Varonis(US:VRNS)2023-10-30 23:55Financial Data and Key Metrics Changes - Varonis reported Q3 total revenues of $122.3 million, down 1% year-over-year, with a 12% headwind to year-over-year revenue growth due to increased SaaS sales in the booking mix [29][30] - ARR grew 16% year-over-year to $517.5 million, with free cash flow of $46 million year-to-date, up from $800,000 in the same period last year [9][26] - Gross profit for Q3 was $106.7 million, representing a gross margin of 87.3%, compared to 88.3% in Q3 2022 [30] Business Line Data and Key Metrics Changes - SaaS ARR now represents approximately 15% of total company ARR, with a SaaS mix of 59% in Q3, exceeding guidance of 45% [9][24] - Subscription revenues were $97.7 million, while maintenance and services revenues were $24.6 million, with renewal rates over 90% [29] Market Data and Key Metrics Changes - The macro environment continues to show deal scrutiny and longer sales cycles, impacting customer purchasing patterns [27] - The company has seen a significant amount of SaaS deals sold to new customers, with approximately $10 million in conversions of existing customers impacting Q3 revenue [25] Company Strategy and Development Direction - Varonis is focusing on leveraging AI to enhance data security, addressing the risks associated with increased data generation and usage [10][13] - The company aims to achieve a $1 billion ARR target, with the SaaS transition providing a tailwind to ARR and cash flow performance [20] Management's Comments on Operating Environment and Future Outlook - Management noted that the transition to SaaS is progressing rapidly, with the expectation of continued headwinds on traditional income statement metrics due to accounting treatment [24][28] - The company anticipates that the macroeconomic environment will continue to present challenges, but remains optimistic about the demand for its SaaS solutions [27][36] Other Important Information - The company has executed business contingency plans in response to the war in Israel, which has historically represented less than 1% of its business [21] - Varonis announced two new generative AI capabilities in its SaaS Data Security Platform, enhancing customer experience and operational efficiency [14][16] Q&A Session Summary Question: What are you seeing on usage of the different modules for customers moving to SaaS? - Management observed a dramatic change in usage, with a significant increase in value delivered through the SaaS platform [42] Question: How are you addressing data security and governance concerns with generative AI? - Management indicated that organizations are beginning to understand the need for robust data protection measures to leverage AI safely [46] Question: What is the impact of elongated sales cycles on your pipeline? - Management noted that there is a growing understanding among organizations of the necessity for data protection, which is positively impacting the pipeline [52] Question: How is the channel responding to the move to SaaS? - