Q1 2024 Varonis Systems Inc Earnings Call

Participants

Tim Perz; Director - Investor Relations; Varonis Systems Inc

Yakov Faitelson; Chairman of the Board, President, Chief Executive Officer, Co-Founder; Varonis Systems Inc

Guy Melamed; Chief Financial Officer, Chief Operating Officer; Varonis Systems Inc

Saket Kalia; Analyst; Barclays Capital Inc.

Matt Swanson; Analyst; RBC Capital Markets Wealth Management

Fatima Boolani; Analyst; Citi Investment Research

Brian Essex; Analyst; J.P. Morgan Securities LLC

Roger Boyd; Analyst; UBS Securities LLC

Shaul Eyal; Analyst; Cowen and Co., LLC

Jason Ader; Analyst; William Blair & Company, L.L.C.

Shrenik Kothari; Analyst; Robert W. Baird & Co.

Junaid Siddiqui; Analyst; Truist Securities

Rudy Kessinger; Analyst; D.A. Davidson & Co.

Andrew Nowinski; Analyst; Wells Fargo Securities, LLC

Presentation

Operator

Greetings, and welcome to bet on this system Inc. First Quarter 2024 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 require operator assistance during the conference, please press star zero on your telephone key pad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim plus Investor Relations. Thank you, Mr. Bosch, you may begin.

Tim Perz

Thank you, operator. Good afternoon, and thank you for joining us today to review Verona Pharma's First Quarter Financial Results. The on the call today are Yaki Faitelson, Chief Executive Officer, Guy Melamed, Chief Financial Officer and Chief Operating Officer of Heritage. 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 and full year ending December 31, 2024. Due to a number of factors. Actual results may differ materially Lee from those set forth in such statements.
These factors are set forth in the earnings press release we issued today under the section captioned forward-looking statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date.
Varonis expressly disclaims any application or undertaking to release publicly any updates or visions to 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 is also available on our first quarter 2020 for earnings press release and investor mutation, which can be found at www.varonis.com in the Investor Relations section.
Lastly, please note that a webcast of today's call is available on our website, the Investor Relations section. With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Jackie?

