Varonis Systems, Inc. · NASDAQ:VRNS
Varonis Systems — Investor Day (March 2023)
122 slides from Varonis Systems's investor day presentation, Mar 14, 2023
Slide 1: Investor Day March 2023
\\ varonis Investor Day March 2023
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation has been prepared by Varonis Systems, Inc. (the “Company”) solely for informational purposes. It is not, and should not be assumed to be, complete. This presentation is not an offer to sell securities, nor is it a solicitation of an offer to buy securities. Th
Slide 3: Agenda
Agenda A DURABLE LONG-TERM OUR DIFFERENTIATED SUSTAINABLE GROWTH & GROWTH OPPORTUNITY PRODUCTS & TECHNOLOGY CASH FLOW GENERATION AT SCALE Yaki Faitelson Brian Vecci Guy Melamed Co-Founder, Chairman, & Field Chief Technology Officer Chief Financial Officer & Chief Executive Officer Chief Operating Of
Slide 4: A Durable Long-Term Growth Opportunity
A Durable Long-Term Growth Opportunity Yaki Faitelson, Co-Founder, Chairman and Chief Executive Officer
Slide 5: SaaS is the New Beginning
o Varonis SaaS is as just as o Our transition to SaaS big as the first version of should be orders of DatAdvantage & the birth magnitude more of the company impactful than our transition to subscription SaaS is the o Subscriptions enabled o SaaS makes it far easier our customers to buy for customers
Slide 6: There is a lot of uncertainty in the world
There is a lot of uncertainty in the world
Slide 7: One thing is certain – People will create data
One thing is certain – People will create data o If you have valuable data, o The world is data driven and someone wants it everything depends on it
Slide 8: Data is out of control.
Data is out of control. First, they don’t know what data they have, where it lives, or where it came from and so unsurprisingly, they can’t protect it. That leads to the second problem: employees need to have too much access to too much data on too many systems. Peiter “Mudge” Zatko Former Twitter C
Slide 9: The chaotic, HYBRID world is growing at a staggering pace
The chaotic, HYBRID world is growing at a staggering pace Confidential PII
Slide 10: With such a large and chaotic attack surface…
With such a large and chaotic attack surface… Confidential PII
Slide 11: There will always be a vulnerable system or rogue employee.
There will always be a vulnerable system or rogue employee. Confidential PII
Slide 12: The MEANS change
The MEANS change ENDPOINTS CLOUD DIRECTORY The END is GATEWAY always DATA INTERNAL ACTIVE SERVER DIRECTORY Confidential PII
Slide 13: You can't unbreach data – that's where the risk is
You can’t unbreach data – that’s where the risk is ○ You can get a new endpoint ○ You can rebuild infrastructure Confidential PII
Slide 14: DATA PROTECTION is the most important security problem to solve
DATA PROTECTION is the most important security problem to solve
Slide 15: Our opportunity is bigger than ever
Our opportunity is bigger than ever
Slide 16: Our data-first approach works for all critical data
Our data-first approach works for all critical data Sensitivity ○ Subscription made the licenses attainable for: ○ Visibility Permissions ○ Coverage ○ Functionality Activity Confidential PII
Slide 17: Our customers achieve great outcomes
Our customers achieve great outcomes ○ They can see their data ○ They reduce the blast radius ○ They get high-fidelity alerts ○ Compliance becomes simpler Confidential PII
Slide 18: Tremendous outcomes required some effort
Tremendous outcomes required some effort ○ Time to deploy & maintain ○ Time to configure ○ Time to remediate ○ Time to respond Confidential PII
Slide 19: Time can be a bottleneck
Time can be ' x a bott ‘ len < eck
Slide 20: SaaS eliminates friction with automation
SaaS eliminates friction with automation PROACTIVE INSTALLATION VISUALIZATION REMEDIATION INCIDENT RESPONSE Confidential PII
Slide 21: With SaaS customers get frictionless outcomes
With SaaS customers get frictionless outcomes REDUCED BLAST RADIUS THREAT DETECTION & RESPONSE SIMPLIFIED COMPLIANCE Confidential PII
Slide 22: We've already crossed an ocean…
We’ve already crossed an ocean…
Slide 23: What's in Varonis SaaS now?
