Q1 2024 Varonis Systems Inc Earnings Call

[music].

Greetings and welcome to bet honest system, Inc. First quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation, if anyone should the quiet operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Tim Punch Investor Relations. Thank you Mr. <unk>.

Unknown Attendee: You may begin.

Thank you operator good afternoon. Thank you for joining us today to review her honest as first quarter financial results with me on the call today are Yoki vital Sena, Chief Executive Officer, Guy Melamed, Chief Financial Officer, and Chief operating officer for US 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 second quarter full year ending December 31 2024.

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 DS and other important risk factors are described more fully in our reports filed with the securities and exchange.

Sure.

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 or honest expressly disclaims any application or undertaking through or at least publicly any updates or revisions.

Any forward looking statements made here at Additionally, non-GAAP financial measures will be discussed on this conference call a reconciliation for the most directly comparable GAAP financial measures.

Also available on our first quarter 2024 earnings press release, and Investor presentation, which can be found at www Dot <unk> dot 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, Yaqui pilots that Jackie.

Thanks, Tim.

And good afternoon, everyone. Thank you for joining us to discuss our first quarter results represented a strong start for the year. In addition to discussing the results I would like to review our first transition progress.

And the key drivers of our business for this year, but first let me remind you what was the only thing.

And the problems we solve.

Data is valuable.

Which is why the doctors want to see meat companies investing in security.

Tech data securely.

Killing eve is very difficult.

We solved the problem by helping companies locate their sensitive data visualized, who has access to it looks down and detect and respond.

To finish on it and because of the sophisticated automation.

He has been.

The only fast platform cut.

Customer spend very little time, and therefore to protect their data.

So we use M D D O. We reduce this even though this allows companies to collaborate safely and get the most value from their data while managing risk.

Our first quarter results.

The sustained momentum for fast transition and the positive reception.

Data detection and response service or what we refer to is M. D D L.

They all grew 17% to $563 million and we generated $56 $4 million free cash flow this quarter versus $35 7 million.

Unknown Attendee: Yeah.

Yeah, now represent approximately 70% totally a guy who will review our Q1 results and our updated guidance in more detail I want to express how proud I am of different ones.

While the selling environment has stabilized.

It remains challenging and the only thing.

During the first quarter and I believe that we are only scratching the surface. What lies ahead for us.

The transition to a SaaS delivery model continues to show momentum because of the many benefits that the customers realize.

I will quickly remind you of a few customer.

Customers can achieve automated outcomes, which means they can ensure that data is protected with very little effort.

Thus is quicker to deploy.

Production wise because of significantly lower infrastructure until sometime in listening.

And so it's easier to maintain.

I'm good.

Additionally.

He'd benefits.

Eli.

So the sales cycle.

That was your initial lands.

Can benefit over the time.

In addition to our SaaS transition.

I'd like to discuss the three.

Additionally, the guy that was the business that I mentioned last quarter, which O O M. D. D also at least yes.

Adoption.

Enterprise generated V I N E and compliance requirements.

I would like to focus on N V dialing journey at last quarter, we introduced Nvidia a service, which is the first run itself as well.

Well monitoring and protecting critical data.

He was at Batesville.

Upon our octave incident response, offering by providing service level agreement and a round the clock coverage. It is important to note that these therapies is only possible.

Custom house because of the visibility and automation built into all sorts of platinum.

We just began selling this offering in the first quarter and we have already started to see great momentum.

Unknown Attendee: So let me explain why this is already happening and why we view this as a game changer for our company.

MTI is a natural evolution of our platform and he is a significant unmet need in the market.

One of the challenges takes those face is that they don't have the people to monitor investigate alerts fast enough now.

Now his M D D out we tend to ease the burden on customers and put it on us.

If we see a threat and will we see you know MTB our customer base, we can stop it.

Simply notify the customer after the problem has been solved.

We can do this because we probably don't need the use of machine learning for data security and usual behavior analysis using us years of experience leading highly accurate models.

Our team level are just significant automation class a unique metadata telemetry.

Such as data sensitivity access event and commission.

And allow us to detect if data is under attack into cards right.

All of them.

I've also been asked to clarify the value of MTT all service providers.

Customers that already has an endpoint detection and response or at least manage detection and response service.

So he is actually very simple.

The pivotal phase, we believe that we are best positioned to save companies.

We are monitoring the data inside that because he missed out ever since we started.

Companies.

Sometimes paying millions.