Yakov Faitelson

Thanks, Tim. Good afternoon, everyone, and thanks for joining us to discuss the first quarter is those who should have presented storm stuff through the year. In addition to discussing the results, I would like to have you assessed transition bogus in the key drivers of our business for this year. But first, let me remind you, Laurie, it's exist in the problems we saw.\
Data is valuable, which is why the doctors want to steal it. Company is investing security to protect the data, but security is very difficult to only solves the problem by helping companies locate those sensitive data. You guys who has access to the lockdown can detect and respond to Flextronics. And because of the sophisticated automation that we've made into only SaaS platform customer spend very little time and effort to protect their data in now, we MDDR will reduce this even though this allows companies to collaborate safety in the most value from their data while managing risk.
First quarter results reflect sustained momentum for SaaS transition in the positive reception of our managed data detection and response service for what we refer to as MDDR, ARR grew 17% to $560.3 million, and we generated $56.4 million free cash flow this quarter versus $35.7 million last year.
Saas ARR now represent approximately 70%, total ARR. Guy will review our Q1 results in our updated guidance in more detail, I want to express how proud I am biomass had stabilized. It remains challenging in the Varonis team executed well during the first quarter, and I believe that we are only scratching the surface. What lies ahead for us.
The transition to SaaS delivery model continues to show momentum because of the many benefits that our customers realize and I will quickly remind you of a few customers can achieve automated outcome, which means they can show the data is protected with very little effort. U.s. is quicker to deploy in operationalize because of significantly lower infrastructure and personnel investments. It's easier to maintain and upgrade.
Additionally, still thinking benefits that we realigned the El Salto since I can knowledge of initial land margin benefit over time. In addition to our SaaS transition, I would like to discuss with three additional divestments of the business that I mentioned last quarter. We show our MD of service adoption of Enterprise generated the I think, increasing compliance requirements today like to focus on NGTL Ingenia.
Last quarter, we introduced our MDDR service, which is the first managed service for monitoring and protecting critical data. It is a paid service that builds upon our port acting incident response offering by providing service level agreements and a round the clock coverage. It is important to note that this service is only possible for our SaaS customers because of the visibility and automation built into our such, we just began selling this offering in the first quarter, and we have already started to see great momentum with it. So let me explain why this is already happening and why we view this is an NGO for content.
And video is a natural evolution of our platform in still a significant unmet need in the market. More of the challenges tissue space that they don't save people money to investigate sellouts fast enough now is MDD out. We did this burden on customers and put it on us. If we see a threat and well within our MDR customer base, we can stop it simply notify the customer after the problem has been solved. We can do this because we pioneered the use of machine learning for data security and user behavior analysis, giving us years of experience building highly acurate break models.
Our team leverages the significant automation plus our unique method, the telemetry, such as data sensitivity for Access Event and permissions that allow us to detect if data is under attack into cut straight. M missed by others. I've also been asked to clarify the value of MDDR service provides to customers that already have an endpoint detection and response service for Managed Detection and Response service. The answer is actually very simple on the perimeter phase.
We believe that we are best positioned to save companies because we have been monitoring the data inside the perimeter ever since we started companies, sometimes pain means for other third detection and response services. But when an incident happens, this service says that don't focus on data can only show you during the attack begun this target.
To answer the most important question was any data stolen. MBRs and ADRs can reveal how a bad actor gained access in what tactics used to getting that cannot tell a customer if any data was taking? The situation has discovered in the bank was Rob, that hedging no sales. Thinking about the most important elements where there are many was stolen from all the Volt remains secure. This blindness. My organization's is sophisticated security stocks can still still victim to data breaches in side effects or tax bypass the perimeters.
Without Varonis Data in usually power to accessible to anyone or anything inside the perimeter and isn't closely monitor. This means more data is likely to be breached in companies that how the time quantifying what was taking doing Enbridge making reliability much higher Ronnie customers automatically shrink the blast radius, which reduces the potential damage that an insider can do in passive bad actors tool, Colorado, to get to sensitive data, giving us more opportunities to catchments will MDR who often such bad actors before they get data in because we watch the data, we are able to quickly quantify the damage.
This means we can stop the bleach in limit the exposure in the potential liability. This is why no matter what platform a customer has. They will still need MDDR to finish our bank, globally example, voice and video. What is the money around the clock in detail, the bank manager for their money sales in the voltage secure.
Now I would like to touch on our January viability. This technology presents tremendous productivity opportunities in. But in order to reap the benefits of it, you need strong data security. For example, I can reveal clinical data with their own machines in people because most of the divi to utilize existing access controls, which most organizations Kevin lockdown, leaving them overexposed data from the new large language models and how to leverage this tool is still important data, more easily bottom line. Generally, VI. is forcing organizations.
We take a hard look at the data security stack, and this is why can continue to CJ Desai coming up. So many of our customers conversations is organizations trying to understand how they can save the realized productivity benefits. So far, companies are taking a very careful approach thoughtfully considering potential risks before expanding from the pilot phase into organization-wide all else. As a result, we expect near-term adoption of a wide-scale Gen-i to be measured is companies game consoles and how they can secure the day data.
Overall, the feedback we are hearing from customers only serves to strengthen the conviction we have in our ability to benefit from this enormous secular telling partnership with Microsoft is progressing well. In one month ago, we announced the industry-first cyber security solution for Microsoft 365 copilot. This will be sold as an add-on to our existing Microsoft 65 staff package and allows organizations to monitor copilot data access in time test of normal copilot interaction and automatically renewed sensitive data sensible by both human agents.
In addition to the enhancement to our platform, we are seeing Gen-i, ours is a catalyst for conversation with prospects. And although we aren't yet seeing material ARR, I'm GenAI isolated deals. We are seeing healthy pipeline deals with respect to this opportunity.
With that, I would like to briefly discuss a couple of key customer wins from Q1. in our university in the affiliated hospital system with 6,000 employees became in lawn SaaS and MDDR customer. This quarter, it was mandate secure sensitive data led to a risk assessment, so we discovered for medium density workloads into million instances of student inpatient TI. are exposed to everyone in the organ position.
Fishing Verisity evaluated several CSPMDSPM. and legacy data security solutions. But ultimately, these loans have package with MDR protection for the UNIX in hybrid Windows environment. With our automation and data centric telemetry bonus, MDR, supplement the existing and VAR and MSSP lenders by providing protection that is focused on security and the most valuable asset, data.
You also seeing strong engagement from existing customers, a broadband provider initially became a customer in 2014. So with the goal of identifying and remediating overexposed sensitive data in enhancing the presentation capabilities with our self-hosted offering, this required some customer effort in meaningful infrastructure investments. This customer converted to go on SaaS MDR protection for the hybrid. Doing those environments, they will benefit from our automated remediation, and we will realize infrastructure savings while trading the security team sense. We'll monitor and respond.
In summary, there is off to a strong styles driven by the automated outcomes that customers receive from SaaS platform and our recently introduced and the idea of offering, which we believe is a game changer for our company. We are excited to capitalize on the tailwind of MDDR Gen-i interesting data center compliance regulation. We capture significant market opportunity.
With that, let me turn the call over to Guy going.

Guy Melamed

Thanks, Yaki. 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 have grown Saas furthers our confidence in completing the transition in 2026, one year earlier than our initial time line.
At the end of Q1, saas represented approximately 30% of our total company ARR, driven by strong contribution from new logos and existing customer conversions. As Jackie mentioned, the other key driver of our business this quarter was MDDR. This paid offering is an evolution of proactive incident response that comes with an SLA and assurance that bonus will respond. The ransomware attacks within 30 minutes. MDDR has been extremely well received in the first quarter, driving new business, increasing deal sizes and simplifying the conversation with customers.
Addition to MDT are nearly every customer conversation we have touches on generated a I which reinforces our view of this secular tailwinds. We're seeing healthy leading indicators with respect to the opportunity, but as we discussed previously, we continue to expect the adoption of G&A. I will be met.
As we look ahead of the rest of this year. We're excited to begin Phase 2 in earnest in the second half of 2024, which will be focused on converting our installed base of on-prem subscription customers to our SaaS platform. As a reminder, we expect that the ramp up of this phase will now the linear and momentum should grow in each quarter and further accelerate in 2025 and 2026. In the first quarter, ARR grew 17% year to $560.3 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 demonstrate 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. A reminder the leading indicators of our transition, are ARR, free cash flow and ARR contribution margin. As we have said many times, the faster we progress through the transition to more headwinds, we will experience to our traditional income statement metrics. So we view this in a positive light.
In the first quarter. We continued to see stabilization of the macro environment. Item deal scrutiny persisted. So we are seeing positive momentum, especially with regard to the adoption of SaaS and MDDR 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 increased SaaS 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 that track our progress during the next phase.
This quarter, we're providing SaaS revenue for the first time a metric that we will provide going forward. We will continue to provide that as a percentage of total ARR 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 2023. 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 caused a revenue headwind due to the ratable recognition of saas 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 [cost] to service the anticipated strong ramp in MDD are 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 9.3%. 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 Saas sales in our booking mix, which are recognized fully ratable versus the upfront recognition of our on-prem subscription licsenses.
Product first quarter a are our contribution margin was 13.7%, up from 5.6% last year. The significant leverage improvement even during the early stages as the transition reflect our ability to drive strong incremental margins while growing ARR and transitioning to SaaS.
During the quarter, we had financial income of approximately $8.2 million, driven primarily by interest income on our cash, deposits, and investments in marketable securities. Net loss for the first quarter of 2024, it was negative $3.7 million or negative $0.03 per basic and diluted share compared to net loss of $0.1 million or net loss of $0 per basic and diluted share for the first quarter of 2023. This is based on 110 million and 108.4 million basic and diluted shares outstanding for Q1 2024 and Q1 2023, respectively.
As of March 31st, 2024, we had $774.4 million in cash, cash equivalents, short-term deposits and marketable securities. For the three months ended March 31st, 2024, we generated $56.7 billion of cash from operations compared to $36.8 million generated in the same period last year. And CapEx was $0.3 million compared to $1.1 million last year.
Turning now to our updated 2024 guidance in more detail. For the second quarter 2024, we expect total revenues of $123 million to $126 million, representing growth of 7% to 9%. Non-GAAP operating loss of negative $6 million, the negative $5 million and non-GAAP net loss per basic and diluted share in the range of negative $0.03 to negative $0.02. This assumes 111.7 million basic and diluted shares outstanding.
For the full year 2024, we now expect ARR of $622 million to $628 million, representing growth of 15% to 16%, free cash flow of $70 million to $75 billion. Total revenues, $536 million to $546 million, representing growth of 7% to 9%. Non-GAAP operating income of $9 million to $14 million. Non-GAAP net income (technical difficulty) per diluted share in the range of $0.13 to $0.16. This assumes 128.4 million diluted shares outstanding.
In summary, we are encouraged by the continued momentum of our own SaaS and initial reception of MDR. The growing demand for these offerings is strengthening our ARR 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. With that, we will be happy to take questions.Operator.

Question and Answer Session

Operator

(Operator Instruction)
Saket Kalia with Barclays.

Saket Kalia

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

Guy Melamed

Thank you.

Saket Kalia

Josh, I'd lov e to start with MDDR. and maybe the question is, 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 some what extent is MDDR, Mickey, pulling through more interest in SaaS since it's only available to SaaS customers that make sense?

Yakov Faitelson

Definitely. So in terms, the customer feedback in the past with owning a behind the productivity, exceeding our expectation and effectively a tax income from anywhere and any device, but ongoing one, the election, which is the data. So dream security is made no many amazing company. But if you think the probability very high probability that you're going to fail in, once you have an identity, there is no bring in more.
You're getting into the data. And we used to modestly me understand how people need to use data and consumable these. They have not made sure that you will notice the data breach in our opinion, the best way to go to date at which you're doing it completely automatically.
So just moving extremely well as you have more platforms in a lot of all the way that we bundle fleet age and the other good attractive there to weigh in on Friday, it works. It works extremely well. So customers are loving and we are just on a daily basis sales in stopping them to breaches. And we really believe that
the data security platfaam in India, the first thing that the organization needs to do in the last thing that will save you.

Guy Melamed

And it will depend if it's only offered with the SaaS offering it, it was definitely a key driver for our business this quarter. When you think about the NDDR., it's been an evolution of the proactive incident response, and it comes with an SLA and kind of within 30 minutes. So it's very compelling. And when you look at kind of how it was received this quarter is on driving this increasing deal sizes and simplifying the conversations for our for our customers.

Yakov Faitelson

Because you have to have a bit about what Guy said when we build our SaaS solution, which will communicate to us. You know, this is a software solution with a little bit to mention to make, too, but we have tremendous both multiplier to our to our on. And so we built a lot of Watson using the way I have to make sure that our people are extremely productive species to almost completely service also have questions.

Operator

Thank you. Mr. Komiya, please rejoin the queue for more questions. Hamza Fodderwala, Morgan Stanley. Please go ahead.

Again, John, on for Honda on. So Yaki, a question for you. How often is Microsoft copilot coming up in your customer conv ersations versus three months ago? And in the expanded partnership with Microsoft copilot driving more pipeline?

Yakov Faitelson

With front and center in how we can route every conversation. I know Microsoft is still not pushing it still falls to the customer base. You see that a lot of customers experimenting with it. I think I'll work my way into the same customers in Q1. And there is a very consistent theme, the starting the copilot, the evaluation and stopping the inquiries, exposing a lot of the relevant clinical data.
So just protecting this. The copilots and they are connecting to many sources is in the coming June each and every conversation. And I think that is just exposing the problem in organizations understand that they need to take data security very seriously in order to benefit from the automation of the, say the copilot. But they are based on LLM and starting to build a good pipeline in the places that we engage with Microsoft. It's also starting to go in the right direction, but remember, Microsoft and we are still pushing through both.
I believe that once they will have a quota and push, it will pose, it can have the can has been impact on the business. But you know, in the world wants to benefit from a copay pilots in all the inland Mobilicity will to get the productivity gains, they will need to take it to take your data security come through.

Guy Melamed

And just to reemphasize what you have you been seeing in terms of the reported numbers for Q1, we didn't see copilot as part of the reported numbers in Q1. But definitely when we look at all the leading indicators, they appear there and we're seeing pipeline increasing them.

Yakov Faitelson

With the listing of the revenue impact would be starting to see it pipeline impact in a lot of conversions in people are in the initial stages to figure out how to do.

Great. Thank you.

Operator

Matt Hedberg with RBC. Please go ahead.

Matt Swanson

Yes. Thank you. This is actually Matt Swanson on for Matt. We are going to hear some stabilization in the macro deals. I have spent a long time coming for all about you've done a really successful SaaS transition during are really only if the macro Yaki, you mentioned some of the advances of SaaS, the lower end substructure personnel costs easier to maintain it.
Can you just want to talk specifically for the SaaS transition, kind of headwinds and tailwinds of a challenging macro, but are there any parts that are actually help the transition? Things are a little tougher.

Yakov Faitelson

I think that what happens to be seen, what helps boost is the reality breaches almost always not always with almost no data breaches of security industry would be upside down since the spin a fortune on perimeter security and just saying no small value in that you have this massive blast revenues and you're completely exposed thinking about it. It's like to have the two business with the bank that doesn't have the ledger can tell you what happened with the account and just continue is that you have a strong back-to-school and fall well logged into doesn't make sense in the other thing that happens that is primarily due to provide automated outcome increase.
Scale is extremely well, took everything we learn from the on-prem and will be a lot of automation, a lot of coverage. The customer with 5%, 10% of the airport can get 10 times more volume. So this is also the way it is also the way it works.
And I also think that slowly but surely everyday organization just realize that this is something that we need to do sooner rather than later. I mean, obviously with Ally in all the attacks that we will go into the data organizations and Houston, the two, this is the way to go to a gradual process. But we definitely feel that the technology just picking the reality, you want to make sure that the non-TV data, which mainly the security platforms automated outcome.

Operator

Fatima Boolani, Citi.

Fatima Boolani

Good afternoon. Thank you for taking my question. And then I have a question for you, the ARR I just wanted to dissect a little bit. So [let me start] countable Cherokee, and you're considering or not totally out of the went from a macro. I wanted to better understand why some of this momentum and you're not expecting to increase during the year given the seasonally slow quarter and you have so much more demand and growth in Q1 from October plants and that puts and takes that inventory into the outlook in terms of not growing for were independent upside in this quarter?

Guy Melamed

I think that's a great question. And I want to be very clear. We are raising our full year ARR guidance because we feel really good about the rest of the year. And when you look at Canada with you, we raised on ARR 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 ARR in our 2024 net new ARR guidance was similar to previous year's numbers.
So when you look at the net new ARR in Q1 2024 was approximately $4 million higher than last year, which is exactly what we're rolling over for the full year midpoint of ARR guidance. 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 things, whether it's the environment and DDR copilot. So 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.
And with copilot and the SEC regulation, we have yet to see that positive impact to our reported numbers. With MDDR, 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 supported, we will be happy to update on guidance.

Operator

Brian Essex with JP Morgan.

Brian Essex

Good afternoon and thank you for taking the question. Yaki. I was wondering if you can give us a little bit of an update. I think you 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 at the back end of the year. How do you think about incentivizing the sales force with regard to your number one new lower growth number to put more proactive conversion of your installed base with the kickoff of Phase 2 and a number three expansion versus MDDR and co-pilot, how do you mean anything categorize the magnitude of each of those levers and how you expect that to play out through the rest of the year?

Yakov Faitelson

So in our MD&A and the copilot, though, relevant to every once existing customer and prospect move us to gain market share to explain the platform, expand the platform in the base, this is something that is working well for us. But we also have just so many ways to add value to customers with everything that we are doing, the cloud on the SaaS side and on the in the IT side, we see on customer getting extremely fast, these automated outcomes.

Guy Melamed

And I'll give the color from a commission perspective. And what we have seen from a conversion perspective is that it's happening in the natural way. When you look at the uplift, obviously, it's beneficial for the customers because they're getting a much better product, but it's also beneficial for our field force because anything on top of that renewal goes 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 a natural element, which is great for us and is working great for our customers.
What we did do because new logos is such an important component in on fueling our growth in the years ahead as we actually double down on the commission plan from a sense of ensuring that reps are focused on acquiring new customers and in order for them to make real significant monies dinners and they'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 and when you look at the offering itself and the SaaS offering is actually eliminated two of the biggest objections that we used to see and that's that customers don't have the people to support the platform. We're companies don't necessarily want to buy the hardware. So in a way, that change of compliant actually works really well with the offering that we have. And when you think about that combination is something that we've seen worked very well for us in Q1.

Operator

Roger Boyd with UBS.

Roger Boyd

Great. Thanks for taking my questions. Are a lot of talk on the momentum that's in the pipeline around Microsoft through 65 coal-powered. But Yaki, I'm wondering if you're starting to see interest from the install base around securing other coal pilots and other G&A applications like does and sales force or get hub has come up with a few customers. Just wondering if that's showing up in the pipeline or customer conversations with any sort of momentum. Thanks.

Yakov Faitelson

So without a doubt and even much more because people understand that the one this copilot for, we almost every platform that they have. And so we see it on the SaaS that makes sense, both Depop G., La Colorado and obviously the net connectors or we don't think that both Google agenda. So you see all these coal piles and even sometimes people have their own, you know, we filed with the instant to opening. I was putting these loans Sherburne to move a lot of value in the other thing that that we are doing, we in copilot, we expect maybe to look at the quote themselves, risky users and all the other Globe.
So it's really working for me to welcome from every angle. And we are hoping that was also a supply glut is once you are using this technology, this speed that you're exposing clinical data, it is unbelievable, not exposing and creating a creating clinical data. So we'd say it is definitely very interesting for us and just immediately exposing the problem. And they also enhancing.

Operator

Shaul Eyal, TD Cowen.

Shaul Eyal

Thank you. Good afternoon, guys. Congrats on the ongoing stat transition and the overall results. Guy or Yaki. And I wanted to ask about the mix between existing customers and new logos this quarter. Can you double click on this item? And maybe specifically for, you know, you've often being asked about the competitive arena. Typically the case of illnesses, limited scope of competition, but with many security companies in many categories buying small DSPM. assets, what's what's what are you seeing out there from the of aside from the overall market validation? Thank you.

Guy Melamed

So Shaul, I'll start with the first question. When you look at the results in Q1, the majority of our new ACV. in Q1 was driven by new logos. And as I said before, SaaS is really opening up new market for us because it's eliminating the two biggest pushbacks. 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. And so the changes we made to the comp plan, which I discussed in one of the previous questions, together with the simplicity of the story and the benefits of the products are really working. And the new logo activity was really healthy.

Yakov Faitelson

Now. And so in the old traditional areas willing will completely dominating reaching, although not devices Active Directory onto our DC.365 service force.com, Google, a vote. All this means for us the Company. But you mentioned Polymetal when they are focusing on the IT side, which is the AWS and Azure. When we bring the product, we believe that is the best in the market in this area. And we are well known in the places that we are in installing. We see that the we have a very good results, and we anticipate that these places we'll see in competition as we keep budget.
But in terms of scaling automated outcome, I believe we're well positioned to take this market in wins to overall this point, what's going on in this market, we see the creating a lot of the women's in creating the more and more budgets. And so we see very good for us in terms of overall awareness and sales motions.

Operator

Joseph Vafi with Jefferies. Please go ahead.

Hi, this is Anik on for Joe Gatto. 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?

Yakov Faitelson

So I think that in terms of everything we're doing as we build capacity, a lot of traction, we are very interesting logs, Snowflake and other data repositories down massive. So everything we do call technology, which we hope to online meta data due to its scale working extremely well. And all the connectivity to the MD&A is very exciting prospects who really, at this point, we see good prospect to everything we have done in the engineering side. And we also so very proud of the team in the rapid release cycle of the features and product.

Operator

Jason Ader, William Blair.

Jason Ader

Yes, thank you. Good afternoon, guys. I just wanted to ask about MDDR. again, more specifically, maybe just I know you've recently announced that it clearly has exceeded your expectations, your thrilled about the early demand. And can you just talk about the pricing model that you use, the type of uplift could create on your SaaS business? And then maybe any early metrics on attach rate?

Guy Melamed

Yes, I think that's a great question, and we talk a little bit about it last quarter. We introduced the MDR win. When you think about our goal at the end of the day, three are off, 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 with trying to extract 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 MDDR pricing is somewhat reduced as long as they buy and increase the ASP or if they only want the MDDR. XenApp pricing of indeed, if there is a stand alone is significantly higher.
What we're seeing is the customer are customers are embracing the package itself and they're buying it as part of additional licenses that can give them additional benefit. And that allows us to increase the ASP. It's still very early. So I want to give out numbers and kind of go through a through the exercise of kind of the uplift that we're getting there. But we're seeing now our ASPs increase in a very healthy way and the value that we can provide with that platform is significant.

Yakov Faitelson

The MDDR. Essentially our ability to make to that to fulfill our promise to the world. If you have asked most probably will not go into data boots in the and we'll be out with the customer will have as much coverage is possible that we will we will be able to protect them automatically.

Jason Ader

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

Guy Melamed

We believe that every customer needs to get it, it's going to be a gradual process. But I can say that initially, the wave started was extremely encouraging from our process perspective. And the conversations that we're having for the rest of the year on MDDR. are also extremely positive.

Operator

Shrenik Qatari, Baird.