What’s in Varonis SaaS now? COVERAGE FUNCTIONALITY ○ Windows, NAS ○ Permissions and Auditing (DA) ○ 365 (SharePoint, OneDrive, Exchange ○ Classification (DCE & PP) Online, Teams) ○ Alerting & Proactive IR (DLS) ○ Active Directory ○ Automated Remediation (AE + 365) ○ Azure Active Directory ○ Edge Con
Slide 24: There is so much ahead of us
There is so much ahead of us Confidential PII
Slide 25: The pace of innovation will continue to accelerate
The pace of innovation will continue to accelerate GOING WIDER GOING DEEPER ○ Azure Blob ○ Classification ○ GitHub ○ Salesforce – both files and fields ○ Automated Remediation ○ Salesforce ○ Box ○ Google Drive
Slide 26: Visibility reveals the need for automation
Visibility reveals the need for automation
Slide 27: Proactive Incident Response
Proactive Incident Response ○ Incident response is a service we’ve provided for years ○ With SaaS our team can more efficient and more valuable to customers ○ When we see an alert ○ We investigate, optimize, notify ○ No customer effort needed Confidential PII
Slide 28: We have the most important metadata
We have the most important metadata 24PB Data Stores & Applications 50M 500M Containers Files 200B Records 50M Unique Permissions Confidential PII
Slide 29: SaaS shows us behaviors across environments
SaaS shows us behaviors across environments Confidential PII
Slide 30: …and helps us see new threats more quickly
…and helps us see new threats more quickly Confidential PII
Slide 31: Everything gets faster
Everything gets faster ○ Alerting is faster ○ We see new threats and techniques faster ○ We create and test new threat models almost immediately ○ New threat models enabled automatically ○ New threat intelligence ○ Threats are detected and stopped with no customer effort Confidential PII
Slide 32: Effort to Value: Before SaaS
Effort to Value : Before SaaS RESULTS VALUE EFFORT TIME Confidential PII
Slide 33: Effort to Value: After SaaS
Effort to Value: After SaaS VALUE RESULTS EFFORT TIME Confidential PII
Slide 34: Our Differentiated Products & Technology
Our Differentiated Products & Technology Brian Vecci, Field Chief Technology Officer
Slide 35: Data has never been more valuable and vulnerable.
Data has never been more valuable and vulnerable. Security teams are The blast radius Threat actors stretched thin is massive always go after the data Confidential PII
Slide 36: We see it everywhere…
We see it everywhere… Confidential PII
Slide 37: But who's going to do all this?
But who’s going to do all this?
Slide 38: What do we need to get data under CONTROL?
What do we need to get data under CONTROL? IS IT BEING USED USAGE PROPERLY? ACCESSIBILITY IMPORTANCE DO THE RIGHT DO WE KNOW WHAT DATA PEOPLE HAVE ACCESS? IS MOST IMPORTANT? Confidential PII
Slide 39: Varonis protects your data wherever it lives.
Varonis protects your data wherever it lives. SaaS Private cloud / on-prem Identity IaaS/PaaS Network Edge Confidential PII
Slide 40: How does Varonis protect data?
How does Varonis protect data? Sensitivity Real-time visibility Permissions Reduce the blast radius Proactive threat detection & Activity response Simplify compliance
Slide 41: Everything is better and faster with SaaS
Everything is better and faster with SaaS ○ Faster and simpler deployment ○ Faster troubleshooting ○ Faster classification and threat model updates ○ Faster and more automatic risk reduction ○ Faster incident response and containment ○ Faster feature delivery Confidential PII
Slide 42: Automating Data Security
Automating Data Security Confidential PII
Slide 43: Visibility
Visibility NW varonis
Slide 44: What do we mean by sensitive?
