Q2 2025 Varonis Systems Inc Earnings Call

Greetings and welcome to the Verona systems, second quarter 2025 earnings conference call. At this time, all participants are going to listen on a mode.

If anyone should acquire operating assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce Tim Perz, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining us today to review Varonis' second quarter financial results. With me on the call today are Yakov 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, 2025.

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. Corona 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, 2025 earnings press release. And our investor presentation, which can be found at veronus, calm 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. Fidelen Yaki.

Thanks, Dean, and good afternoon, everyone. We appreciate you joining us to review our second quarter results and the progress of our transition. Our YouTube performance reflects continued strong growth in cash flow generation as we accelerate towards the completion of our fast transitions and make investments to capture our growing market opportunity.

Today, I want to remind you of what Varonis is. A part is the leader in data security.

In today's ever-changing environment, one thing remains constant: data will continue to be created, shared, and used. The usage of AI is only accelerating this trend.

At the same time, attackers do not break in; they log in, and they need to secure data in the challenges involved. A greater benefit bonus takes a data-first approach and helps companies locate their sensitive data, visualizing who has access to it automatically, locking it down, and then automatically detecting and responding to threats on it.

Performing only 1 or 2 of these tasks is insufficient to protect data. What sets the 1 apart is our ability to successfully do all 3 of these tasks on data everywhere.

In the second quarter.

A support contributed to an ARR growth of 19%.

% of total are.

Year to date, we generated $82.7 million of free cash flow, up from $67.3 million at the same point last year. I will review our results and updated guidance in more detail shortly.

We continue to experience long demand to assess the platform for both new and existing customers, primarily due to the superior experience that Veronica and MDR offer by enabling automatic data security with minimal effort. Additionally, I'm also proud to announce that we achieved.

The federal program authorization enables us to offer our entire SAS platforms to the federal sector.

Demand from both new and existing customers is continuing to positively impact our business and is becoming a material contributor to our growth in protecting cloud environments.

This is driven by the investments we have made in our platform to expand our use cases, going wider and deeper and entering new markets, including DSPM. Our ability to protect cloud data represents a significant and top growth opportunity for us, and transitioning our customers to our SaaS delivery model is helping us unlock this market's potential.

Data security Market is rapidly expanding because of many factors including AI usage. The proliferation of data and involving compliance as a result data. Security markets, like dspm are receiving new Investments and focus which is creating more budgeted line items and increasing our opportunity. Looking at the dspm market others, we see usually focus on discovering classification in Cloud databases because it is the lowest barrier to entry and they don't address more challenging problems like securing the data by automatically fixing risks and detecting threats or scaling to analyze large and structured data sets.

With that as a backdoor, it is important to note that seeing a problem does not solve a problem. Discovering classification may find sensitive data, but it does not secure it.

This generates potential exposure without providing a solution.

Bonus has made significant investments to expand our coverage.

Wider to both find and secure the data everywhere it lives, while providing more complete and up-to-date visibility than typical DSPM technologies. As a result, customers are consolidating their data security budgets with bonuses.

I would like to dive deeper into why we win in competitive deals within the DSPM space.

Our edge lies in the breadth and depth of our platform, following a three-step approach called Find, Fix, Alert.

All three critical components are needed to secure data. While DSPM points to focus on discovering sensitive data, Varonus is the only data security vendor that does more than just finding sensitive data; it also identifies where it is unprotected.

Fixing the risks by locking down sensitive data automatically and continuously monitoring and alerting on unusual data activity.

I will talk about the first step. Finding the data is not only about discovering and classifying all of our customer data but also about mapping all the controls that you lock down, analyzing permissions, identities, entitlements, masking, and labeling, which creates a complete point inventory of stress.

We know exactly what sensitive data lives, how it is exposed, who has access, and how that access was granted. We also watch data usage, tracking every time a user accesses, modifies, or deletes data.

To use a simple example, the 1 is watches. The bank for compiling an inventory of everything inside every person that can access the vault.

Including everything they touch and can access inside while logging all activity in and around the world, and all this happens without impacting the customer's experience. Now, I will talk about Step 2 fix.

We provide.

voice understand how data is being used and where it is unnecessary exposed because we watch all data activity and connect identities to data our policies developed through extensive experience with thousands of large customers are designed to intelligently and automatically mitigate risks such in access to data that identities should not have

Or no longer need.

To continue our example, because the ones know who can access the void.

what the role is and what they do regularly assess, we can remove unneeded access like stale access from a former intern that works at a competitor or a bank employee that has moved to another Branch but still have the keys to the vault

Finally, let's talk about step 3, which is Alert.

Since Veronica, we can see every touch of data, allowing us to baseline user behavior and detect threats or abnormal behavior in real-time. Because we watch data directly, we generate alerts with very little noise. This enables our MDR team, which is powered by AI, to efficiently monitor customer data, investigate, validate, and prevent breaches with a 30-minute SLA on ransomware and without customer effort.

To wrap up our example. The only swatches The Vault and can sound an alarm when a receptionist try to access it after hours or when a bank manager, start going in and out of the Vault, more often than normal and with more cash.

I would like to contrast a reproach to what we see from DSPM providers.

Starting with step 1, the first key difference.

Most BPM providers schedule, scan, and use sampling.

As opposed to viewing all the data to discover and classify sensitive data because they cannot do it any other way, they do not track their activity. So, they don't know when data is added or changed. The information is immediately stable, and they lack the scalability to view everything.

Sampling allows them to scan quickly, but this also means that a significant amount of potential exposed data is never found, and they cannot deliver a full picture of risk or compliance.

And because Kenzo scheduled their picture is always out of date. As a result of these shortcomings, they try to avoid risk assessment, would you be willing to store your money at a bank that does not have security camera and try to protect it? Using a list that only includes 10% of its inventory. And is only received on Fridays at 5:00 p.m.

Moving to step 2 because DSPM providers don't map or track access to sensitive data.

There is no viable, safe way to fix the risks that they find as a result. These providers just generate service tickets, leaving overworked security teams to manually address them.

We hear from Prospect that this approach leads to time-consuming busy work and often results in data breaches.

Finishing with step 3. The SPN Point tools cannot detect threats to perform any meaningful forensics in any event of a suspect or actual breach because they don't track data usage. There is no activity in monitoring and no User Behavior Analytics.

Going back to our example. Using dspm Point tools is like trying to understand how a bank was robbed and what was taken with no security cameras or footage, no record of, who had access to the Vault and an outdated and incomplete record of what was in the vault.

To wrap up.

The spam tools focus on Discovery and classification mostly in the cloud.

There are compliance Band-Aids and not security solutions like Varonis. Not only does it discover and classify data, but it also intelligently and automatically locks it down everywhere and watches it.

For threats.

Our approach results in vastly reduced risk and a much lower likelihood.

For a data breach, as compared to alternatives.

At least in success has been the secular trend.

Of AI usage this quarter. We expanded our coverage to protect open. AI charges Enterprise.

We are also excited to announce.

An update to our strategic partnership with Microsoft.

This update is focused on joint feature development, which builds on our existing innovations to help organizations adapt to Microsoft corporate security while deepening our integration with them. Together, we are addressing one of the most critical challenges.

Which is ensuring AI tools and LLMs do not expose data by aligning. Through our engineering efforts, we are accelerating our ability to drive secure AI adoption care.

With that, I would like to briefly discuss a couple of key customer wins from Q2. The first one I would like to talk about is a large healthcare organization with over 20,000 employees.

That was concerned about their ability.

To respond to ransomware and comply with SEC disclosure requirements.

For their AWS environment.

They will be evaluating the ones against the DSPM point tools. It became clear that only Varonis could meet their success criteria: our ability to cover petabytes, scale, Cloud environments, and provide customers with the tools to avoid breaches.

And find without effort or capabilities. This point solution could not match.

In contrast, the dspm tools scanned, a small sample of data that quickly became stale and could not provide any meaningful outcomes. As a result. This decision was an easy 1 to choose varonis.

We again see strong demand from existing customers looking to convert.

To our SAS platform. One example was a defense contractor with over 25,000 employees.

Their new siso.

Who was undergoing a digital transformation project needed to modernize the data security strategy?

The CISO stated that the future of cybersecurity is data security.

It was quickly on board with Veronica, understanding the need for automated protection. This is also a key example of our Microsoft Better Together partnership. They will use Varonis to automate the Purview labeling program and automatically reduce exposed data and proactively stop threats. They purchased the only start with MDR for hybrid environments, ProPilot and Awe. In summary, we are excited by the many tailwinds we are seeing in our business.

The simplicity and automated outcomes of our SAS platform.

The adoption of AI and going awareness of data center. Cloud security are driving increased momentum in our business.

