VRNS - Varonis Systems: Solid Outlook For The Business

2024-02-19 01:23:28 ET

Summary

• Varonis Systems shows strong performance in 4Q23 earnings, with ARR and revenue growth exceeding expectations.
• The Company is making significant progress in its transition to a SaaS model, with SaaS accounting for 66% of new business ARR.
• Partnerships with Microsoft and the increased utilization of AI provide long-term growth opportunities for VRNS.

Investment overview

I wrote about Varonis Systems ( VRNS ) previously with a buy rating, as I was fond of the progress that VRNS is making in its transition to a SaaS model that has long-term benefits because of its higher contribution margin and shorter sales cycle. To give a quick background on the transition, I cite from my previous post:

Like many high-growth software companies, VRNS was a business that grew at a very high rate (30+%) in the initial part of the 2010s. However, growth dipped significantly in FY19 to -6% from 25.5% in the previous year due to the pandemic. Growth was further slowed down as the business went through the transition into a SaaS (software-as-a-service) model in recent quarters (LTM growth now at 6.6% vs. 21.4% in FY22 and 33.3% in FY21). On the other hand, regarding profitability, the business has never been profitable over the past decade. Positively, the business has always been in a net cash position. As such, liquidity was never a problem for the business, despite the cash burn

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