What do we mean by sensitive? Confidential PII
Slide 45: Identify critical misconfigurations
Identify critical misconfigurations
Slide 46: Who has access to what sensitive data?
Who has access to what sensitive data? Confidential PII
Slide 47: Where am I at risk?
Where am I at risk? Confidential PII
Slide 48: Who is using data?
Who is using data? Confidential PII
Slide 49: Visibility is step 1. What's next?
Visibility is step 1. What’s next? Confidential PII
Slide 50: Automation
Automation NW varonis
Slide 51: Why do we need automation?
Why do we need automation? Confidential PII
Slide 52: Blast Radius – Folders at Risk
Blast Radius – Folders at Risk ○ What does a new employee have 8,838,513 8,378,016 access to on day one of employment? 7,230,483 6,783,252 ○ Ransomware Risk ○ Folders that can be modified by anyone within your organization ○ Exfiltration Risk ○ Folders that can be read by anyone within your organiza
Slide 53: How Varonis automation works
How Varonis automation works o Accurate classification for on-prem and cloud data o Complete visibility of identities, entitlements, configurations and permissions o Long-term record of data activity by all accounts o Analytics to simulate remediation and prevent disruption o Distributed change engi
Slide 54: Where is data at risk?
Sharepoint Online ~ Dashboards « (©) stale Memberships In Groups ® Alerts © Directory Services Anyone on the internet § @ File Servers external users ap WH Exchange Online ‘A organzstion Ss B Sharepoint —-—- Co ° 5,000 10,000 5.000 Stale Permissions ‘A Organizstion Ss = 0 SS ° 5,000 10,000 5.000 Whe
Slide 55: What needs to be fixed?
‘ction Center > Remediate Stale Permissions (1000) © © @ 9g ‘ction Type Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permission Remove Permi
Slide 56: Out of the box automations
Policies 1,037,472 Results. Showing top 1,000 All v All a | +NewPolicy | Actions v Name Mass download by a single user File shared with unauthorized domain Mult Multiple failed login attempts Activity from suspicious IP addresses Unusual file share activity (by user) inusual fle deletion activity (b
Slide 57: VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 58: Is sensitive
Perm issions on resource Is sensitive Yes VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 59: Measuring the Outcome
Measuring the Outcome NW varonis
Slide 60: Data Protection – Security Metrics
Data Protection – Security Metrics OPEN ACCESS Folders with Open Folders with Open Folders with Broken Access (Unique) Access (All) Permissions 698,247 183,708 38,662 41,791 112 1,304 412 Dec 21 Mar 22 Dec 21 Mar 22 21-Jul Dec 21 Mar 22 -38,550 -696,943 -183,296 -99% -99% -99% (*) NOTE: Stale timefr
Slide 61: Automation Engine Remediation Progress (Q4 2021)
Automation Engine Remediation Progress (Q4 2021) REDUCTION IN OPEN ACCESS (TOTAL) REDUCTION IN OPEN ACCESS (SENSITIVE) Confidential PII
Slide 62: Privacy & Compliance – Record Exposure by Rule
Privacy & Compliance – Record Exposure by Rule 172,276 111,677 89,948 47,323 18,604 700 23 144 102 322 CCPA HIPAA Passwords PCI PII All Records Exposed Records Confidential PII
Slide 63: Varonis has, in magnitudes of a hundred times or more...
Varonis has, in magnitudes of a hundred times or more, simplified how fast we can get through folder clean-up and remediation… In a matter of months, it completed remediation tasks that would take us over three years to do manually. Security Engineer Regional Healthcare System Confidential PII
Slide 64: Labeling and DLP
Labeling and DLP NW varonis
Slide 65: Apply a sensitivity label to a file
Apply a sensitivity label to a file (manual or automated)
Slide 66: Policies add protection to files
Policies add protection to files
Slide 67: And it works like magic
And it works like magic DLP Confidential PII
Slide 68: So, what's the problem?