Other threat detection and response to what he says but women incidents happened.

He says that don't focus on data can only show you when the attack can be done.

He's talking to ourselves the most important question.

Any data stolen.

M B R E D hours can reveal.

My bad actors and actresses and what tactics, we use to redeem that.

Cannot tell a customer.

Any data.

The situation is like this.

God willing to bank was old but have no silicon pic.

The most important element.

Where's the money was stolen Oh, if the board remains secure.

He's blindness.

Nations is sophisticated security stocks.

So the victim to data breaches instead of sites or tax.

Bypass it doesn't cause.

I was born as data is usually.

To accessible to anyone or anything you can say they're going to.

And even closely monitor.

I mean, well the data is likely to be breached and companies if it how the time quantifying what was taken during a glitch, making reliability much higher.

The only customer was automatically streamed the blast radius, which reduces the potential damage. That's an inside of a can do and as Paul says they asked us to work harder to get the sensitive data.

Giving us more opportunities to catchment and.

N V D R.

All fan catchment occupancy before they get to data and because we watch the data we are able to quickly quantify the damage.

This means we can stop the bleach and limit their exposure and the potential liability.

Is why no matter what platform the customer has they will still need N V D. A.

To finish up Bancorp of example, honest mbd I'll watch as the money on the Coke and can tell the bank manager and the money safe and devoted secure.

Now I would like to touch on our regenerative AI opportunity.

Technology presents tremendous productivity opportunities.

But in order to reap the benefits of it you'll need strong data security for example.

I cannot reveal critical data.

The machine and people because most generally give any ideas.

Utilized existing access controls.

Which must organizations have been locked down leaving them, although exposed companies also need to prevent sensitive data.

Lounge language models and how can we leverage these tools student important data more easily Bottomline January D V. I E. Both single organization.

How it look at the.

Data security strategy.

I continue to see J D V I coming up and so many of our customers conversation as organizations try to understand how they can safely realize it.

Productivity benefits so far companies are taking a very careful approach.

It's fully considering it.

Potential risks.

So expanding from the pilot phase into organization wide all else as a result.

Expect near term adoption for wide scale, Jenny I measure as companies getting canceled.

How they can secure their data overall.

Feedback we are hearing from customers.

Serves to strengthen the conviction we have in our ability to benefit from this enormous cyclically.

Our partnership with Microsoft.

Progressing well.

And one month ago.

We announced the industry's first cyber security solution for Microsoft 365 co pilot.

We will be sold.

Adam It's all existing Microsoft 365.

Package.

And it allows organizations.

Wanted to co pilot data.

Yes.

He picked up normal copilot interaction and automatically sensitive data.

My most humans.

Unknown Attendee: Our agents.

The announcement of our platform.

Jenny I.

The catalyst for conversations with prospects and although we are seeing materially at all from Jenny I related deals we are seeing healthy pipeline build.

Expect it to be support community.

With that I would like to briefly discuss the couple of key customer wins from Q1.

And I was getting at those again.

The hospital system with 6000 employees.

It came in really fast and Nvidia a customer this quarter it wasn't mandates.

Secure sensitive data.

So at least consistent.

Well, we discovered Paul millions tens of people vehicles and two instances.

Student patient.

Exposed to everyone in the organization.

He evaluated several C S P M and DSP and legacy data security solutions, but we're definitely.

Purchase the only suspects edge.

MTV Apple with their children.

Thanks.

And hybrid windows environment.

Our automation and unique data centric telemetry.

M D O and supplement the existing M D R and M. A C b windows by providing protection that is focused on securing the most valuable asset data.

Unknown Attendee: We are also seeing strong engagement from existing customers.

Mental vital initially became a customer in 2014.

Well, we the goal of identifying another mediating overexposed sensitive data.

So there's 30 pitching capabilities.

Without self hosted offering.

While some customer effort in meaningful infrastructure investments.

This customer was converted.

Two the only fast N V. The output action Codell hybrid windows environment, They will benefit from our automated remediation.

And we realize infrastructure savings was putting the security team since we monitor and respond to them.

Suddenly.

He is off to a strong style driven automated outcomes to the customer let's see.

SAS platform and our recently introduced and video offering.

Which we believe is a game changer for our company. We are excited to capitalize on the train Windows N V. L. Jenny I mean fixing data centric compliance regulation and recapture a significant market opportunity is.

With that let me turn the call over to Guy.

Thanks, Jackie good afternoon, everyone. Thank you for joining us today.

