approximately a 6% headwind to our year-over-year growth rate, owing to an increased proportion of SaaS sales in our booking mix, which are recognized more rapidly than our traditional on-prem subscription products. In the second quarter, SaaS revenues were $44.8 million, term license subscription revenues accounted for $62.7 million, and maintenance and services revenues amounted to $22.8 million, with our renewal rates exceeding 90% once again. Moving down the income statement, I'll now cover our non-GAAP results. Gross profit for Q2 was $109.6 million, signaling a gross margin of 84.1%, down from 87.1% in the same quarter of 2023. The year-over-year dip can be attributed to the revenue headwind associated with an uptick in SaaS sales, expanded headcount to support the transition, and heightened hosting costs. Operating expenses for the second quarter totaled $107.5 million, leading to an operating income of $2.1 million, or a 1.6% operating margin—improving from the $0.9 million operating income or 0.8% operating margin recorded in the same period last year. Over the past year, we faced around a 5% headwind to our operating margin due to increased SaaS sales in our booking mix, which are recognized at a different rate than our on-prem subscription products. The second quarter ARR contribution margin was 14.9%, an increase from 8.2% last year. This significant leverage improvement, even in the early stages of our transition, highlights our ability to maintain strong incremental margins while growing ARR and migrating to SaaS. Our financial income this quarter was approximately $8.1 million, primarily driven by interest income on our cash deposits and investments in marketable securities. Our net income for Q2 2024 was $6.8 million, or $0.05 per diluted share, compared to $1.1 million, or $0.01 per diluted share, for Q2 2023. This is based on 128 million and 127.3 million diluted shares outstanding for Q2 2024 and Q2 2023, respectively. As of June 30, 2024, we had $790.3 million in cash, cash equivalents, short-term deposits, and marketable securities. For the six months ending June 30, 2024, we generated $68.4 million in cash from operations, compared to $42.6 million in the same period last year, while CapEx stood at $1.1 million, down from $2.6 million last year. Next, let's review our updated 2024 guidance in more detail. It's important to note that our guidance now anticipates that 48% of total company ARR will derive from our SaaS platform by year-end. In terms of our quarterly revenue guidance, we have embedded more conversions into our Q4 guidance than our Q3 guidance because we have additional renewals in Q4, traditionally our largest quarter. The third quarter is also the federal's busiest quarter, and we still anticipate sales of on-prem subscriptions in that sector. For Q3 2024, we expect total revenues of $140 million to $143 million, representing growth of 14% to 17%. We anticipate a non-GAAP operating income of $7 million to $8 million and a non-GAAP net income per diluted share within the range of $0.07 to $0.08, based on 128.2 million diluted shares outstanding. For the full year of 2024, we now project ARR of $629 million to $635 million, indicating growth of 16% to 17%. We expect free cash flow of $80 million to $85 million and total revenues of $544 million to $552 million, which represents growth between 9% to 11%. Our non-GAAP operating income is projected to be between $18 million to $21 million, with non-GAAP net income per diluted share estimated to fall between $0.22 to $0.24, based on 128.1 million diluted shares outstanding. In conclusion, our second quarter performance, combined with numerous tailwinds in our business, gives us confidence to raise our full-year ARR and free cash flow guidance as well as increase our expectations for SaaS ARR. We are eager to drive continued momentum as we navigate through the second phase of our SaaS transition and deliver substantial value for our customers, our company, and our shareholders. With that, we welcome your questions. Operator?

Thank you. We will now begin the question-and-answer session. Our first question comes from Saket Kalia with Barclays. Please go ahead.

Okay, great. Hey guys, thanks for taking my question and congratulations on this quarter. I'll keep it to one. Yaki, can you perhaps discuss the success you're experiencing in converting on-prem customers to SaaS? Guy, as part of that conversation, when you talked about an inline uplift that mentioned in the past, that seems to have improved. Could you elaborate on how the economics look for these conversions?

Hi Saket. The SaaS conversions are going very well due to the offerings we’re promoting, which emphasize completely automated outcomes. If you work with us, you can avoid data breaches and data loss while we handle many of the operational responsibilities. Our offerings achieve almost immediate value and ongoing value for customers, resulting in a strong incentive for them to move to our SaaS platform.

From a pricing perspective, there is a 25% to 30% price list uplift on an equivalent basis, assuming the same features and functionalities. Based on our data, discount rates have actually aided firms, allowing us to recognize pricing in line with this uplift. We've crafted our SaaS packages to encourage customers to consume more of the platform, and we’re seeing deal sizes increase even further post-conversion. For Q2, our SaaS ARR reached approximately 36%, or $210 million, largely due to successful conversions, including many from perpetual maintenance customers. This is a promising development, and we’re very pleased with the pace of transition.

Our next question comes from an unidentified analyst. Please proceed.

Great, thank you for taking my question, and congrats on the continued SaaS momentum. Yaki, I wanted to ask you about generative AI, specifically regarding your expectations for contribution this year. When do you think generative AI deployments will become mainstream for the enterprises you serve, and how soon do you anticipate Varonis could start benefiting from these deployments?