So, what’s the problem? ○ Files are too frequently labeled incorrectly or not at all ○ Without accurate labels, there are no controls ○ Even if it was perfect, DLP shouldn’t be the only preventive control Confidential PII
Slide 69: Varonis makes DLP work
Varonis makes DLP work ○ Automatically identify files that are missing or don’t have accurate labels ○ Automatically identify and fix misapplied labels ○ Automatically identify and fix files with missing labels Confidential PII
Slide 70: Threat Detection & Response
Threat Detection & Response NW varonis
Slide 71: The MEANS change
The MEANS change ENDPOINTS CLOUD DIRECTORY The END is GATEWAY always DATA INTERNAL ACTIVE SERVER DIRECTORY Confidential PII
Slide 72: How it works
How it works Collect Varonis collects billions of events from the right data sources, unobtrusively, and without endpoint agents. Confidential PII
Slide 73: How it works
How it works Enrich OPERATION DEVICE IP EXTERNAL IP OBJECT PATH EVENT TIME BY ADDRESS ADDRESS Then, we combine and enrich them with critical metadata. 1/5/2020 Amy Johnson customer.xlsx c:\share 172.17.33.3 54.239.13.2 8:45 a.m. Confidential PII
Slide 74: How it works
How it works Account identification IP to device resolution OPERATION ACCOUNT DEVICE IP EXTERNAL IP OBJECT SENSITIVE? PATH DEVICE NAME GEOLOCATION EVENT TIME BY TYPE ADDRESS ADDRESS 1/5/2020 Amy Johnson Executive customer.xlsx Yes c:\share 172.17.33.3 AJ-Laptop-01 54.239.13.2 Canada 8:45 a.m. File s
Slide 75: How it works
How it works Amy Johnson Executive Works from AJ-Laptop-01 Learn US-based IP address We use AI to learn behavior baselines and profiles. Amy’s peers’ activity Doesn’t usually access customer data Amy’s active and idle data Confidential PII
Slide 76: How it works
How it works Amy Johnson Person logging in as Amy Johnson Executive Executive Works from AJ-Laptop-01 Other user’s device US-based IP address Atypical geolocation Amy’s peers’ activity Behaving unlike her peers Alert Doesn’t usually access Our threat models alert on Accessing atypical data customer
Slide 77: Investigations are quick and conclusive
Investigations are quick and conclusive Abnormal behavior: Abnormal Access to Sensitive Data Account was not changed in the 7 days prior to current alert. Account is not on the Watch List. Users corp.local\ajohnson Account is not disabled/deleted. Triggered 4 alerts in the 7 days prior to the curren
Slide 78: Forensics are fast and tell the whole story
Forensics are fast and tell the whole story
Slide 79: Varonis Proactive Incident Response
Varonis Proactive Incident Response You get an analyst We review your We reach out as We’ll help assigned alerts daily needed investigate Confidential PII
Slide 80: The investment we've made in Varonis has been immeasurable...
The investment we've made in Varonis has been immeasurable in finding and stopping cyberattacks. The Varonis team proactively reaches out to me with true incidents, rather than just surfacing more alerts for my team to manage. Scott Mercer, Director, Cybersecurity and Technical Services, KU Endowmen
Slide 81: Competition
Competition NW varonis
Slide 82: Where do we see competition?
Where do we see competition? ○ No other vendor does what Varonis does on these data stores ○ Point tools that are platform and use case-specific ○ Data classification ○ Logging ○ Reporting tools ○ Adjacent product categories ○ DLP/CASB ○ SIEM ○ Identity management ○ SaaS posture management Confident
Slide 83: How we make it easy
How we make it easy Confidential PII
Slide 84: How we start: Free risk assessment
How we start: Free risk assessment Map key data stores Prioritize risks ○ Enable full platform access ○ Exposed sensitive data, ○ Analyze permissions, shared links, rogue admins identities, configurations ○ Active Directory & SaaS ○ Discover & classify data configuration risks ○ Compliance gaps Moni
Slide 85: All of this functionality is included in one platform SKU.