We are pleased with how our team performed in the first quarter and the continued momentum of Verona SAS furthers our confidence in completing the transition in 2026, one year earlier than our initial timeline.

At the end of Q1 SaaS represented approximately 30% of our total company a are driven by strong contribution from new logos and existing customer conversions.

Zaki mentioned the other key driver of our business. This quarter was M. D D R.

This paid offering is an evolution of proactive incident response that comes with an SLA and assurance that bonus will respond to ransomware attacks within 30 minutes.

N D D R.

Extremely well received in the first quarter, driving new business, increasing deal sizes and simplifying the conversation with customers.

In addition to M. D. D are nearly every customer conversation, we have touches on generate of AI, which reinforces our view of this secular tailwind.

We're seeing healthy leading indicators with respect to the opportunity, but as we discussed previously we continue to expect the adoption of Gen AI will be measured.

As we look ahead of the rest of this year. We're excited to begin phase two in earnest in the second half of 'twenty, 'twenty, four which will be focused on converting our installed base of on prem subscription customers to our SaaS platform.

Minder, we expect that the ramp up of this space will not be linear and momentum should grow in each quarter and further accelerate in 2020 five and 'twenty 'twenty six.

In the first quarter.

<unk> grew 17% year over year to $563 million, and we generated $56 $4 million of free cash flow, which was up from $35 $7 million over the same period last year.

These metrics demonstrates our commitment to balancing top line growth with improving cash flow generation during the transition.

Turning now to our first quarter results in more detail.

As a reminder, the leading indicators of our transition or a or our free cash flow and they are our contribution margin.

As we have said many times the faster we progressed through the transition the more headwinds we will experience to our traditional income statement metrics, but we view this in a positive light.

In the first quarter, we continued to see stabilization of the macro environment.

Yeah.

I Didnt deal scrutiny persisted, but we are seeing positive momentum, especially with regard to the adoption of SaaS and M. D. D. R.

Q1, total revenues were $114 million up 6% year over year.

During the quarter as compared to the same quarter last year, we had approximately a 9% headwind to our year over year revenue growth rate as a result of having an increased sales in our booking mix.

Which are recognized ratably versus the upfront recognition of our on Prem subscription product.

Because we have done in the past we are committed to being as transparent as possible throughout the transition which includes providing you with the key metrics to track our progress during the next days.

This quarter, we're providing SaaS revenue for the first time.

Metrics that we will provide going forward.

We will continue to provide status as a percentage of total <unk> each quarter until we successfully complete the transition.

In the first quarter SaaS revenues were $34 million.

Term license and subscription revenues were $56 million and maintenance and services revenues were $24 $1 million as our renewal rates were again over 90%.

Moving down the income statement I'll be discussing non-GAAP results going forward gross profit for the first quarter was $95 million, representing a gross margin of 83, 3% compared to 86, 5% in the first quarter of 2020 three.

Gross margin continues to track ahead of our expectations and the change is primarily due to the much higher mix of SaaS revenues versus last year, which cause a revenue headwind due to the ratable recognition of staff versus the upfront recognition of on Prem subscription licenses.

The recognition of compute costs associated with our increased SaaS revenues and increased hiring in certain departments within Cogs to service the anticipated strong ramp in N V. D. R drove the remainder of the change.

Operating expenses in the first quarter totaled $105.6 million as a result first quarter operating loss was negative $10 6 million or an operating margin of negative nine 3%.

This compares to an operating loss of $4 $3 million or an operating margin of negative 4% in the same period last year.

During the first quarter as compared to the same quarter last year, we had approximately an 8% headwind to our operating margin as a result of having increased our sales and our booking mix, which I recognize fully ratable versus the upfront recognition of our on Prem subscription product.

First quarter <unk> contribution margin was 13, 7%.

From five 6% last year.

Significant leverage improvement even during the early stages of the transition reflect our ability to drive strong incremental margins, while growing a R R and transitioning to SaaS.

During the quarter, we had financial income of approximately $8 $2 million driven primarily by interest income on our cash.

And investments in marketable securities.

Net loss for the first quarter of 'twenty 'twenty four it was negative $3 $7 million or negative three cents per basic and diluted share compared to net loss of zero point $1 million or net loss of zero cents per basic and diluted share for the first quarter of 2023.

This is based on $110 million.

And an $8 4 million basic and diluted shares outstanding for Q1, 'twenty 'twenty, four and Q1 2023, respectively.