Thanks for the question. Regarding the timing for this opportunity, we've observed customers employing generative AI tools, which are already exposing excessive permissions and data access concerns. These tools generate extensive amounts of data if not handled correctly, which can put organizations at risk. It’s inevitable that these tools will reach every business user; however, the timeline is uncertain. What is clear is that if companies neglect data protection and behavior issues, they could face significant breaches. We're beginning to see a material impact on our pipeline, as organizations recognize the need for security when leveraging such productivity tools. Over time, we will see substantial benefits from generative AI use.

To add on the numbers perspective, we shared strong results this quarter without material contributions from Copilot yet. Our guidance remains cautious, as we are waiting for more solid data to support trends before incorporating any optimistic expectations. Currently, our assessments do not factor in contributions from generative AI, but we are willing to update you when the time is appropriate.

Our next question comes from Brian Essex with JPMorgan. Please proceed.

Congrats on a successful quarter. It's encouraging to see the acceleration in ARR along with improved profitability and cash flow during your transition process. This leads me to my question for Guy regarding sustainability and profitability. How should we think about this, especially regarding potential margin expansion moving forward?

Our focus has always been on top-line growth, while ensuring we also translate some of that into bottom-line gains and generate real cash flow. We have navigated this transition quite successfully, as demonstrated by the strong quarter. Factors that contributed include shorter sales cycles for SaaS and improved new logo activity, both driven by the value proposition of our platform. Overall, we are optimistic about our ongoing momentum and devoted to ensuring we grow while advancing free cash flow in the forthcoming years.

Our next question comes from Joel Fishbein with Truist Securities. Please proceed.

Congratulations on your impressive execution. Yaki, during the quarter, you mentioned the hospital system that adopted Varonis. I’m curious to know about the competitive landscape surrounding that deal and any dynamics at play. Guy, could you share details regarding the size of the deal as well?

Overall, we don't observe increased competition in our pipeline, which features a variety of companies addressing different use cases. Concerning the mentioned deal, it's essential to note that despite modern security measures like EDR and advanced firewalls, organizations that lack a data-first solution remain vulnerable to breaches. To protect your data effectively, employing Varonis is critical. Our automation, expanded use cases, and comprehensive sales approach have been very effective.

Regarding the deal itself, what is noteworthy is that they procured the full package, inclusive of MDDR, ensuring protection against potential breaches. The deal size was several hundred thousand dollars, encompassing about 6,000 users, indicating the substantial nature of their investment in our platform.

Our next question comes from Matt Hedberg with RBC. Please proceed.

I’d like to focus on Office 365. During your Analyst Day in March 2023, you mentioned being around 1% penetrated in the Office 365 base, equating to roughly $125 million of cloud or SaaS ARR. Could you provide an update on that situation?

You're correct; our previous penetration was set at 1%. We are now witnessing a gradual increase in the proportion of total ARR derived from Office 365. Customers are consuming more of our platform along with MDDR, making it increasingly attractive. Despite slight improvements, we remain far from even mid-single-digit percentages of penetration, indicating that significant opportunities still exist.

Our next question comes from Fatima Boolani with Citi. Please proceed.

Guy, could you help clarify your comments about MDDR and provide numerical context to reflect the solution's impact on new customer velocity and enhanced transaction efficiency? Given that last year you were in the early stages of your SaaS transition without a formal MDDR monetization model, how does this year's experience compare?

That's an excellent question. MDDR was launched earlier this year, so we're still in the early stages, but the adoption by both our sales force and customers has been remarkable. They appreciate the ease of having us manage tasks for them. We've observed an increase in ASP, but due to the recent introduction, quantifying the exact impact is challenging. However, we have noted that customers are leaning towards purchasing extended packages, which benefits our ASP. Furthermore, this offering has been among the quickest to be adopted, and we believe this solution should be part of every customer’s package.

Moreover, we’ve been impressed by how effectively MDDR safeguards customers from potential threats. Many organizations have a tight window for preventing significant damage. By utilizing our user behavior analytics, we can efficiently address unauthorized actions and provide effective data layer forensics, ensuring immediate identification of issues.

Our next question comes from Shaul Eyal with TD Cowen. Please proceed.

Congrats on the outperformance and improved guidance. Yaki or Guy, there's been a recent global outage at CrowdStrike. Have you noticed any increased interest since then?

Not particularly. Software updates can occasionally go awry, as happened with CrowdStrike. They are managing the situation effectively. Overall, we see organizations recognizing the need for a data security platform. While perimeter security is vital, it isn't sufficient. Even high levels of security can be circumvented by bad actors, leading to global breaches. This drives home the importance of a data-first solution to protect invaluable information.

Our next question comes from Andrew Nowinski with Wells Fargo. Please proceed.

You talked about expecting more conversions in Q4, potentially creating a revenue headwind. Can you clarify what prompted this change in assumptions this quarter based on your Q2 results?

We haven’t shifted our perspective on Q2 or placed the scenario for Q4 in a different light. There are several key factors concerning conversions. Firstly, Q4 is traditionally our strongest quarter, presenting greater renewal opportunities to encourage SaaS conversions. Q2 delivered a substantial revenue beat due to a few mechanics I’d like to explain. It's essential to note that ARR is a leading indicator, and we have seen a positive trend this quarter. Our revenue trajectory should reflect the typical shift experienced during our transition phase.