Varonis Data Security Platform (SaaS) All of this functionality is included in one Core Platform Features platform SKU. Access intelligence, auditing, dashboards Autonomous remediation This is the Varonis Data Security Data discovery and classification Platform now. Discovery policy library Sensitiv
Slide 86: Sustainable Growth & Cash Flow Generation at Scale
Sustainable Growth & Cash Flow Generation at Scale Guy Melamed, Chief Financial Officer & Chief Operating Officer
Slide 87: Our Focused Journey
Our Focused Journey o Pioneer in data security and analytics o Culture of innovation, with clear plan to extend technological capabilities o Underpenetrated greenfield opportunity o High-quality customer base with significant expansion opportunity o Strong business model with ~100% recurring revenue
Slide 88: With an aligned timeline
With an aligned timeline • SharePoint Online • Analytics • OneDrive • Windows • Policy Pack • Unix 2015 • OneDrive 2017 2019 • SharePoint Online ANNOUNCED OPS TRANSITION IPO : 10 LICENSES ADDED 14 MORE LICENSES 2014 2016 2018 • SharePoint • Unix/Linux • Azure AD • SharePoint • OneDrive • Exchange •
Slide 89: With an aligned timeline
With an aligned timeline • Google Drive • Jira • Box • AWS • SalesForce • S3 • Slack • Zoom • Policy Pack • GitHub • Okta 2019 2021 2023 ANNOUNCED OPS TRANSITION ANNOUNCED VARONIS SAAS 2018 2020 • Google Drive 2022 • Box Bundles: • Azure AD Silver Gold Platinum VARONIS SYSTEMS. PROPRIETARY & CONFIDE
Slide 90: New Logos / Expansion growth algorithm
New Logos 90%+ CLEAR GROWTH ALGORITHM Expansion customer With Existing renewal rate Customers Platform Selling Approach SaaS Transition Uplift
Slide 91: Supporting scale as we execute on our longer-term strategy
$1,000 Supporting scale ANNOUNCED TRANSITION TO SAAS MODEL as we execute on $518 our longer-term $465 strategy ANNOUNCED TRANSITION TO TERM-BASED SUBSCRIPTION $387 MODEL $287 $211 $130 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Represents ARR (in million $) 2023 is at midpoint of guidance and
Slide 92: Go-To-Market strategy — significant greenfield opportunity
Go-To-Market strategy — significant greenfield opportunity OUR PRIMARY TARGET IS o Channel resellers provide introductions COMPANIES WITH OVER 1,000 to the right buyers and help with closing EMPLOYEES o Our salesforce performs the risk assessment and builds business case INSIDE SALES FROM o SaaS wil
Slide 93: Healthy balance of new logos and existing customer growth
EXISTING AND NEW LOGO GROWTH MIX Healthy balance of new logos and existing customer growth 2019 2020 2021 2022 New Logo ACV Existing Customer Upsell ACV Chart is drawn close to scale but with approximate figures VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 94: High-quality subscription customers
4,361 3,623 High-quality 2,544 subscription customers 1,338 ANNOUNCED TRANSITION TO TERM-BASED SUBSCRIPTION MODEL 38 2018 2019 2020 2021 2022 Total term-based on-premise subscription and SaaS customers VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 95: Customers expanding with our strategic offering
Customers expanding with our strategic offering Customers spending >$100K ARR Customers spending >$1M ARR $335M $70M 9X INCREASE 33X INCREASE $252M $48M $169M $28M $97M $19M $39M $2M 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 ARR ($ in millions) VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 96: Why we focus on ARR and Free Cash Flow
Why we focus on ARR and Free Cash Flow ASC 606 Volatility: Revenue vs. ARR $1 ARR $1 Revenue over the term of a contract 0 Free Cash Flow is a function of ARR 1 2 1 2 3 4 5 6 7 8 9 1 1 1 ar ar ar ar ar ar ar ar ar ar ar ar Ye Ye Ye Ye Ye Ye Ye Ye Ye Ye Ye Ye Revenue creates noise when assessing our
Slide 97: Revenue recognition example #1 (OPS vs. SaaS)
Revenue recognition example #1 (OPS vs. SaaS) TERM-BASED ON-PREM SUBSCRIPTION SAAS $80k $25k $25k $25k $25k $5k $5k $5k $5k Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ~80% Upfront / ~20% Ratable 100% Ratable ~85% of deal recognized in Q1 ~25% of deal recognized in Q1 100% of deal recognized in fiscal year 100% of deal
Slide 98: Revenue recognition example #2 (OPS vs. SaaS)
Revenue recognition example #2 (OPS vs. SaaS) TERM-BASED ON-PREM SUBSCRIPTION SAAS $80k $25k $25k $5k $5k $0k Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ~80% Upfront / ~20% Ratable 100% Ratable ~80% of deal recognized in Q2 <1% of deal recognized in Q2 ~90% of deal recognized in fiscal year ~50% of deal recognized in
Slide 99: Revenue recognition example #3 (OPS vs. SaaS)
Revenue recognition example #3 (OPS vs. SaaS) TERM-BASED ON-PREM SUBSCRIPTION SAAS $80k $0k Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ~80% Upfront / ~20% Ratable 100% Ratable ~80% of deal recognized in Q4 <1% of deal recognized in Q4 ~80% of deal recognized in fiscal year <1% of deal recognized in fiscal year Both sc
Slide 100: SaaS Opportunity Or Transition Take II
SaaS Opportunity Or Transition Take II
Slide 101: Proven success navigating previous model transition
Proven success navigating previous model transition RECURRING REVENUES (% OF REVENUE) TRANSITION 95% COMPLETED IN 5Q 88% 84% 78% 67% ANNOUNCED TRANSITION TO TERM-BASED SUBSCRIPTION MODEL 39% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 102: SaaS – a compelling offering
SaaS – a compelling offering The customer just needs to decide where to start: Microsoft SaaS Windows/NAS Microsoft 365 Hybrid Applications Includes Windows (CIFS), Includes SharePoint Online, Includes everything in the Customers can select EMC, NetApp, Panzura, OneDrive, Teams, and Azure other Wind
Slide 103: New product ramp up time
New product ramp up time $26.4M DatAdvantage Cloud, launched in 3Q21, was our best performing new product in recent years $18.8M $3.5M AUTOMATION ENGINE $0.2M M365 $0.2M DATADVANTAGE CLOUD Year 1 Year 5 VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 104: Strong cloud history with long runway ahead
Strong cloud history with long runway ahead Microsoft 365 took time to see adoption, but is a big business for Varonis today and we haven’t scratched the surface of our opportunity VARONIS ARR ESTIMATED M365 PENETRATION (from M365 products) (as a % of total M365 users) $95 MILLION ~1% 4Q22 4Q22 VARO
Slide 105: SaaS financial benefits expected over time
SHORTER SALES CYCLES o Easier deployment o Simpler pricing and packaging model LARGER LANDS o Driven by platform selling approach and 25%-30% SaaS financial benefits pricing uplift expected over time o Lower total cost of ownership for customers o Quicker time-to-value and improved MARGIN BENEFITS c
Slide 106: SaaS Platform Pricing
SaaS Platform Pricing On-Prem Subscription – SaaS Windows + NAS 6 individual licenses Platform Package SKU o DatAdvantage for Windows o Data Classification for Windows 1 platform package SKU o DatAlert Suite 6 individual SKUs o Varonis for Windows + NAS (SaaS) equivalent to 30% uplift vs. o Automati
Slide 107: SaaS Metrics And How to Measure Success
SaaS Metrics And How to Measure Success
Slide 108: By definition SaaS transition requires pacing
By definition SaaS transition requires pacing RESULTS REVENUE GROWTH OPERATING MARGIN PACE OF TRANSITION SHORTER LONGER VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 109: By definition SaaS transition requires pacing
By definition SaaS transition requires pacing RESULTS ARR & FREE CASH FLOW PACE OF TRANSITION SHORTER LONGER VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 110: Clear visibility to improving margins