We remain focused on executing on this tailwind, as we capture our massive and growing market opportunity with that. Let me turn the call over to Guy Melamed.

Thanks, Yaki. Good afternoon, everyone. Thank you for joining us today.

Our second quarter performance represents a continuation of our solid start to the year.

We again saw a strong ARR growth and free cash flow generation, as well as continued progress towards the completion of our SAS transition.

This performance allows us to again raise our full-year ARR guidance. While we also continue to keep an eye on the uncertain macro backdrop,

We remain confident in our outlook because of the underlying drivers of our business and are well positioned to execute on the growing need to secure data everywhere.

We continue to see broad-based strength from new and existing customers looking for Varonis to secure their data.

The simplicity and automated outcomes of our SAS platform and MDR offering, as well as customers looking to secure a co-pilot, continue to be key drivers.

As a result of this momentum, we ended Q2 with 69% of total company, ARR coming from SAS or approximately 475 million.

This represents an 8-point increase in our SAS mix from the 61% we reported in Q1.

Protection for additional Cloud platforms.

Once we complete the SAS transition, we can allocate even more focus on this upselling motion.

We believe that this additional time spent on upselling existing customers, combined with a healthy new customer momentum that we are continuing to see, will allow us to drive towards our goal of growing our arm more than 20%.

Furthermore, we are prudently and thoughtfully increasing investments in our business because of the growing demand for our solution, and we see a clear path that drives durable growth post-transition.

In the second quarter, ARR was $693.2 million, increasing 19% year-over-year and year-to-date. We generated $82.7 million of free cash flow, up from $67.3 million in the same period last year.

Quarter total.

Revenues, were 152.2 million.

Dollars up 17% year-over-year.

During the quarter, as compared to the same quarter last year, we had approximately a 7% headwind to our year-over-year revenue growth rate as a result of having increased SAS sales in our booking mix.

Which are recognized relatively versus the upfront recognition of our on-prem subscription products.

That revenues were 105.9 million.

Term license and subscription revenues were $32.4 million, and maintenance and services revenues were $13.9 million. Our renewal rates were again over 90%.

As we are getting closer to the completion of our fast transition, we expect the positive trend of maintenance and services revenues to continue to decline.

Moving down the income statement, I'll be discussing non-GAAP results going forward.

Gross profit for the second quarter was $122.6 million, representing a growth margin of 80.6% compared to 84.1% in the second quarter of 2024.

Our growth margin continues to track ahead of our expectations, and we feel very confident in our long-term targets set at our Investor Day.

Operating expenses in the second quarter totaled $124.5 million. As a result, the second quarter operating loss was -$1.9 million, or an operating margin of -1.2%.

This compares to an operating income of $2.1 million, or an operating margin of 1.6%, in the same period last year.

During the quarter, as compared to the same quarter last year, we had approximately a 6% headwind to our operating margin as a result of having increased stack sales in our booking mix, which are recognized fully readable versus the upfront recognition of our on-prem subscription products.

In the second quarter, our contribution margin was 16.5%, up from 14.9% last year.

The significant leverage improvement reflects our ability to drive strong incremental margins while growing ARR, transitioning to SaaS, and investing in our business to capture our growing market opportunity.

During the quarter, we had financial income of approximately $10 million, driven primarily by interest on our cash deposits and investments in marketable securities.

Net income for the second quarter of 2025 was $3.8 million, or net income of 3 cents per diluted share, compared to a net income of $6.8 million, or net income of 5 cents per diluted share, for the second quarter of 2024.

This is based on 1, 3, 5. 2, 8, 4.

June 30, 2025. We had $1.2 billion in cash, cash equivalents, short-term deposits, and marketable securities.

For the six months ended June 30, 2025, we generated $89.3 million of cash from operations, compared to $68.4 million generated in the same period last year. Capex was $5.7 million compared to $1.1 million in the same period last year.

The purchase price was $859 for a total of $38.7 million over the course of the program. We repurchased 2.5 million shares at an average purchase price of $40.32, for a total consideration of $100 million.

Turning now to our updated 2025 guidance in more detail.

For the third quarter of 2025, we expect, total revenue of 163 million to 168 million representing growth of 10% to 13%.

Non-GAAP operating income of $4 million to $7 million and non-GAAP net income per diluted share in the range of $0.07 to $0.08.

This assumes 134 million diluted shares outstanding.

For the full year 2025, we now expect ARR of $748 million to $754 million, representing growth of 17%.