Our next question comes from Roger Boyd with UBS. Please proceed.

Following the launch of several database SKUs, including one for Snowflake, could you comment on the momentum you're witnessing with these products? Particularly, has the recent data security breach at Snowflake influenced the demand for that SKU?

We are indeed observing rising concerns regarding all data repositories, especially those with complicated permission models. Snowflake is no exception. This trend is resulting in growing momentum for these products as organizations recognize the necessity of a comprehensive security solution. To adequately protect data, a data-first approach is crucial; without this, entities are at risk when vulnerabilities arise.

Our next question comes from Joe Gallo with Jefferies. Please proceed.

I wanted to focus on the new logo business. How did it perform this quarter? Are there any quantitative metrics regarding total customers or growth you could share? Should we expect acceleration on that front now that you have Copilot, MDDR, and the new sales comp changes?

A significant portion of our new ACV in Q2 was driven by new logos. We're certainly experiencing shorter sales cycles with SaaS deals, which help open new markets for us by alleviating two significant concerns: the lack of personnel and hardware acquisition reluctance. New business activity in Q2 was robust, and we believe there are positive indicators for continued growth in this area.

Our next question comes from Jason Ader with William Blair. Please proceed.

I wanted to ask about gross margin. I'm surprised by how strong it was this quarter, given the rising mix of SaaS. Can you discuss your expectations for the rest of the year and into next year? Additionally, are there any particular factors that influenced gross margin beyond just the increased SaaS mix?

Yes, I completely agree with your observations regarding our gross margins. They were indeed impressive. When you evaluate our ARR contribution margin based on COGS, we maintained a constant percentage comparable to last year, which was 12%. We're pleased with that result. Looking ahead, we need to convert our clients to SaaS quickly, as that transition can lead to revenue headwinds. While we make investments to support the transition, we aim to maintain healthy gross margins, especially with the leverage we anticipate from sales and marketing functions in the future.

Our next question comes from Rob Owens with Piper Sandler. Please proceed.

Could you elaborate on the compression of sales cycles on the SaaS side? Can you quantify that compared to traditional sales cycles? Additionally, what insights do you have from renewal rates?

We're indeed observing shorter sales cycles with SaaS versus on-prem subscriptions, largely due to the value proposition and simplified narrative. We previously indicated that we would expect sales cycles to be shorter for SaaS, and we are seeing this trend substantiated. While exact percentages are tricky to pinpoint, the reduction is significant enough for us to highlight. Our renewals are healthy, and we anticipate an improvement in renewal rates as the SaaS offering matures.

Our final question comes from Josh Tilton with Wolfe Research. Please proceed.

Firstly, congratulations on an exceptional quarter. What specific changes contributed to this impressive outperformance, and how sustainable do you think it will be going forward? Did your conversions significantly increase this quarter? Or was MDDR a contributing factor? Have you noticed a higher maintenance-to-SaaS uplift than previously?

Thank you for your kind words. The robust performance can be attributed primarily to shorter sales cycles and improved new logo activity, facilitated by MDDR's simplicity. While conversions did contribute, it was not the primary driver of Q2's success. Instead, our SaaS values and the momentum we've gained through MDDR were central to this quarter's achievements.

Our next question comes from Rudy Kessinger with D.A. Davidson. Please proceed.

I'm curious about Copilot. You mentioned it might have a material impact on your pipeline, considering the interaction with shorter SaaS sales cycles. Do these interactions typically result in quicker progress on deals, or have you observed any differences in speed due to coping with the implementation?

We aim to offer clear guidance based on data that gives us confidence. Our anticipation is that SaaS sales cycles will be shorter, a belief we've communicated since day one. The data we have currently doesn't provide enough evidence to tie Copilot's implementation speed to our typical sales processes. Scenarios are fluid, and we will provide updates when we have actionable data.

To summarize, should these Copilot tools become widespread among knowledge workers, the imperative for strong security measures to mitigate risks will only become more paramount. We are confident that our product stands out as the best in the market, and as these tools gain traction, we believe the demand for solutions like Varonis will be significantly heightened.

Our next question comes from Shrenik Kothari with Robert W. Baird. Please proceed.

Congratulations on an impressive quarter. Yaki, while you highlighted the shorter sales cycle and strong pricing uplift, I’d like to understand your strategy for serving the existing on-premises cohort, especially those who may be more price-sensitive. Can you elaborate on how you plan to demonstrate the value proposition justifying the price uplift for this customer base?

We find that for most of our customers, the move to SaaS is compelling due to the automated outcomes we provide. Our goal is to help them avoid breaches with minimal effort. However, these transitions require meticulous work and execution. We need to engage with customers currently using only one product to showcase the significant differences and value that our SaaS offering represents. This is a laborious process, but we understand how to successfully navigate these transitions, and the results speak for themselves.

Thanks for your interest in Varonis. We look forward to speaking with you all at conferences this quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.