Clear visibility to improving margins 20.0% 6.3% 5.7% 4.5% (3.4%) (33.7%) 2019 2020 2021 2022 2023 2024 2025 2026 2027 ARR Contribution Margin (defined as ARR minus total non-GAAP expenses) - 2023 is shown at midpoint of guidance VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 111: New SaaS transition KPIs
New SaaS transition KPIs New KPI Quarterly Annual SaaS Mix* ARR contribution margin Color on conversion progress Subscription customer count *As a percentage of new business and net new upsell ARR VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 112: Timeline for SaaS transition
Timeline for SaaS transition SELLING SAAS TO MAJORITY OF NEW CONVERTING EXISTING SELF-HOSTED Completion: CUSTOMERS CUSTOMERS TO SAAS 70%-90% of ARR comes from SaaS Y3 Y4 Y5 PHASE 2 ARR & FREE CASH FLOW PHASE 1 North stars throughout the Y1 Y2 transition VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 113: How to think about ARR conversion uplift
How to think about ARR conversion uplift TERM-BASED ON-PREMISE SUBSCRIPTION PERPETUAL MAINTENANCE LICENSE o We are not factoring in any uplift from this group in our path to $1 billion in 2027 o ARR uplift of 25%-30% at list price* o ARR uplift 2.5x-3x at list price* o Customers who know Varonis ver
Slide 114: Capital Allocation & Long-Term Financial Model
Capital Allocation & Long-Term Financial Model
Slide 115: Strategic capital allocation & investment priorities
STRONG FINANCIAL PROFILE CHARACTERIZED BY: o Approximately $730 million of cash on balance sheet o Expectations for $20-$25 million of free cash flow in 2023 CLEAR CAPITAL ALLOCATION PRIORITIES: Reinvest in the business through R&D and other organic initiatives Strategic capital o to deepen competit
Slide 116: Long-term model framework
Long-term model framework TARGETING RULE OF 40 EXITING THE TRANSITION ($ IN MILLIONS) 2022 2023 GUIDANCE* 2027 TARGET ARR $465 $518 ~$1,000.0 ARR growth 20% 11% 17%-23% Non-GAAP Cost of Revenues (% of ARR) 12% 19%-21% Non-GAAP R&D Expenses (% of ARR) 27% 18%-20% Non-GAAP S&M Expenses (% of ARR) 47%
Slide 117: Summary
Summary o SaaS transition will be transformative o Invest to extend our lead in enterprise o Building blocks for growth o Market expansion o New logos in existing markets o Greenfield opportunity in new geographies o Expand within our customer base o SaaS transition uplift within install base o Clea
Slide 118: Our long-term goal is to build a billion-dollar business
Our long-term goal is to build a billion-dollar business that grows meaningfully with expanding profit and cash flow. VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 119: Appendix: ARR Contribution Margin Calculation
Appendix: ARR Contribution Margin Calculation ($ in millions) – For Twelve Months Ended December 31, 2022 Reconciliation to non-GAAP total expenses GAAP Expenses Cost of revenues $69.8 Research and development $177.9 Sales and marketing $275.1 General and administrative $72.1 Total GAAP expenses $59
Slide 120: Appendix: ARR Contribution Margin Calculation Continued
Appendix: ARR Contribution Margin Calculation Continued Cost of Research & Sales & General & ($ in millions) – For Twelve Months Ended December 31, 2022 Revenues Development Marketing Administrative Reconciliation to non-GAAP total expenses GAAP Expenses $69.8 $177.9 $275.1 $72.1 Less: Stock-based c
Slide 121: Appendix: Reconciliation of GAAP Measures to Non-GAAP
Appendix: Reconciliation of GAAP Measures to Non-GAAP Reconciliation to non-GAAP free cash flow: FY 2023 Net cash provided by operating activities $28.0MM – $35.0MM Purchases of property and equipment ($8.0MM) – ($10.0MM) Free cash flow $20.0MM – $25.0MM VARONIS SYSTEMS. PROPRIETARY & CONFIDENTIAL.
Slide 122: Thank you
Thank you \\ varonis