As of March 31, 2024, we had $774 $4 million in cash cash equivalents short term deposits and marketable securities.

For the three months ended March 31, 2024, we generated $56 $7 million of cash from operations compared to $36 $8 million generated in the same period last year, and Capex was zero point $3 million compared to $1.1 million last year.

Unknown Attendee: Turning now to our updated 2024 guidance in more detail but.

For the second quarter of 'twenty 'twenty four we expect total revenues of $123 million to $126 million representing growth of 7% to 9%.

non-GAAP operating loss to negative $6 million to negative $5 million and non-GAAP net loss per basic and diluted share in the range of negative three to negative two cents. This assumes 111 7 million basic and diluted shares outstanding.

For the full year 'twenty 'twenty four we now expect.

<unk> of $622 million to $628 million, representing growth of 15% to 16%.

Free cash flow of $17 million to $75 million total revenues of $536 million to $546 million representing growth of seven 9%.

non-GAAP operating income of $9 million.

The $14 million.

non-GAAP net income per diluted share in the range of 13 to 16 cents.

This assumes $128 4 million diluted shares outstanding.

In summary, we are encouraged by the continued momentum of Verona is fast and initial reception of M. D. D. R.

A growing demand for these offerings is strengthening our performance and cash flow generation as we move through the second phase of our transition, which we believe will unlock meaningful value for both our customers and our company.

Speaker Change: That we would be happy to take questions operator.

Thank you we will now.

Ill be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad are.

Confirmation tone will indicate your line isn't the question queue.

Our stuff too.

If you would like to remove your questions from the queue for participants using speaker equipment. It may be.

Be necessary to pick up your handset before pressing the stock DS as a reminder, please restrict yourself to one question and no follow up one moment. Please poll for questions.

The first question comes from the line of second Calliope at Barclays. Please go ahead.

Okay, Great Hey, guys. Thanks for taking my questions here and nice start to the year here on the on air.

Thank you.

Yoki I'd love to I'd love to just start with with M. D. D. R and maybe the question is.

What's been the initial you touched on this a little bit but what's been the initial feedback that you're getting from from customers on the offering it seems like it's off to a good start and the Guy just related to that can you just talk about to what extent. This is M. D are maybe pulling through more interest in SaaS since it's only available to us.

<unk> customers.

That makes sense.

Definitely.

Donna M D D.

Customer feedback and the fact that really.

Uh-huh behind it.

Vastly exceeding our expectations and effectively attacks can come from anywhere on any device, but only going in one direction, which is the data so perimeter security he's made in the many amazing companies, but if you're thinking probability high probability that you'll go into with fail and wants to have in a decade.

There is no perimeter anymore youre getting into the data and are we just dramatically.

You understand how people need to use data and can stop these attacks and make sure that you will not take the data breach you know in our opinion, it's the best way to avoid the data breach and you are doing it completely automatically so just works extremely well if you have more platforms.

Well the way that we bundle lead agent the other product active directory and unpaid D. It works it works extremely well so customers love it.

We are just on a daily basis, saving them and stopping them full beaches, and we really believe that the data security platform is an M. D D. L E.

The first thing that the organization needs to do and the last thing that we save you when everything is there.

And second Youre right that its only offered with the SaaS offering it was definitely a key driver for our business. This quarter. When you think about the M. D. D. R. It's been an evolution of the proactive incident response and it comes with an SLA and kind of assurance that Rooney to respond to ransomware attacks within 30 minutes. So it's it's very compelling and when you look at.

Speaker Change: Kind of how it was received this quarter, it's been extremely well received both from driving new business, increasing deal sizes and simplifying the conversations for our for our customers, but also to edit beat about what Guy said when we built the solution. It was helical philosophy. You know this is a software solution.

A lot of automation to make sure that we have tremendous supposed multiplier to oh.

Well I don't think so we built a lot of wallboard.

Using a little bit to make sure that our people.

Mhm mhm almost completely.

So some.

Awesome.

Thank you.

Mr. Collier, please rejoin the queue for more questions.

Next question comes from the line of Hamzah four together with Morgan Stanley. Please go ahead.

Hey, guys. This is John on for Hamzah for Yoki. Just a question for you. How often is is Microsoft co pilot coming up in your customer conversations.

Just three months ago, and expanded partnership with Microsoft Co pilot driving more pipeline.

It's front and center in every country every conversation.

Microsoft pushing.

Pushing it all falls to the customer base, you can see that a lot of customer experimented with it.

I think I broke my ankle dosing customers in Q1.

And it is a very consistent theme they starting the co pilot the evaluation.

Speaker Change: Stopping because it's exposing a lot of it.

Speaker Change: Any kind of data so just protecting the C.

Co pilots and they are connecting to.

Speaker Change: Many sources ease in the coming.

Each and every conversation and I think that it's just exposing the problems.

And organizations understand that they need to take the data would be very curious to me you know.

Two benefits from the automation of let's say a.

Co pilots that they've been.

Based on all of them.

Yeah.

Starting to build a good pipeline in the places that we engage with Microsoft.

It's also starting to go into the election, but remember Microsoft totally seamless.

We'll post I I believe that once they related.

Who should propose you can have.

Can I have a big impact on the business, but you know the world wants to benefit for me.

Co pilots and all of these habits, if you will to get the productivity gains they would need to take to take your security question, John just to reemphasize, what Yoki was saying in terms of the reported numbers for Q1, we didn't see co pilot as part of the reported numbers in Q1, but definitely when we look at all the leading indicators they appear there.

And where we're seeing pipeline increase for them. They still have the revenue impact, but you're starting to see it.

Pipeline impact and a lot of conversation people out in the initial stages to figure out how to do it.

Yeah.

Great. Thank you.

Thank you next question comes from the line of Matt Hedberg with RBC. Please go ahead.

Yeah. Thank you this is actually Matt Swanson on for Matt.

Great to hear some stabilization in the macro feels like it's been a long time coming for all of us.

Are you you've done a really successful SaaS transition during a really I think been background and Yoki you mentioned some of the advantages of SaaS, the lower infrastructure personnel costs easier to maintain but can you just kind of talk specifically for the SaaS transition kind of headwind tailwind sort of challenging macro or are there any parts of it are actually helps the transition when things are at.

A little tougher.

The thing that what happened.

What helps where she's been a reality.

Breaches, almost always not always but almost always a data breaches.

And the security industry, the beef upside down in the sense that you spend a fortune on perimeter security and just fail.

Heart failure, and then you have this massive blast radius and you're completely exposed to think about it it's like two edge.

To do business with a bank that doesn't have the ledger can't tell you what's happened with the account and just can tell you.

It is to have a strong possible.

It doesn't make any sense and the other thing that happened we thought it's primarily the people right.

Automated outcomes.

Scared us extremely well and took everything we learned from the on Prem It would be just a lot of automation and a lot of the car.

Average and the customers.

510% of the airport can get 10 times more value. So this is also the way. It is also the way it works and I also think that.

Slowly, but surely everybody organization just realize that this is something that we need to do sooner rather than later.

Obviously with the yard.

Well the tax was going towards the data organizations understand that this is the way to go it's a gradual process, but definitely feel the technology.

Speaker Change: Picking the reality do you want to make sure that you don't have a data breach you need the data security platform was automated outcomes.

Thank you next question comes from the line of Fatima <unk>.

With Citi. Please go ahead.

Good afternoon, and thank you for taking my question.

Got another question.

Are you Uh huh.

I just wanted to dissect that a little bit so let's start with yoga, considering we're not totally out of the words in the macro.

I wanted to better understand why some of this momentum.

You're not expecting to increase through the year, given it's a seasonally slow quarter and you have so much more demand and growth driver optionality as we look into the back half. So would just love some of the puts and takes that you've embedded intent to the outlook in terms of not rolling forward with that upside.

Thank you.

I think that's a great question and I want to be very clear, we're kind of we're raising our full year ey, our our guidance because we feel really good about the rest of the year. When you look at kind of the women, we raised them a or it's purely a mathematical kind of framework.

If anything I would say, we feel more confident about Q1 than what we did 90 days ago. So if I walk you through the math of kind of the guidance itself. As you know we only guide through annual a R. R and R 2024, net new a our our guidance was similar to previous year's numbers. So when you look at the net new.

They are in Q1, 'twenty 'twenty four it was approximately $4 million higher than last year, which is exactly what were rolling over for the full year midpoint of V or our guidance when.

When you look at kind of and I've talked a lot about this in previous quarter. When you look at all the things that are working in our favor we have a lot of thing with whether it's the environment M. D. D. Our co pilot, but you have to remember Q1 is still the smallest quarter of the year.

And our philosophy has always been not to bake in positivity before we actually see it translate into the numbers. So we want to see how things progress we want to see how things move forward for the rest of the year with co pilot and the SEC regulation, we have yet to see that positive impact to our reported numbers.

M. D. D are we have started to see good momentum, but it's still only one quarter in which is why we're taking a responsible approach and as we have done in the past and as we see the data that supports it we will be happy to update our guidance.

Thank you next question comes from the line of Brian Essex with J P. Morgan. Please go ahead.

Good afternoon, and thank you for taking the question Yaqui I was wondering if you can give us a little bit of an update I think you've talked a little about this last quarter, but you've got a lot of irons in the fire or incremental opportunities with.

As we kind of approach the back end of the year. How do you think about incentivizing. The sales force with regard to you know number one new logo growth number two more proactive conversion of your installed basis, if you'd kick off phase two.

And then number three expansion into new adjacent markets with M. D D R and co pilots, how how do you know.

Maybe if you can categorize the magnitude of each of those levers and how you expect that to play out through the rest of the year.

But you know Nvidia Allen.

Co pilot.

Relevant to every one of its existing customers and prospects and really help us to gain market share.

And the ZIP platform expand the platform.

The base. So this is something that is working very well for us, but we also have just so many ways to add value to customers or is everything that we're doing.

Cloud on the SaaS side.

And on the other side, we see our customers getting extremely fast.

Ultimately these outcomes.

I'll give the color from a commission perspective, what we have seen from a conversion perspective is that it's happening in a natural way when you look at the uplift yeah, obviously, it's beneficial for the customers because they're getting a much better product, but it's also beneficial for our sales force because anything on top of that renewal.

Towards their quota so at the beginning of this year, we didn't change the incentive for the conversion because it is happening kind of in that natural element, which is great for us and it's working great for our customers. What we did do because new logos is such an important component on fueling our growth for the years ahead as we actually doubled down.

On the commission plans from a sense of insuring that reps are focused on acquiring new customers and in order for them to make real significant money and they will have to focus on new customers and there'll be able to make money without it but in order to make real big money they have to focus on new customers as well and when.

You look at the offering itself.

The SaaS offering is actually eliminated two of the biggest objections that we've used to see and that's that customers don't have the people to support the platform where where companies.

Don't necessarily want to buy the hardware so in a way that change of complaint actually works really well with the offering that we have in and when you think about that combination.

It's something that we've seen worked very well for us in Q1.

Thank you next question comes from the line of Roger Boyd with UBS. Please go ahead.

Great. Thanks for taking my questions a lot of talk around the momentum that's in the pipeline around Microsoft 365, Copilot Yoki I'm wondering.

You're starting to see interest from the install base around securing other co pilots.

Applications like those in sales force or get hub.

This has come up with a few customer I was just wondering if that's showing up in the pipeline or customer conversations with any sort of momentum. Thanks.

But without a doubt and even much more because people understand that they want these co pilot full way.

Almost every platform that behavior, so we see it on the sauce.

Make sense post Github Gila.

And obviously, we would like to connect those small you know things like box with Guggenheim's Gemini. So you see all these co pilots and even sometimes people have been on you know a private instance, opening I'm just putting the DS you don't show up on two of them in three buckets as Pablo we're adding a lot of value and the other thing that that we have.

Doing the in copilot, we expect.

If you look at the kuwaitis themselves with us and we'd be out of logs.

Clearly walking for me walking from every angle and we I don't think that was also a surprise what ease once you are using these technologies.

This dual exposing clinical data it just it's unbelievable.

Exposing and creating a creating critical data so we'd say it is.

It definitely very interesting philosophy.

Immediately.

Posing the problem and also in anything.

Yeah.

Thank you next question comes from the line of Sean.

Sean: But T D. Cohen. Please go ahead.

Thank you good afternoon, guys. Congrats on the ongoing transition in the overall results are Guy Oreo Cookie I wanted to ask about the mix between existing customers and new logos. This quarter can you double click on this item and maybe Yankee specifically for you I know you've often being asked about the competitive arena.

Typically the case for bonuses limited scope of competition, but with many security companies like many categories buying small DSP M. S. That's what's what's what are you seeing out there from the old site from the overall market validation. Thank you.

So shallow I'll start with the first question when you look at the results in Q1, the majority of our New AC D. In Q1 was driven by new logos.

And as I said before a SaaS is really opening up new markets for us because it's eliminating the two biggest pushback we used to get one being companies don't have the people to support the risk and number two they don't want to buy the hardware. So the changes we made to the comp plan, which I discussed in one of the previous questions together with the simplicity of this.

