Varonis(VRNS) - 2024 Q4 - Annual Results

Executive Summary Key Highlights Varonis reported strong financial performance for Q4 and Full-Year 2024, with Annual Recurring Revenue (ARR) growing 18% year-over-year. SaaS ARR now constitutes approximately 53% of total ARR, marking a significant transition. The company also saw substantial increases in cash from operations and free cash flow Key Highlights | Metric | Value (2024) | YoY Change | | :-------------------------------- | :---------------- | :--------- | | Annual Recurring Revenues (ARR) | $641.9 million | +18% | | SaaS ARR as % of total ARR | ~53% | N/A | | Year-to-date Cash from Operations | $115.2 million | +94% | | Year-to-date Free Cash Flow | $108.5 million | +100% | CEO & CFO Commentary The CEO highlighted a 50% increase in ARR from new customers, driven by SaaS and MDDR simplicity and Generative AI interest, anticipating continued momentum and SaaS transition completion in 2025. The CFO noted SaaS now represents a majority (53%) of total ARR, positioning the company for strong ARR growth and improved free cash flow, alongside strategic investments for over 20% ARR growth - CEO Yaki Faitelson noted an approximately 50% increase in ARR from new customers, attributed to the simplicity of SaaS and MDDR, and customer interest in Generative AI, expecting continued momentum and SaaS transition completion in 2025[2] - CFO Guy Melamed highlighted that SaaS now constitutes a majority (53% of total company ARR) for the first time, positioning Varonis for strong ARR growth and improved free cash flow, supported by strategic investments aimed at achieving over 20% ARR growth[2] Financial Performance Overview Fourth Quarter 2024 Financial Summary Varonis reported a modest increase in total revenues for Q4 2024, driven by significant growth in SaaS revenues, which more than tripled year-over-year. This growth was partially offset by declines in term license subscription and maintenance revenues. The company experienced an increase in GAAP operating loss but a decrease in non-GAAP operating income compared to the prior year Fourth Quarter 2024 Financial Results (in millions) | Metric | Q4 2024 ($) | Q4 2023 ($) | YoY Change (%) | | :-------------------------- | :---------- | :---------- | :------------- | | Total revenues | 158.5 | 154.1 | +2.9% | | SaaS revenues | 72.2 | 23.0 | +213.9% | | Term license subscriptions | 66.8 | 106.2 | -37.1% | | Maintenance and services | 19.5 | 24.9 | -21.6% | | GAAP operating loss | (17.6) | (5.2) | +238.5% | | Non-GAAP operating income | 15.3 | 27.2 | -43.8% | Full-Year 2024 Financial Summary For the full year 2024, Varonis achieved solid total revenue growth, primarily fueled by a substantial increase in SaaS revenues. Similar to the quarterly trend, term license subscription and maintenance revenues decreased. While GAAP operating loss remained relatively stable, non-GAAP operating income saw a decline. The company significantly improved its cash from operations and free cash flow generation Full-Year 2024 Financial Results (in millions) | Metric | FY 2024 ($) | FY 2023 ($) | YoY Change (%) | | :-------------------------- | :---------- | :---------- | :------------- | | Total revenues | 551.0 | 499.2 | +10.4% | | SaaS revenues | 208.8 | 44.4 | +370.3% | | Term license subscriptions | 254.2 | 356.5 | -28.7% | | Maintenance and services | 87.9 | 98.3 | -10.6% | | GAAP operating loss | (117.7) | (117.2) | +0.4% | | Non-GAAP operating income | 15.9 | 28.7 | -44.6% | Full-Year 2024 Cash Flow Performance (in millions) | Metric | FY 2024 ($) | FY 2023 ($) | YoY Change (%) | | :-------------------------- | :---------- | :---------- | :------------- | | Cash from operations | 115.2 | 59.4 | +94.0% | | Free cash flow | 108.5 | 54.3 | +100.0% | - Annual recurring revenues (ARR) reached $641.9 million as of December 31, 2024, representing an 18% year-over-year increase[7] Recent Business Highlights Varonis expanded its security coverage to include Google Cloud for IaaS security, Databricks Data Intelligence Platform for critical data discovery and threat detection, and ServiceNow for data risk and overexposure resolution, demonstrating continued product development and market expansion - Expanded IaaS security coverage to Google Cloud, applying Varonis' data-centric approach to Google Cloud storage and data warehouses[14] - Broadened coverage to discover, classify, remove exposures, and detect threats on the Databricks Data Intelligence Platform[14] - Expanded capabilities to continuously discover and classify data and resolve data risk and overexposure issues within ServiceNow[14] Financial Outlook First Quarter 2025 Outlook For the first quarter of 2025, Varonis anticipates revenues between $130.0 million and $135.0 million, representing 14% to 18% year-over-year growth. The company expects a non-GAAP operating loss and a non-GAAP net