Free cash flow of $120 million to $125 million.

Total revenues are expected to be between $616 million and $628 million, representing growth of 12% to 14%.

Non-GAAP operating income is expected to break even to $6 million in non-GAAP net income per diluted share, in the range of $0.16 to $0.18. This assumes 134.7 million diluted shares outstanding.

In summary.

Our second quarter performance demonstrates the growing demand for Varonis, evidenced by our strong growth and cash flow generation.

This demand is driven by the simplicity and automated outcomes of Rona SAS and nddr, as well as the security challenges created by the usage of AI and the growing awareness for data security.

We look forward to completing our SAS transition, which will position us to even better execute on these tailwinds and drive additional value for our customers, company, and shareholders.

With that, we will be happy to take questions. Operator?

Thank you. Well, now we conduct any question and answer session. If you'd like to ask a question, please press *1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press *2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

In the interest of time, we asked the participants to limit themselves to one question. One moment, please, while we pull for questions.

Our first question is from Sak, Kalia with Barclays.

Okay, great. Hey guys, thanks for taking my question here. How are you?

Good. How are you? Good, good, good. Yaki may be for you. Um, the numbers here are pretty straightforward, so I'd love to ask a market question here, if I could.

You know, we all saw one of your privately held competitors, Sierra, raise money recently. And I was wondering, since we're all on the call, if you could just talk about how you compete against them, how you win, and maybe how your move to SaaS is changing that competitive backdrop. Does that make sense?

Yes, completely, primarily. It's the same for all these DSPM vendors. What they are doing for us, more than anything else, is expanding our total available market and generating awareness that you need to protect data on these cloud repositories. Essentially, these are very small pieces of the data security platform. They don't provide outcomes, like we just explained. You need to understand that the DSPM—what they are doing is data discovery.

And very partially — a lot of it is based on sampling, but they don't do any remediation or any threat detection. Essentially, if someone has a compromised account or if there's an insider threat, they may not even see it. You start to have abnormal behavior with the data.

And everything we do. The other thing, data is a massive problem at scale, and there is something that is common with all the DXP vendors: they're avoiding PCS like a plague. PC isn't production data, and this is the cornerstone of our sales motion. We are coming to you, and we are starting to deploy very fast, taking all the data, finding it automatically, classifying, and labeling it.

Reducing excessive Access Control. Making sure that your copilot and AI can see only what it needs to see looking at active directory in which the mddr we save dozens of just customers on a week to week basis. So primarily what it does, it just creating awareness for data security with a very small part of data security, uh, for for, for a data security platform. So by and large, this is something that is doing very well for us and for the awareness of the market.

Our next question is from Matt Hedberg with RBC Capital Markets.

Great. Thanks for taking my question guys. And congrats on the results. Um,

Yaki, you know, it's great to hear about the updated updates to your expanded, Microsoft partnership. I'm wondering, is there a way that you can help us size the opportunity? In terms of Revenue contribution today and and additionally, how should we think about go to market initiatives? To drive even more success? Sounds like you talked about a lot of integration work, uh, but but curious about some of the go to market initiatives as well.

Thank you for the question, Matt. You know

At the end of the day.

I think.

Is data security a problem? We have a lot of issues with Microsoft, but then we just understood one of the biggest gating factors in the deployment of...

a co-pilot which is fundamental now for their strategy and success is security. You know what happened in the when we started the PC,

It's the the co-pilot which is a tremendous productivity tool. It's like a pacman from head. It just goes and inhale, all the permissions that they have and then people stop it and say, okay, how we are going to deploy it and 1 is does very well for you. The other thing, we have a lot of synergy with a lot of their security stuff from, you know, Defender to mcast to sending alerts to, to Sentinel. And they just, you know, and the we saw is just a customers that, you know, using a purview for labeling that there is just a lot of energy. We find a lot of low-hanging food in by doing the, the overall technical integration. And then

You know, we came together and decided that we need to take the partnership to the next level. It's still the early innings, but for them.

co-pilot is

A lot of what they want to do in terms of productivity in the workforce, and we are securing it, and it just works very well together. So they compensate the regular sellers, and we are starting to have.

A.

Pipeline development, uh, efforts with them but so far working very well. And we are very excited about the partnership and I believe that they are also excited.

Our next question is from Joseph Gallo with Jeff.

