Joseph Gallo

Joseph Gallo asked if Varonis Systems plans to ease the 25-30% ASP uplift for conversions, what further incentives are being considered for on-premises customers to move to SaaS, and if there's a percentage of the business unwilling or unable to convert to SaaS.

Answer

CEO Yaki Faitelson stated the company is 'uncovering every stone' to understand the unexpected Q3 renewal rate decline. CFO Guy Melamed reiterated that Q1 and Q2 2025 saw increased renewal rates, making the Q3 drop a surprise. He mentioned baking in additional conservatism for Q4 guidance and taking actions like a 5% headcount reduction to address the top-line impact.

Joseph Gallo asked if Varonis expects to ease on the 25-30% ASP uplift for conversions, what incentives are being offered to remaining on-premises customers to move to SaaS, and if there's a segment of the business unwilling or unable to migrate to SaaS.

Answer

Yaki Faitelson (CEO) stated they are 'uncovering every stone' to understand the unexpected Q3 surprise. Guy Melamed (CFO & COO) noted that Q1 and Q2 renewal rates had increased, and they need to determine if Q3 was an anomaly or a new trend. He emphasized that they are taking active measures, including headcount reduction and cost adjustments, and will evaluate Q4 results to inform 2026 assumptions.

Joseph Gallo requested specific metrics or data points that provide confidence in Varonis's ability to achieve over 20% ARR growth after the SaaS transition.

Answer

CFO & COO Guy Melamed highlighted that SaaS Net Retention Rate (NRR) is trending higher than the previously reported company-wide NRR and that new customer momentum is strong. He suggested the gap between the current 19% ARR growth and the 20%+ target is small and can be closed by focusing on upsells post-transition. CEO Yaki Faitelson added that R&D investments provide strong visibility.

Joseph Gallo of Jefferies inquired about whether the cycle times for customer conversions to SaaS have changed and asked for details on gross retention and ASP upside for those conversions.

Answer

CFO and COO Guy Melamed confirmed that lessons learned from last year have been implemented, resulting in strong Q1 conversions. He noted that renewal and gross retention rates remain very strong. He also emphasized that momentum was balanced, with strong new customer adoption contributing significantly alongside the efficient conversions, both driven by the superior SaaS offering.

Joseph Gallo of Jefferies asked for any quantitative disclosures on the traction of new data store protections (e.g., Salesforce, Databricks, Snowflake) and which of these areas are expected to be the most significant ARR contributors in 2025, excluding Copilot.

Answer

CEO Yaki Faitelson explained that while it's still early for some of the newly released coverages, demand is strong across all repositories because breaches are happening everywhere. He emphasized that the market now understands the need for automated remediation, not just discovery, and that Varonis sees interest across all data stores where it can apply its full feature set. He also highlighted the traction of their identity-related threat detection, which often catches bad actors before they reach the data.

Joseph Gallo asked about the overall business environment and expectations for a Q4 budget flush, noting that the Q4 net new ARR guidance appears relatively similar to Q3's performance.

Answer

CFO & COO Guy Melamed stated that the company's guidance philosophy has not changed and they do not bake in potential positives, like Gen AI contributions, until they materialize in the data. Regarding seasonality, he noted that while Q4 is historically the largest quarter of the year, Varonis has not typically seen a 'budget flush' phenomenon and does not expect that to change with the move to SaaS.

Joseph Gallo inquired about Zscaler's fiscal year guidance methodology, any changes from historical approaches, and considerations for the macro environment or federal spending.

Answer

CFO Kevin Rubin stated there's no fundamental shift in guidance philosophy, maintaining a prudent approach. He noted the shift from billings to ARR as the primary growth metric. Chairman and CEO Jay Chaudhry added that no meaningful change in the macro environment is assumed for the guidance.

Joseph Gallo followed up on earlier comments about scheduled billings, asking if the expected acceleration would peak in Q4 or how it should be modeled for fiscal year 2026.

Answer

CFO Remo Canessa confirmed that scheduled billings are expected to increase in Q4 but declined to provide any commentary or guidance for fiscal year 2026.

Joseph Gallo followed up on the post-CrowdStrike outage sentiment, asking if the 'all eggs in one basket' concern hinders Zscaler's ability to sell incremental products, and also asked about the NRR assumption in the FY25 billings guide.

Answer

CEO Jagtar Chaudhry clarified that customers want to consolidate to a few best-of-breed platforms (e.g., EDR, identity, zero trust access), not a single vendor for everything, which supports Zscaler's platform expansion. CFO Remo Canessa addressed NRR, stating that the 115% rate is outstanding and the company does not guide the metric, focusing instead on overall top-line growth.