Story and the benefits of the products are really working them and the new logo activity was really healthy.

Oh now and so.

So these are all areas that.

We really can get really completely dominating reaching all the NAS devices directly into I D.

365, Salesforce dot com Google Bulks.

And all of these nothing changed.

One thing that changed for US the company that you mentioned Palmetto <unk> focusing on the other side, which is the AWS and Azure when we built the product, but we believe that these days.

The best in the market in this area and do well there and in the places that we are installing.

Sean: Installing we see that the we have the very good results and we anticipate that these places you know, we'll see competition that we create budget, but in terms of scaling automated outcome I believe that we're well positioned in this market.

Overall at this point, what's going on in this market, we see that's creating a lot of the women.

Creating a more.

More and more budgets and so far what we see.

Good for us in terms of overall awareness and sales motions.

Thank you next question comes from the line of Joseph <unk> with Jefferies. Please go ahead.

Hi, This is annick Domino effect Ocala. Thank you for taking my question you guys launched many new products last quarter, including Snowflake and sales force protection and things like that can you just talk quantitatively and qualitatively about the traction you're seeing there.

Yeah, I think that is.

In terms of everything we're doing and I asked him very capacity.

Sean: But I don't think that.

Very interesting like Snowflake and out of the data repository muskie. So everything we call a technology that we had annualized meta data to do it.

Walking.

In the world and all the connectivity to the M D.

Very exciting.

So really at this point we.

We see good prospects with everything we have done well.

On the engineering side.

So very proud of the team.

It will happen.

The release cycles features in Florida.

Thank you next question comes from the line of Jason Ader with William Blair. Please go ahead.

Yeah. Thank you. Good afternoon, guys I just wanted to ask about M. D. D are again.

More specifically I mean it just.

You recently announced that it clearly has exceeded your expectations your.

Thrilled about the early demand can you just talk about the pricing.

Model that you use what type of uplift it could create on your SaaS business and then maybe any early metrics on attach rate.

Yes, I think that's a great question, and we talk a little bit about it last quarter.

<unk> introduced M D D R. When when you think about our goal at the end of the day, it's to protect our customers and when you look at the M. D D. Our offering it's really resonating within our customers and the value. There is very clear. So at the end of the day with that value that we provide customers. We're trying to extract the dollars from them and increase customer lifetime.

Value and there are two ways to do it either you allow customers to buy additional licenses and then your M D D our pricing.

Is somewhat reduced as long as they buy and increase the ISP or if they only one P. M. D. D. R. Then that pricing of M. D. These are the Standalone is significantly higher what we're seeing is that customer are.

Consumers are embracing the the package itself and they're buying it as part of additional licenses that could give them additional benefit and that allows us to increase the E. S. P. M. It's still very early so I don't want to give out numbers and kind of go through through the exercise of kind of the uplift that we're getting there, but we're seeing our asps.

Increase in a very healthy way and in the value that we can provide without platform is significant they empty out essentially.

Our ability to make sure that people still are.

Pardon me to the world.

If you have asked most probably you are not going to have.

The data breach and the key was the MTB outlets customer would have as much as coverage, it's possible that we will be able to protect them automatically.

So you think ultimately like most of your customers will take this.

We believe that every customer needs to get it and I think it's gonna be a gradual process, but I can say that initially the way. It started was extremely encouraging from our perspective prospective in the conversations that we're having for the rest of the year on M. D. D. R are also extremely positive.

Thank you next question comes from the line of shrinking Godaddy with Baird. Please go ahead.

Yeah. Thanks for taking my question. So Yoki you touched up on Germany, I, just wanted to double click a she's had a healthy leading indicators.

Johnny I, but adoption are expected to be measured as their companies are considering potential risk and it looks like of course, our data security are central for it and mostly copilot adoption is kind of getting start due to security concerns. So it almost seems it should even further drive demand.

For you guys in the current stage of kind of pre Jan I adoption from a data prep and governance standpoint, so help them arrive at a point, where they can adopt to scope out. So just curious why are why the pipeline would not start kind of flowing through to deals already.

We are offering what what they need right now at this point of time.

Please help us understand thank you.

The organization is still in the early innings of how to use these.

And then they stay tuned.

But in order to productivity.

Productivity benefit.

These.

New products.

Sean: Need to make sure that you have.

The data security in place because if you know the you could have horrible consequences, but it still doing it in a very measured way in testing and.