Hey guys, thanks for the question. Are there any metrics or data? You can share that just instills the confidence in over 20% are growth. Um, I imagine that means SAS are without conversion Tailwind is growing healthily about that currently, but just anything on new logos or NR that kind of uh you know, helps us see that? What you guys see in are so positive on. Thank you.

So when you look at the Q2 results, um, they were driven by strong new customers again and we talked a lot about how SAS opens up the opportunity to sell to additional customers. We saw that continue in Q2 we also saw the conversions and existing customers, uh, contributing nicely. But what's actually more interesting is

Is that the nrr, uh, for SAS is higher than the reported nrr that we gave at the end of Q4? And when you look at our ARR number being 19%, if we can continue to sell to new customers, the way we have done so far and actually move away from the conversions and just focus on the upsell within the SAS um customers then um kind of the the difference between 19% ARR and 20% is not that large. So there are a lot of moving parts that are working in our favor and we feel very good about the opportunity of going back to that 20 plus percent in addition. We feel very good about our investments in R&D.

Of everything that's related to the other Cloud platforms. And we believe that we have a good visibility in the way that our investments in R&D, and the new product will work. And uh, we just very excited about the opportunity. If you want to be serious about security, you need to protect the data and your best bet to protect the data you want.

Our next question is from Joshua Tilton with Wolfe research.

Hey guys, thanks for uh, thanks for sneaking me in here. I have a I have a 2-part uh I guess. The first part is just uh in the prepared remarks. I think you mentioned that the macro uh environment still kind of challenging. I don't think that's a surprise to anyone but maybe could you just compare how the macro this quarter compared uh to last quarter? You know what direction is that macro trending and then just maybe on the conversion piece specifically uh you know you guys had a contributed nicely to the quarter but can you just maybe you know give us an update on how the accelerated conversion is going relative to your plan? Are you tracking in line ahead or maybe behind just an update on on both? Those would be very helpful. Thanks.

So I'll start with the second part when we look at the conversions. Um, the fact that we're increasing our SAS mix from 80% to 82% and actually started the year with uh, uh, full year, guidance of 78% is an indication of uh, things going very well. Um, we knew that we could improve the conversion component in 2025 and there were a lot of lessons learned that we took from 2024 and implemented um as part of our uh um um strategy for 2025. So um, I I can say that we're very happy, we're not.

I wouldn't say that we're um, shocked by uh by how good it's going. We're very happy. And and we knew that we could do better than than 2024,

Uh when you look at the macro, um I can say that Q2 was very much similar to what we saw in q1. There's not much of a difference, there's more deals scrutiny and we talked about the deal scrutiny um for quite some time now. But at the same time, uh, we can say that when you look at data security and when you look at the fact that um co-pilot is is generating a lot of awareness um to a problem that existed for a long time, but it's putting that Spotlight on Spotlight on it and we're there to try and capitalize on it.

Super helpful. Thank you guys.

Our next question is from Jason Adder with William Blair.

Hey guys. Uh sorry I have a 2 parter as well. Uh just first on the on the comment that you guys have made historically uh that you only see competition in 1 out of 20 deals. I was hoping you could update us on that. And then the second part is um kind of related but we've seen some of the backup vendors.

Uh, move into the dspm market through acquisition, like, rubrik. Uh, with Lamar, then convalt most recently with Satori

Um, I don't know. Maybe you can comment on this.

Uh, convergence between, uh, traditional backup and, um, you know, data security data governance. Do you feel like that's a long-term Trend? Um, I, I don't know, just any any, uh, interpretation of uh, what what's happening there with, uh, with the backups vendors.

The infrastructure.

And you rarely see them in any of the PCs. It's a completely different sales motion. And in general, we can tell you that all the DSPM companies that go to choir, but by large companies, we don't see them a lot. It's just, it's, it's.

Data security can be a side gig. What we see is that the companies, you know, the, we see the dspm companies that got the standing, you know, here and there they did. It's it's take the competition level on everything that is 365 and on-prem stays the same. We see around 10% in in 10% in the cloud infrastructure, but we need to understand 1 Thing.

Cornerstone for everything that we do is PC. We come to you, we deploy the problem it's scale. There is much more data and clinical data in the cloud and in on Prem. And you know talk about this blobs and databases that we are in and Snowflake and data bricks. And what we see with our competitors is that they don't want to do POC. They are trying not to do a, a PC. So, sometimes the initial conversation we hear about them. But usually, you know, when the robber meets the road,

I was looking just diligent process. And in data security, the way that you sell is a PC

They don't like it; they just usually don't do it. And if they try to do it, they try to do it in a lab and with a small set of data. Some of them have really scalability challenges.

As a reminder, we have the participant moment themselves to 1 question.

Our next question is from Roger Boyd with UBS.

Awesome. Thanks for taking the question. Can can you expand on the trend of customers? Consolidating their data security, budgets to veronus. And when you look at the trends around, consolidating, uh, around data stores, like database or around around functional areas, like dspm, and, and DLP.

Are there particular Trends within those that are are are are are looking stronger than others? And is this something that you're seeing today? Um, the general Brownfield consolidation opportunity or is this, is this more of a pipeline opportunity as you think out over the next year? Thanks.

I think it's both the way that budget works. You know, you have budget for, uh, security compliance inside of it, everything that related to labeling, uh, the ability to understand abnormal behavior or part of, it is DLP and all the prerequisites. All the work that you need and we are doing all of it in this customers, understand that they need to do it in terms of security.

You need to understand that bad actors are not breaking in. They're logging in.

So I'm not mistaken. Same old man. Did a testimony to to Congress and he talks about the, the all the fishing that we can have with AI. And this is something that we are starting to see. I can take your voice and I can be you. And then if I have your information, I sometime and many times I can get you on credentials. So what we see is that just the, the way that the that everything works is that once. Uh, once again I I get your credentials, we are what we call the only the the only game in town. So a lot of these security that related to Insider everything that related to user Behavior analytics is really consolidating consolidating around us and these Bad actors. What they are doing in order to elevate credentials these days. So most of the time, they are not, you know, reading from memory and doing all these Jazz the way that they are doing, it is going.

From 1 data repository to the other. So we want to cover everything in order in order to be secure. And this is also something that works very well for us. We start with something and then people just naturally expand, and this is because of our SAS platform that is scaling so easy and provide is automated outcome. You just need to buy and we will provide the security

Our next question is from Brian Essence with Goldman Sachs.

Hey guys. It's uh, Brian from JP Morgan. Operator trying to demote me but thank you for taking the question. Uh um Yaki.

Maybe a question for you.

Great to see the Fed ramp authorization. I would love to get your sense of how you feel positioned ahead of the stronger third quarter for federal spending, how much visibility you might have into that Fed business, and what’s your sense of the preparedness on the Fed side to adopt data security versus what you're seeing on the enterprise side? Thanks.

So I'll start and then Yaki can can add some stuff. Um, obviously we were very excited to receive the FED ramp authorization this quarter. It really is a great milestone for us.

We can now offer the SAS platform to the federal sector and that's really a big deal from our end. Um, our team put a lot of time effort and investment into this achievement and we we know there's a significant white space for us in the federal federal vertical. But I do want to remind everyone. The federal is still about 5% of our total company ARR. It really is still too early to say uh if we can have any benefits from the FED ramp in our Q3 results this year but from a guidance perspective, uh, we

And so forth. You just, uh, it's all about data, and I want to say another thing head-on: it's not only important for federal customers when you are a data security company. Even though we don't take critical data to our staff, it was very important to demonstrate it for many customers. On the commercial side, FedRAMP is critical, which is a certificate that shows we take security very seriously, that we undergo the right audits and that we have the right controls. It was very important for us to do this exercise. We are taking the security of our platform extremely, extremely seriously and want to make sure that once, you know, we are protecting your data, we are.

all all all the time secure.

And definitely on the data security. These days, from all these DXM spaces, we are the only one who is a fellow.

Our next question is from shawl with TD account.

Thank you. Hi. Good afternoon, guys, congrats on the big race. Um,

Yeah. Okay. I was listening carefully to your market and products commentary. Um specifically on that healthcare related, win with 25,000 seats. Um, can you provide us with more color about um, how many subscription services or or or modules? Um, which such a customer

Be utilizing through veronus.

Yes, it's a

Thing that was their databases you know Azure Bloom and other services including the you know 365 and the on Prem obviously co-pilot and this is something show that we see.

now, like the

A lot of our deals are just mixed. People understand where I have critical data, and I want to start, you know, data that people are collaborating more with. They want to start first and almost always will take the identity side that we are doing extremely well.

Our next question is from Mike seos with needam and Company.