Joseph Gallo of Jefferies & Company Inc. inquired about the expected timeline for the Prompt Security acquisition to begin contributing materially to revenue, noting the massive need for AI security.

Answer

CEO Tomer Weingarten stated that while the initial financial impact is immaterial, the need to secure generative AI is exploding. He explained that Prompt Security addresses urgent enterprise risks by providing governance and control at the endpoint, and based on strong early traction, he believes it will be a significant contributor in the years to come.

Joseph Gallo of Jefferies & Company Inc. asked for details on the significant decline in Q1 net new ARR, questioning if it was driven by macro factors, competitive pressure, or higher churn from the Deception business.

Answer

CEO Tomer Weingarten attributed the results to a Q1 macro dynamic causing slipped deals, not elevated churn, and noted that trends improved in May. CFO Barbara Larson confirmed that churn from the Deception business was in line with their expectations.

Joseph Gallo asked new CFO Barbara Larson about any changes to her guidance methodology and also inquired about how customers are thinking about their calendar 2025 budgets.

Answer

CFO Barbara Larson stated her guidance philosophy is to set clear, reasonable expectations based on factors within their control, such as pipeline and win rates. CEO Tomer Weingarten added that customers' 2025 budgets remain focused on cost savings and modernizing infrastructure to defend against new AI-based threats, which aligns well with SentinelOne's value proposition.

Joseph Gallo from Jefferies & Company Inc. asked for an update on the competitive environment for cloud security and where customers are in their journey toward vendor consolidation in this area.

Answer

Founder & CEO George Kurtz stated that cloud security is still in its early days. He differentiated between posture management (CSPM) and the more critical cloud workload protection, an area CrowdStrike pioneered. He noted that as the market matures, customers realize the need for runtime protection. Kurtz highlighted CrowdStrike's comprehensive offering, including ASPM and DSPM, and mentioned that market disruption has led to tremendous interest and customer conversions, positioning the company well as one of the largest cloud security providers by revenue.

Joseph Gallo requested guidance on the free cash flow margin for the current fiscal year and asked about the factors underpinning the company's confidence in achieving over 30% margin next year.

Answer

CFO Burt Podbere reiterated the expectation of a 27% free cash flow margin exit rate in Q4 of the current year. He stated that confidence in reaching over 30% next year is driven by the Falcon Flex model, which results in larger, longer-term deals and faster cash conversion as customers consume credits and repurchase.

Joseph Gallo asked about the competitive landscape in cloud security and the trend toward workload protection, questioning when customers might fully consolidate on a single cloud security solution.

Answer

CEO George Kurtz agreed that workload protection is paramount for stopping breaches, unlike CSPM which is more for reporting. He affirmed that this is CrowdStrike's core strength and that the company is seeing consolidation in the market. He mentioned CrowdStrike has expanded its CNAPP capabilities (including CSPM, ASPM, DSPM) to be the single platform for customers, leading to the $600 million cloud ARR milestone.

Joseph Gallo asked for an update on momentum in the federal sector, which is entering its biggest quarter, and whether the IT outage could slow progress with typically conservative government customers.

Answer

CEO George Kurtz stated that CrowdStrike has good momentum in the federal space, which takes time but continues to yield wins. He also noted strength in state and local government business and expressed confidence in the long-term opportunity in the public sector.

Joseph Gallo of Jefferies & Company Inc asked about the specific performance of the cloud security business, customer adoption of the runtime agent architecture, and any changes in the competitive landscape.

Answer

CPO Lee Klarich reiterated the company's conviction that all elements of cloud security—application security, posture, and runtime—are interconnected. He stated that as enterprises move critical applications to the cloud, runtime protection becomes paramount. Klarich highlighted the "shift left" (ASPM) and "shield right" (runtime) strategy enabled by Cortex Cloud, noting that customer response aligns with this integrated vision.

Joseph Gallo asked about the impact of geopolitical volatility in April on business operations, customer conversations, and what assumptions are embedded in the Q4 guidance.

Answer

CEO Nikesh Arora acknowledged that April was an 'anomalous month' with a brief customer pause due to tariff and supply chain concerns. However, he stated the team successfully executed through the uncertainty, and the business climate has since stabilized. He confirmed that customer transformation plans remain intact and the company is back to a normal cadence for Q4.

Joseph Gallo noted that while broader cybersecurity guidance appears tepid, Palo Alto's forecast is strong, and asked what factors are allowing the company to 'defy gravity'.

Answer

CFO Dipak Golechha attributed the strong guidance to three key factors: a robust and differentiated product portfolio, a significant pipeline contribution from the recent IBM QRadar acquisition, and continued confidence in their internal forecasting process. He suggested this outperformance is proof that their unique platformization strategy is working effectively.

Joseph Gallo of Jefferies & Company Inc. inquired about the current macroeconomic environment for commercial and government sectors, specifically asking if guidance accounts for a potential worsening in federal spending, and also asked about go-to-market investments and sales capacity.

Answer

CFO Jim Caci explained that the company had already factored federal spending uncertainty into its guidance at the beginning of the year and has not seen conditions worsen. He noted strong commercial demand across all regions and customer segments. Regarding sales capacity, Caci highlighted significant improvements in sales team efficiency, which is driving leverage in sales and marketing spend, and confirmed they are planning capacity one to two years ahead to support growth targets.

Joseph Gallo of Jefferies & Company Inc. asked for more detail on why discounting on product refreshes is a long-term positive and where the benefits, such as SASE upsells, would materialize. He also requested metrics on new logo performance.

Answer

CFO Roei Golan explained that internal data shows the annual recurring revenue (ARR) from customers who refresh their appliances increases over time. CEO Nadav Zafrir added that growth is also driven by new product lines like email and SASE, which are growing over 40% year-over-year, and by the unified Infinity platform.

Joseph Gallo inquired about the remaining duration of the hardware refresh cycle and whether potential tariffs would increase the cost of goods sold.

Answer

CFO Roei Golan clarified that the maximum exposure from potential tariffs would be less than one percentage point on total margin, and the company is working to mitigate this. He also projected that the current hardware refresh cycle is expected to continue through the end of 2026, presenting opportunities with both the existing install base and competitors' customers.

Joseph Gallo asked for elaboration on the recent go-to-market changes, the expected timeframe for them to take effect, and their potential impact on the company's financial guidance.

Answer

CEO Nadav Zafrir stated the go-to-market changes are designed to flatten the organization and bring leadership closer to customers, with a focus on the Americas. CFO Roei Golan confirmed that the potential impacts of these changes were already incorporated into the company's full-year guidance.

Joseph Gallo of Jefferies asked for an update on the integration of Perimeter 81, the pipeline development for its SASE solution, and the willingness of high-end enterprise customers to adopt it.

Answer

Founder and CEO Gil Shwed reported positive traction and that the integration of Perimeter 81 is on track. He noted a 'nice jump' in sequential quarterly sales for the SASE platform in Q3, with several seven-figure deals in the pipeline for Q4, indicating growing optimism for the solution's adoption.

Speaking on behalf of Joseph Gallo from Jefferies, Angelie Papadopoulos asked about the forward-looking growth profile for Cloud ARR and sought details on the competitive differentiation of Radware's new API security solution.

Answer

Roy Zisapel, Co-Founder, CEO, President & Director, responded that after surpassing the 20% short-term Cloud ARR growth target, the next goal is 25%, with a focus on accelerating growth. He differentiated Radware's API security by highlighting its Epic AI framework, which automates protection and business logic mapping, unlike competitors' manual processes. He also emphasized the SOCKS AI agent, which drastically reduces attack mitigation times from days to minutes, providing a significant business advantage.

Joseph Gallo of Jefferies inquired about the current macroeconomic environment, asking if Radware observed any changes in customer buying behavior, how April was trending, and what macro factors were embedded in the Q2 guidance, particularly concerning recent tariffs. He also asked for more detail on the new U.S. leadership team, questioning if the changes could cause near-term disruption and if that was factored into the Q2 forecast.

Answer

Roy Zisapel, President and Chief Executive Officer, responded that the business environment has been relatively stable without noticeable acceleration or deceleration in recent months or at the start of Q2. He noted that while there were initial customer questions about tariffs, the situation has since calmed down. Regarding the U.S. leadership changes, Zisapel clarified that the new team members have been in place for several months and are already ramping up productivity. He stated that the company is past any potential disruption phase and is now focused on future growth driven by this new team.

Asked for an update on sales capacity, investment areas, and the sources of the operating margin strength seen in the quarter.

Answer

The margin outperformance was partly due to the timing of investments that will occur later in the year. The company is in a good spot with sales capacity and is investing in areas like customer success to drive retention. The strategy is to balance continued investment in its 30% ARR growth with delivering margin expansion.

Joseph Gallo of Jefferies & Company Inc. asked about the drivers behind the quarter's margin strength, the current status of sales capacity, and the balance between investment and operating leverage.

Answer

CFO Brian Carolan explained that the margin outperformance was partly due to the timing of investments that will occur later in the year. He stated they are in a "good spot" with sales capacity and are investing in areas like customer success to drive retention, pursuing a balanced strategy of growth and margin expansion.