We believe that once you know you didnt, reflecting in Q1.

Revenues, but it's different and it is starting to impact the pipeline and we believe that over the time.

It has the potential to be a tailwind for the business.

Yeah.

Thank you next question comes from the line of Jean H E. B twist. Please go ahead.

Alright, Thank you for taking my question.

Just had a question regarding our opportunities in the channel any particular areas of emphasis you are focusing on b at MSP or size.

As you transition to a predominantly SaaS company.

Well you know we won't keep we were walking we will we are working with every one definitely a channel focused company.

Company.

The one thing we see is a SaaS solution.

How much.

Sean: We do see.

Well, the switching and the installation and the time to value ongoing value.

So we become simpler.

Okay.

Most strategic so just more compelling to partner with us.

Yeah.

Sean: Thank you next question comes from the line of Rudy Cassandra.

D. A davidson. Please go ahead.

Okay.

Hey, Thanks for taking my questions guys.

Guy just I don't know if you gave it earlier or not I joined a little late but can you share how much of your existing AOR converting to SaaS this quarter or just Directionally did you convert more or less in Q1 that you did in Q4.

We talked a little bit about it but I'll I'll give you more color when when we look at the results in Q1, we were really happy with the conversions in Q1 are they really helped us get to SaaS.

Where you look at kind of SaaS coming are 30% of total E. R. M O where you look at the number it's actually $165 $5 million mm. When we look at the at the metric itself. We didn't talk about the actual dollar value of the conversions because that's the metric you should focus on is <unk>.

That is that really measures the progress in completing the trend transition, which is one of our overarching goals, but SaaS. They are our was very strong in Q1 and the existing customer conversions, obviously played into that.

Thank you next question comes from the line of Steven Schwartz.

Please go ahead.

Speaker Change: Hi, This is Stephanie on for Andy Nowinski. Thanks for taking my question wanted to ask about your focus on new logos may be the role that <unk> can play into that.

How much education, maybe do you need to do to make that a driver of new logos and is it something that youre thinking about.

Yeah.

It's very clear that M. DDR can help them with new logos because it keeps the conversation very very simple when you. When you go to a prospect and you you're talking about and S. L. A that assures veronis will respond to a ransomware attack within 30 minutes and you get the customers interest in in a way the <unk>.

<unk> purpose of M. D. D. R is to allow us to help the customer and protect them in a way that doesn't require the same head count that they had to have if we were selling them the on prem subscription solution. So.

N D D are definitely fits within our offering in the simplicity and kind of doubled down on the SaaS simplicity that we had there and that allows us to target new customers and I think that that story together, we with the way we structured the comp plan, where our reps in order to make a real money need to focus there.

Yeah, I think that's working really well.

Thank you next question comes from the line of Joe.

Sure Tilton with Wolfe Research. Please go ahead.

Yeah.

Hi, This is Patrick on for Josh. Thanks for taking my question sort of piggybacking off of a few questions earlier around the healthy pipeline build with respect to AI.

Sort of asking it a different way can you kind of talk about and I know, it's early but talk about the sales cycles, you're sort of expecting to see around the copilot offering do you expect them to be sort of in line with what you see with the rest of the business or potentially longer.

Customers are sort of pushing off adoption of AI.

Yeah.

Speaker Change: So.

Ali we can see how it's going to take the the sales cycles.

I will tell you that what is happening.

Let's take the problems that they are going to just export.

Immediately be organizations would take a lot of risk to use this.

Speaker Change: A I N two room without a broker data security in place.

But we still need to see how it how it will play out reality does it bring it organization slowly, but truly understand that without a solution like how we can be protected from data breaches and it's always about the data, which can come from insiders in eqt's people time to get credentialed. Once you have an identity there's no political.

Animal and people are not.

The doctors are not doing anything that is very sophisticated despite starting the tape data.

We believe that we know.

The best.

Solution to make sure that you will not take the data breach and I also think that gradually the marketplace understanding because.

We look at what's going on she talks a little more sophisticated they're always about the data while organization coaching on perimeter security and this is something that is just not sustainable.

Okay.

Speaker Change: Thank you.

Ladies and gentlemen, we have reached the end of question and answer session I would now like to turn the floor over to Tim pause for closing comments.

Thanks for the interest in Veronis, we look forward to meeting with you at the conferences this quarter.

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

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Uh huh.

Okay.

Speaker Change: [music].

Okay.

Speaker Change: Okay.

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