Hey, thanks for taking the question here, guys. And I just wanted to cycle back to Joe's question at the top of the Q&A just because that that 20% plus a growth that you guys are citing is probably 1 of the most frequent inbounds we get from clients. So could you just provide, uh, some more commentary on the new logos that you guys are addressing. As far as size of those initial lands, and what you're seeing is they're actually an acceleration taking place in new logo acquisition.

So, we we have seen, um, the new logo is actually accelerate in terms of, uh, the number. And also in our ability to land at a larger number, um, the SAS platform and the mddr together with the co-pilot, um, is extremely appealing to many of our customers, um, the opportunity to sell to customers and actually go to them. And, and the value proposition is that we would do everything for you. All you need to do is pay us, um, with this, uh, environment that is becoming so complex from a, from a cyber security perspective. And a risk perspective is extremely appealing for for customers and I think that's part of the reason we're seeing our new customers adopt so well, we've seen very healthy contribution from our uh new customers. We feel very good with the asps um over time that have increased significantly from the levels, we saw in the past, but even with the higher land, there is so much more meat on the boat.

In terms of selling additional platforms. So we feel very good with the ability to show value to those customers and then go back to them and sell them additional Platt. Additional platforms, which is very interesting. Is after we are converting to SAS

In customers are realizing this automated values of fine fixed alert. They naturally expand to other platforms. So once we are, we are moving there. It's just much easier to do to do the upsell. As we said before, it's a pair of 2 companies and just the SAS company is tremendous and you can see we just moving very fast to to the SAS and after that it's definitely reducing friction and and just to add that's part of the reason we talked about the SAS nrr being significantly higher than the reported nrr. There's so much additional platforms to sell, once you show that value and the Automation and the ndr.

Our next question is from Andy Nolinski with Wells Fargo.

Thank you for taking my question. I wanted to ask about, um,

Your SAS revenue has seen two consecutive quarters of significantly outperforming the consensus estimate. This suggests that the street seems to be misleading regarding that conversion. I know you don't guide specifically to SAS revenue, but if we just use your SAS ARR of $478 million...

That you reported this quarter, you know, divide that by 4 and use that as a proxy. It's certainly suggests that subscription or uh, SAS Revenue should be about 120 in. Q3 I, I guess what. My question is. Is there anything any reason?

That proxy or that calculation would not be correct. Is there any reason why we wouldn't want to use something like that?

Thank you.

I've said the really since the investor day in 2023 that there are 3 North stars that we're focusing on during the transition. There's a lot of noise during a transition. And and the 3 North stars that we have talked about are ARR, ARR contribution margin and the free cash flow. The 1 thing, I really want to avoid uh, is noise on the conversion on the revenue side and specifically on the SAS Revenue component. The the right metric, the focus on to identify the strengths of the business is the ARR when we look at Revenue as a whole. Um, we're thinking of 202.

5 is kind of the trough where the the p&l is still, uh, kind of very noisy. Um, from a numbers perspective 2026 as we kind of complete the transition, the actual numbers should become more straightforward. The percentages will still kind of move around because on the comparable side, um, you'll have uh, uh, that noise from 2025 and then 2027 is really kind of the Year where you can look at the p&l in a more straightforward way. Um, so the focus right now on on the conversion year and and I've I I can't emphasize this enough. It's kind of focusing on the 3 North Stars where the Top Line number that should be focused, is the AR

Our next question is from Shanik Kosari with Robert Ward.

Yeah. Thanks for taking my question and and echoing uh, congrats uh, on on the quarter. Uh, so beyond the, the new logos, right? You reiterated strong SAS conversion, execution, of course, tracking ahead of plan, but, but specifically, uh, Yaki and guy, you, you just, uh, made comments. It passed these conversions, uh, and and the Tailwind the SAS nrr, right? The customers realizing value faster, post transition, uh, about the expansion UPS across. I'll just, what specific new workload either ramping or, or multicloud expansion.

signals are giving you the most confidence here and if you can just help unpack that SAS nrr a little bit more among mddr co-pilot open AI uh Greenfield SAS unstructured data, as you mentioned snowflake data fix just wanted to understand like if we can unpack that a little bit more

Actually, all of them are performing well. You know, just stay.

Data storing as you AWS gcp, snowflake data bricks.

Salesforce.com GitHub, whatever, wherever you have critical data. We just we we can say that this is time goes by more and more platforms are doing well and uh, you know, you have a lot of

This critical data in the cloud, still a lot of critical data on Prem customer realizing that they need to protect all of it. And all of it is vulnerable and, uh, thankfully just we are doing well.

All over.

Our next question is from Rudy Kessinger with DA Davidson.

Hey great. Thanks guys. Um, for getting my questions similar question actually the last 1. Um, I am curious to mention the prepared remarks, the contribution mix of protecting the cloud and SAS environments continues to increase any data points, you can share on, you know what percent of SAS net. New are, you know, from new logos and expansions not the conversions, you're doing but new logos and expansions, um, is coming from protecting Cloud, environments and SAS applications.

Um, Spectrum, we we don't really break it out in terms of, in dollar terms. Um, we're trying to sell more and more of the platforms. And we're seeing, uh, very good adoption by our customers. And we're actually seeing the sales force, um, focusing on, on that type of sale, understanding the benefit, it can provide to our customers. So I can say that, um, it was the, its kind of improving from quarter to quarter. And and this quarter, we really started to see some meaningful contribution. We expect that Trend to continue

Our next question is.

From Jonathan, Ruka with Cantor Fitzgerald.

Yeah, good afternoon. Um, so regarding the, the recent introduction of your next gen, damn offering a database activity. Monitoring I'm I'm curious, how should we view that in terms of, you know, just an enhancement over a traditional day to drive a replacement cycle versus is, you know, positioning around, you know, a broader data security strategy when you look at the, you know, the revenue opportunity. Um, it would seem the replacement opportunity relative to some Legacy vendors like in perv up and guardium would be quite compelling near terms. So so how are you positioning that in terms of the go to market?

You know, if we, without a cloud data repository, started to do very well with databases primarily with admin activities and with the classification and really…

So many customers came and told us.

Please come and replace the incumbent said, what's going on? I and they said we needed to get into the queries, you know, whatever we need for compliance, but we also need user Behavior analytics. You know, the current Solutions are not really Security Solutions and many times these a lot of these companies didn't innovate and I haven't done it in the right way and they want you want it. Part of 1 Co data security platform. This is when we both s and and we just understood that this is a market that is time for Destruction and it just part of our overall data security because a lot of the most critical data in the world is resides within databases. We are very excited about the opportunity. You will build a very robust infrastructure the way that we dispense. Really state-of-the-art architecture that we are working in is can take massive amount of clothes and we want to make sure that everything that related to data.

For you, data security and databases are part of it. I definitely feel that we can go to new customers, but we can also benefit from a big replacement cycle of the incumbent. So, we are very bullish about the opportunity, and we believe that we can execute.

Very well against the potential of this, uh, of this opportunity.

Our next question is from June 8th. Sadiki with Truist Securities.

Uh great, thank you for taking my question. Um, just wanted to ask about your identity protection Suite that you launched last month. Uh, you know, we're staying more and more convergence between data and identity security. Um, could you just talk a bit about, you know, some of the differentiating aspects. Um, what this does compared to some of the other, uh, what some of the other identity vendors, uh, are able to offer their customers.

Yeah. It's it's uh,

It's not a new model, it's already built into our platform. It's very important to understand that Verizon is not managing identity access. We understand identity from a threat perspective. So what are you doing? We identify, you know who you are, what is your configuration? How you behave? And if you are doing anything, that is abnormal and enrich the identity with a lot of data streams, as we said before, attackers are not breaking in, they

Login in the beginnings, the identity once that identity is compromised. There is no perimeter and it needs sophisticated data security platform, like Von is to protect your data from it.

Our next question is from Fatima Bulani with City.

From the new budget with an IT environment. And relatedly, are these, you know, Greenfield opportunities, or are you displacing incumbents? Thanks.

So we're we're definitely seeing, um, SAS open up additional opportunities. Um, it's, it's in a way increasing our time, increasing, increasing, our ability to offer, um, protection to customers that probably wouldn't have, uh, have considered us, uh, if we didn't have, uh, the SAS offering and I can tell you that, uh, when we look at, um, different verticals different size of companies, um, we have absolutely seen, um, our tan increase 3x from where where it was, um, free, uh, the additional data uh, uh, the cloud protection that we have introduced recently. So, um, in in analyzing our Tam and analyzing the opportunity, I can tell you that it's it's additional opportunity, um, and and and, and in a way, there are also opportunities to replace, uh, existing, uh, existing offerings. Um, but for the most part, it's opening up, uh, new avenues, new verticals.

And new customers that wouldn't consider our Southern world.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Tim first.

Thanks for the interest in Verona. As we look forward to meeting everybody at conferences this quarter.

Goodbye.

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