Joseph Gallo asked for clarification on whether the full-year guidance incorporates observed macroeconomic headwinds or simply embeds conservatism, and also inquired about sales capacity and comfort in selling the expanded Venafi portfolio.

Answer

CFO Erica Smith confirmed that CyberArk has not seen any macro headwinds and that the guidance reflects prudence given broader market volatility, with potential for upside if current trends hold. CEO Matt Cohen added that the sales team is seeing a strong uptick in Venafi pipeline globally and is effectively running cross-sell campaigns, indicating high comfort with the broader portfolio.

Joseph Gallo inquired about the company's overall profit versus growth framework and whether investments are fluid based on growth acceleration.

Answer

CEO Corey Thomas stated that the company invests behind clear, profitable growth opportunities like Detection and Response (D&R). CFO Tim Adams added that a key point of leverage is selling into the existing installed base of nearly 12,000 customers, which comes at a lower cost of sale. The go-to-market motion is focused on integrated security operations, upgrading the VM base, and driving D&R adoption.

Joseph Gallo asked for elaboration on the competitive and pricing environment to determine if recent performance is a story of delayed pipeline conversion or a result of intensifying competitive pressures.

Answer

CEO Corey Thomas stated that while the traditional VM business did face competitive pressure, the new Exposure Command platform is seeing strong momentum. He cited evidence of both strong pipeline generation and conversion rates that were ahead of internal expectations. Thomas emphasized that while the market remains competitive, Rapid7 has a significant upsell opportunity within its installed base of resource-constrained customers.

Joseph Gallo from Jefferies asked if deal cycle elongation was broad-based or concentrated in certain products and inquired about gross retention trends, particularly for the core vulnerability management business.

Answer

CEO Corey Thomas clarified that deal cycle elongation is primarily based on deal size, not product, affecting larger deals across the board. Regarding retention, he stated that gross retention pressures mentioned earlier in the year appear to be bottoming out, with positive early indicators, partly due to existing VM customers responding well to the new Exposure Command strategy.

An analyst on behalf of Joseph Gallo inquired about the performance of the channel, current sales quota capacity, and plans for future go-to-market investments.

Answer

Co-CEO Mark Thurmond stated that the channel performed extremely well in Q1, with great momentum from partners. He confirmed that Tenable added sales capacity in Q1 and will continue to evaluate adding more in specific geographies that show significant growth patterns throughout the year.

Joseph Gallo asked about the remaining opportunity within the largest customers, given the $1M+ cohort now represents over $1B in total ACV, and whether growth will be concentrated there.

Answer

CEO Todd McKinnon stated that Okta is "really just scratching the surface" even with its largest customers, citing an anecdote of a major Q3 customer doing an even larger upsell in Q4 and still not having purchased Customer Identity. He emphasized that while the large enterprise opportunity is massive, Okta also sees robust, broad-based strength across the mid-market and low-end self-service segments, driven by partner ecosystem investments and specialized sales motions.

Joseph Gallo asked about the performance of the Customer Identity business, its market growth rate, and the maturity of the channel's ability to sell it.

Answer

CEO Todd McKinnon reported a solid quarter for the Customer Identity business, which is now over $1 billion in revenue. He noted its growth is often driven by customer experience needs rather than security, citing a European retailer consolidating logins. He sees an opportunity to accelerate growth by increasing focus on the developer persona, as many large deals originate from self-service, developer-led adoption.

Joseph Gallo asked about the early end-of-life refresh demand, specifically how the average deal size has increased compared to four years ago, to better understand the scale of the cross-sell opportunity.

Answer

CFO Keith Jensen noted that larger enterprises are moving first on refreshes, often swapping out equipment over several quarters as part of their deployment schedules. CAO Christiane Ohlgart added that for large customers with Enterprise Agreements (EAs), purchasing is ongoing, so one might not see a single large deal but rather a continuous replacement habit built into the EA, making a direct deal-size comparison less straightforward.

Joseph Gallo asked about the sustainability of the strong OT billings growth and the competitive landscape. He also inquired about the rebound in the retail vertical and the outlook for other verticals post-election.

Answer

CEO Ken Xie expressed a very bullish view on the OT market, stating Fortinet is a leader and has invested for a long time. He believes most future connections will be OT devices, representing a huge, long-term growth opportunity. Regarding verticals, Xie noted manufacturing was strong in Q3 and expects it to accelerate post-election. He also mentioned the service provider vertical is finally seeing growth after six quarters and that retail, which grew strongly in 2021-2022, is likely approaching a refresh cycle.