loss per diluted share Q1 2025 Financial Outlook | Metric | Range (in millions, except EPS) | | :----------------------------------- | :------------------------------ | | Revenues | $130.0 - $135.0 | | YoY Growth | 14% - 18% | | Non-GAAP operating loss | ($14.0) - ($11.0) | | Non-GAAP net loss per diluted share | ($0.06) - ($0.04) | Full Year 2025 Outlook Varonis projects full-year 2025 revenues between $610.0 million and $625.0 million, indicating 11% to 13% year-over-year growth. The company expects to achieve non-GAAP operating income and positive non-GAAP net income per diluted share, alongside continued strong cash flow generation Full Year 2025 Financial Outlook | Metric | Range (in millions, except EPS) | | :----------------------------------- | :------------------------------ | | Revenues | $610.0 - $625.0 | | YoY Growth | 11% - 13% | | Non-GAAP operating income | $0.5 - $10.5 | | Non-GAAP net income per diluted share| $0.13 - $0.17 | | Net cash provided by operating activities | $132.0 - $139.0 | | Free cash flow | $120.0 - $125.0 | - Annual Recurring Revenue (ARR) is projected to be between $737.0 million and $745.0 million for full year 2025, representing 15% to 16% year-over-year growth[15] Non-GAAP Financial Measures and Key Performance Indicators Explanation of Non-GAAP Measures Varonis utilizes non-GAAP financial measures, including non-GAAP operating income (loss) and non-GAAP net income (loss), to provide investors with a clearer view of its core operational performance. These measures exclude specific non-cash or non-recurring expenses such as stock-based compensation, related payroll taxes, amortization of acquired intangibles, acquisition-related expenses, foreign exchange gains/losses, and amortization of debt issuance costs - Non-GAAP operating income (loss) excludes stock-based compensation expense, payroll tax expense related to stock-based compensation, and amortization of acquired intangible assets and acquisition-related expenses[12] - Non-GAAP net income (loss) further excludes foreign exchange gains (losses) and amortization of debt issuance costs from the non-GAAP operating income adjustments[13] - Free cash flow is defined as net cash provided by or used in operating activities less purchases of property and equipment, serving as an indicator of liquidity for strategic initiatives[16] Definition of Annual Recurring Revenue (ARR) Annual Recurring Revenue (ARR) is a key performance indicator representing the annualized value of active SaaS, term-based subscription license, and maintenance contracts at period-end. It is calculated by annualizing total contract value and is not a forecast of future revenues, which can be influenced by contract terms and renewal rates - ARR is defined as the annualized value of active SaaS contracts, term-based subscription license contracts, and maintenance contracts in effect at the end of a period[20] - The annualized value of contracts is determined by dividing the total contract value by the number of days in the term and multiplying by 365[20] - ARR is not a forecast of future revenues and can be impacted by contract start/end dates and renewal rates[22] Limitations of Non-GAAP Financial Measures Varonis acknowledges that non-GAAP measures are not prepared in accordance with GAAP and should not be considered alternatives to GAAP results. These measures may not be comparable to those of other companies and exclude significant recurring expenses like stock-based compensation, amortization of intangibles, and debt issuance costs, which materially impact reported financial results - Non-GAAP financial measures do not represent financial performance under U.S. GAAP and should not be considered alternatives to GAAP operating income (loss) or net income (loss)[17] - These measures may not provide directly comparable information to other companies due to differing calculation methodologies[17] - Non-GAAP measures exclude significant recurring expenses such as stock-based compensation, payroll tax expense related to stock-based compensation, amortization of intangible assets, and amortization of debt issuance costs, which have a material impact on reported financial results[17][21] Consolidated Financial Statements (GAAP) Consolidated Statements of Operations The Consolidated Statements of Operations present Varonis's revenues, cost of revenues, operating expenses, and net loss for the three and twelve months ended December 31, 2024 and 2023. Key trends include significant SaaS revenue growth, declines in term license and maintenance revenues, and an increase in GAAP operating loss and net loss year-over-year Consolidated Statements of Operations (Selected, in thousands) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | | Term license subscriptions | $66,781 | $106,184 | $254,241 | $356,490 | | SaaS | $72,206 | $22,980 | $208,781 | $44,417 | | Maintenance and services | $19,527 | $24,935 | $87,928 | $98,253 | | Total revenues | $158,514 | $154,099 | $550,950 | $499,160 | | Gross profit | $132,459 | $134,752 | $457,103 | $427,409 | | Operating loss | ($17,552) | ($5,244) | ($117,651) | ($117,223) | | Net loss | ($12,994) | ($898) | ($95,765) | ($100,916) | | Net loss per share (basic & diluted) | ($0.12) | ($0.01) | ($0.86) | ($0.92) | Stock-based Compensation Expense (in thousands) | Category | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :------------------------ | :-------- | :-------- | :---------- | :---------- | | Cost of revenues | $1,175 | $1,275 | $5,192 | $7,221 | | Research and development | $10,709 | $11,199 | $41,766 | $48,679 | | Sales and marketing | $10,509 | $10,186 | $41,494 | $48,047 | | General and administrative| $10,176 | $8,983 | $38,230 | $35,872 | | Total | $32,569 | $31,643 | $126,682 | $139,819 | Consolidated Balance Sheets The Consolidated Balance Sheets show Varonis's financial position as of December 31, 2024, compared to December 31, 2023. Total assets increased significantly, driven by a substantial rise in long-term marketable securities. Current and long-term liabilities also increased, notably due to convertible senior notes and deferred revenues, while total stockholders' equity decreased Consolidated Balance Sheets (Selected, in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Total current assets | $878,074 | $767,157 | | Long-term marketable securities | $658,896 | $211,063 | | Total assets | $1,664,275 | $1,103,910 | | Total current liabilities | $709,885 | $306,778 | | Convertible senior notes, net (current) | $250,529 | — | | Deferred revenues (current) | $290,113 | $181,049 | | Total long-term liabilities | $498,734 | $307,484 | | Convertible senior notes, net (long-term) | $450,243 | $250,477 | | Total stockholders' equity | $455,656 | $489,648 | | Total liabilities and stockholders' equity | $1,664,275 | $1,103,910 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows highlight a significant increase in net cash provided by operating activities for the twelve months ended December 31, 2024, compared to the prior year. Investing activities resulted in a higher net cash outflow, primarily due to increased investment in marketable securities. Financing activities provided a substantial net cash inflow, driven by the issuance of convertible senior notes Consolidated Statements of Cash Flows (Selected, in thousands) | Metric | FY 2024 | FY 2023 | | :----------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $115,200 | $59,416 | | Net cash used in investing activities | ($532,255) | ($143,076) | | Net cash provided by (used in) financing activities | $371,900 | ($53,400) | | Decrease in cash and cash equivalents | ($45,155) | ($137,060) | | Cash and cash equivalents at end of period | $185,585 | $230,740 | - Proceeds from the issuance of convertible senior notes, net of issuance costs, amounted to $449.6 million in 2024, significantly contributing to financing cash flows[35] Reconciliation of GAAP to Non-GAAP Measures Reconciliation of GAAP Operating Loss to Non-GAAP Operating Income This section reconciles GAAP operating loss to non-GAAP operating income by adding back stock-based compensation expense, payroll tax expenses related to stock-based compensation, and amortization of acquired intangible assets and acquisition-related expenses. For Q4 2024, non-GAAP operating income was $15.3 million, down from $27.2 million in Q4 2023. For FY 2024, non-GAAP operating income was $15.9 million, down from $28.7 million in FY 2023 Reconciliation of GAAP Operating Loss to Non-GAAP Operating Income (in thousands) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :----------------------------------- | :---------- | :---------- | :---------- | :---------- | | GAAP operating loss | ($17,552) | ($5,244) | ($117,651) | ($117,223) | | Add back: Stock-based compensation expense | $32,569 | $31,643 | $126,682 | $139,819 | | Add back: Payroll tax expenses related to stock-based compensation | $206 | $337 | $5,618 | $3,260 | | Add back: Amortization of acquired intangible assets and acquisition-related expenses | $119 | $509 | $1,263 | $2,888 | | Non-GAAP operating income | $15,342 | $27,245 | $15,912 | $28,744 | Reconciliation of GAAP Net Loss to Non-GAAP Net Income This reconciliation adjusts GAAP net loss to non-GAAP net income by adding back stock-based compensation, payroll tax expenses, amortization of acquired intangibles, foreign exchange rate differences, and amortization of debt issuance costs. For Q4 2024, non-GAAP net income was $23.9 million, resulting in a diluted EPS of $0.18. For FY 2024, non-GAAP net income was $40.8 million, with a diluted EPS of $0.31 Reconciliation of GAAP Net Loss to Non-GAAP Net Income (in thousands, except per share data) | Metric | Q4 2024 | Q4 2023 | FY 2024 | FY 2023 | | :----------------------------------- | :---------- | :---------- | :---------- | :---------- | | GAAP net loss | ($12,994) | ($898) | ($95,765) | ($100,916) | | Add back: Stock-based compensation expense | $32,569 | $31,643 | $126,682 | $139,819 | | Add back: Payroll tax expenses related to stock-based compensation | $206 | $337 | $5,618 | $3,260 | | Add back: Amortization of acquired intangible assets and acquisition-related expenses | $119 | $509 | $1,263 | $2,888 | | Add back: Foreign exchange rate differences, net | $3,129 | $2,290 | $827 | ($916) | | Add back: Amortization of debt issuance costs | $880 | $381 | $2,144 | $1,514 | | Non-GAAP net income | $23,909 | $34,262 | $40,769 | $45,649 | | Non-GAAP net income per share - diluted | $0.18 | $0.27 | $0.31 | $0.36 | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Historical) This section reconciles historical net cash provided by operating activities to free cash flow by subtracting purchases of property and equipment. For the twelve months ended December 31, 2024, Varonis generated $108.5 million in free cash flow, a significant increase from $54.3 million in the prior year Reconciliation to Non-GAAP Free Cash Flow (Historical, in millions) | Metric | FY 2024 ($) | FY 2023 ($) | | :----------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | 115.2 | 59.4 | | Purchases of property and equipment | (6.7) | (5.1) | | Free cash flow | 108.5 | 54.3 | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Outlook) For the full year 2025, Varonis projects net cash provided by operating activities to be between $132.0 million and $139.0 million. After accounting for anticipated purchases of property and equipment, the company expects to generate free cash flow in the range of $120.0 million to $125.0 million Reconciliation to Non-GAAP Free Cash Flow (FY 2025 Outlook, in millions) | Metric | Low ($) | High ($) | | :----------------------------------- | :------ | :------- | | Net cash provided by operating activities | 132.0 | 139.0 | | Purchases of property and equipment | (12.0) | (14.0) | | Free cash flow | 120.0 | 125.0 | Corporate Information Conference Call and Webcast Varonis hosted a conference call and webcast on February 4, 2025, to discuss its Q4 and full-year 2024 financial results. Details for accessing the live call and subsequent replay were provided - Varonis hosted a conference call on February 4, 2025, at 4:30 p.m. Eastern Time to discuss Q4 and full-year 2024 financial results[10] - A replay of the conference call was available through February 11, 2025, and a live webcast and archived replay were accessible on the company's investor relations website[10] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, emphasizing that they are subject to risks, uncertainties, and changes in circumstances that could cause actual results to differ materially from expectations. Key risk factors include cybersecurity breaches, market growth, economic conditions, renewal rates, international operations, competitive factors, and the ability to attract and retain employees - The press release contains forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[23] - Statements are based on management's expectations and assumptions, which are inherently subject to uncertainties, risks, and changes in circumstances[23] - Important factors that could cause actual results to differ include cybersecurity risks, general economic conditions, foreign currency fluctuations, subscription renewal rates, international operations, competitive factors, and the ability to attract and retain employees[23] About Varonis Varonis Systems, Inc. (Nasdaq: VRNS) is a leader in data security, offering a cloud-native Data Security Platform that continuously discovers, classifies, removes exposures, and detects advanced threats using AI-powered automation. The platform helps organizations manage data security posture, classification, access governance, detection and response, loss prevention, and insider risk across SaaS, IaaS, and hybrid cloud environments - Varonis (Nasdaq: VRNS) is a leader in data security, providing a cloud-native Data Security Platform[24] - The platform continuously discovers and classifies critical data, removes exposures, and detects advanced threats with AI-powered automation[24] - Customers use Varonis for data security posture management (DSPM), data classification, data access governance (DAG), data detection and response (DDR), data loss prevention (DLP), and insider risk management across various cloud environments[25] Investor and Media Contacts Contact information for investor relations and news media inquiries for Varonis Systems, Inc. is provided - Investor Relations Contact: Tim Perz, Varonis Systems, Inc., 646-640-2112, investors@varonis.com[26] - News Media Contact: Rachel Hunt, Varonis Systems, Inc., 877-292-8767 (ext. 1598), pr@varonis.com[26]