Shrenik Kothari

Yes, thanks for taking my question. So Yaki, you touched upon, Jenny, I just wanted to double-click on this at a healthy leading indicators of a journey. I but adoption are expected to be measured as their companies are considering potential risk and looks like, of course, a data securities, the center of it and and mostly copilot adoptions kind of getting start are due to security concerns.
So data since it should even further drive demand for you guys in the current stage of kind of pre Gen-i adoption from our data prep and governance standpoint, still held them are either but at a point where they can adopt Skava. So just curious why why the pipeline would not start kind of go into two deals already? We are offering what they need right now at this point of time. Please help us understand. Thank you.

Yakov Faitelson

Organizational still in the very early innings of how to use and in base to tune. The reality is that in order to boost productivity benefits of these the new quarter, you need to make sure that you have the data security interest because if now you could have horrible consequences, but it's still doing it in a very measured well wagers in testing on the we believe that once you know, you didn't reflecting the Q1 a revenues, but it's different than at least starting to impact the pipeline. And we believe that over time it can it has the potential to be a tailwind for the gains.

Operator

Junaid Siddiqui for tourists.

Junaid Siddiqui

Great. Thank you for taking my question. Just had a question regarding opportunities in the channel on any particular areas of emphasis you're focusing on the [MSPs or MSIs] as you transition to a predominantly SaaS company?

Yakov Faitelson

Well, in our walk-in, we will work and we are working with everyone, definitely channel focus to company. one thing we see who is the SaaS solution that is, you know, much there. We do see me all the friction in the installation in the time to value ongoing value there. So we become simpler and the overall offering most strategic. So just more content than in part with us.

Operator

Rudy Kissinger but D.A. Davidson.

Rudy Kessinger

Hey. Thanks for taking my questions guys. Guy. Just I don't know if you gave earlier not I joined a little late, but can you share how much of your existing ARR converting the SaaS this quarter or just directionally, did you convert more or less in Q1 than you did in Q4?

Guy Melamed

We talked a little bit about it, but I'll give you more color when when we look at the results in Q1, we were really happy with the conversions in Q1. They really helped us get the SaaS. When you look at kind of SaaS coming a 30% of total ARR and where you look at the number is actually $165.5 million. When we look at it, the metric itself, we didn't talk about the actual dollar value of the conversions because the the metric you should focus on is assay ARR.
That is that really measure the progress in completing the trend transition, which is one of our overarching goals. But SaaS ARR was very strong in Q1 and the exisiting listing customer conversions obviously played into that.

Operator

Thank you. Next question comes from the line of [Steven Schwartz] with Wells Fargo. Please go ahead.

Andrew Nowinski

And this is Stephan on for Andy Nowinski. Thanks for taking my questions. Wanted to ask about your focus on new logos, maybe the role that MDDR. complain to that, how much education maybe you need to do to make that a driver of new logos? And is it something you're thinking about?

Guy Melamed

It's very clear that MDR can help them with new logos because it keeps the conversation very, very simple. When you when you go to a prospect and yet you're talking about an SLA that assures Varonis, you get the customer is interested in a way the whole purpose of MDD. Our is to allow us to help the customer and protect them in a way that doesn't require the same headcount that they had to have if we were selling them the on-prem subscription solutions. So MDD are definitely fit within our offering in the simplicity and kind of doubled down on the SaaS simplicity that we have there. And that allows us to target new customers. And I think that that story together with the way we structured the comp plan where reps in order to make real money need to focus there. I think that's working really well.

Operator

Thank you. Last question comes from the line of Joshua Tilton for such. Please go ahead.

So 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 to talk about the sales cycles you 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 as customers are sort of pushing us adoption of AI thought?

Yakov Faitelson

So it's still early. We can see how it's going to stick to the the sales cycles. But what I will tell you that what is happening, let's take the problem that they're able to expose it immediately to the organization will take a little boost to use this AIA. to without to properly data security in place. But we still need to see how the how it will play out strategy that we've been told and revision slowly, but surely understand that not the solution lifestyle, we can be protected from data collection. And it's always about the data goods income from side of APTs people time to get conventions.
Once you have an identity, there is no pulling in more than people are not in mid-October, not doing anything. These very sophisticated this time to take the data. We believe that we know the best solution to make sure that you will notice the data goods. And I also think that the gradually the marketplace understanding because look at what's going on [your taxable income] almost sophisticated we are always about the data. some of the organisation spending a fortune on [perimetering] security in this is something that is just not sustainable.

Operator

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 for his closing comments.

Tim Perz

Thanks for the interest in Verona. As we look forward to meeting with the all of the conferences this quarter.

Operator

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