Guy Melamed: So I’ll take this question. In terms of the incentives for 2024, we’ve definitely seen some very positive momentum on the conversions in 2023, and we talked a lot about it throughout the year and the fact that it’s happening in a natural way. We had discussions internally of whether it makes sense to incentivize the conversions in 2024. And I could tell you that with the momentum and the fact that it’s happening in a natural way, we didn’t see any reason to at this current stage to put additional dollars to work from a commission perspective because what the reps are actually benefiting from is the uplift on the conversion. So anything on top of that renewal amount goes towards their quota retirement and we’ve definitely seen some healthy uplift.
There’s a 25%, 30% uplift. But if that conversion requires additional users, additional licenses, additional platforms, then those increases are actually higher than that 25%, 30%, and that’s very beneficial for our reps. So we didn’t start with any incentives in 2024 related to that. Obviously, if we see a need to accelerate on that and put money to work there, we will. But I currently don’t see any need to do that because the way the structure is happening is benefiting our customers and it’s benefiting our sales force with those uplifts. I think as we increase those uplifts, the magnitude in dollar terms throughout 2024 and I talked about kind of Phase 2 accelerating within the year. And also as we see that Phase 2 accelerating within the years themselves, where every single year actually has more of conversions versus the previous year.
I think it puts us in a very good position to upsell to those customers, provide them a product that is much better because the SaaS offering is a better product than the on-prem subscription offering. And with the MDDR offering, I think that’s an actual game changer for us because it provides value where customers don’t necessarily need to have the same teams in place. They can have less people and be better protected. And we can benefit from that and provide the protection to our customers that we can provide in the past. So I think all of those are positive that we want to take advantage of.
Shrenik Kothari: Very helpful. Thanks a lot, Guy.
Guy Melamed: Thank you.
Operator: Thank you. Our next question comes from the line of Erik Suppiger with JMP Securities. Please proceed with your question.
Erik Suppiger: Yeah, thanks for taking the question. On the MDDR service, did you say that you would or you would not need to add additional people? Is that just going to be using the IR team that you have? And if you look longer term, what type of penetration do you think you can get with that across your customer base?
Yaki Faitelson: It’s still early in terms of the penetration, we will communicate as this thing is moving forward. But in terms of people, obviously, when we have the service, we’ll need more people, but the productivity profile of an IR team using our AI from the cloud is just significantly better. You’re talking about — it can be 5x more productive. So this is the key for us. The key for us is to make sure that we are using the software to provide to many customers a premium service with an SLA, with a very strict SLA and they will have, for them, a world-class analyst. It will be partially analyst, it will be a robot. So this is the way that it works. The software is augmenting people to be much, much more productive.
Guy Melamed: And I want to give some additional color on kind of the expense side as we look at this. Obviously, our expectation in terms of the investments are already baked into our guidance. So we definitely built in some additional investment in customer success, IR, but we have provided the proactive incident response team for a couple of years now. Now we’re just charging for it. So we can actually benefit from it in terms of margins. So as I mentioned before, we’re still a software company. We don’t see us changing that, and we expect that MDDR over time will have software-like margins.
Erik Suppiger: Okay. Very good. Thank you.
Operator: Thank you. Our next question comes from the line of Brian Colley with Stephens. Please proceed with your question.
Brian Colley: Hey guys, thanks for taking my question here. So I’m curious if you’ve seen any uptick in the pipeline that’s directly related to customers they’re looking to enhance their data security before deploying Gen AI. So I realize it’s still early, but just trying to try to see what you all think in terms of how Gen AI could impact the growth rate of the business.
Yaki Faitelson: We can say with a lot of confidence that it comes up almost in every conversation. People understand that it’s a big opportunity with a lot of risks and they need to be ahead of it. If we need to, you never know, but the way that we think that it’s going to move forward and with these tools will be in the hands of many end users will just be — people will just realize it on a daily basis and god forbid if it’s going to bad actors, but it’s definitely coming up with every conversation. AI comes with security risks, security risks for data risks. The number one is this overexposed data in terms of excessive access control and we are uniquely positioned to solve this problem.
Brian Colley: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Rudy Kessinger with D.A. Davidson. Please proceed with your question.
Rudy Kessinger: Hey, thanks for squeezing me in. Guy, I know you’re not giving exact color, but is $15 million in converted ARR, a good kind of starting point for Q1? And then with your sales reps, you’re giving them quota relief on the uplift amount on renewals. Does that impact their ability to focus on net new customers and new deals? And how are you factoring that into your guidance?
Guy Melamed: Well, I’ll start with the second part of your question. I think we’ve been extremely focused on acquiring new customers. The SaaS offering allows us to tap into markets and verticals and customers that we’ve never had the opportunity to sell to. I can tell you that the way the 2024 comp plan is set up is that account managers will not be able to make significant money if they don’t sell to new customers. So that’s been at the forefront of our philosophy over the last couple of years, and I can tell you that in 2024, we’ve actually doubled down on the importance of the new customer acquisitions. In terms of the conversions, we want to convert our customers as well because there is a lot of leverage with a SaaS offering for us from a financial perspective and the SaaS offering is a much better product and provides the opportunity to update that product in a much more seamless way.
So there’s a benefit for us, and it’s a much better product for our customers. So I’m not sure that $15 million is the right starting point. You have to remember that there is a seasonality within our business where Q4 is the largest quarter of the year. And then in dollar terms, Q1 historically has been the lowest in terms of in dollar terms. So it starts with a small dollar term quarter in Q1, and then it picks up throughout the year. So that needs to be baked into consideration. But I think a good starting point should expect kind of the same progression of Q1, Q2, Q3 and Q4 that we saw in 2023 as a starting point for 2024 as well just in dollar terms, the actual dollar terms that we expect to get to with our SaaS offering by the end of this year is expected to be significantly higher than the $125 million we finished with, we want to get, the guidance assumes $285 million at the end of this year.
Operator: Thank you. Our next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Rob Owens: Great. Thanks for taking my question. I want to drill down a little bit on some of your comments there, noting that the net new subscription numbers ticked down year-over-year and frankly have ticked down for the last four years. So to that end, was it the way the sales force was incentivized with quota retirement? Is it churn? Because I know in some of your comments earlier, Guy, you did talk about friction with regard to the SaaS change. Or is this just more sales cycle and timing around the shift to SaaS? Just curious for color, I guess, in terms of new customer acquisition throughout the year.
Guy Melamed: I think no matter how you look at the business, there are strong underlying trends. And I think our philosophy in terms of new versus existing has been very, very much — kind of a mix of both with our existing customers, there’s definitely kind of an increased customer lifetime value that we’re seeing with the SaaS offering. But as I mentioned before, the new business opportunity has never been greater for us. And that’s why in 2024, we’ve kind of structured our comp plan where account managers will not be able to make significant money if they don’t sell to new customers. I think it’s important to note that it’s not a simple excel where we put in a 25%, 30% uplift, then you plug it in and you get the PO. Renewals happen in an automatic way when you get that on-prem subscription renewal. But when you try and convert a customer, you have to talk to them about the benefits, you have to talk to them about the cost. It’s an exercise that requires time.
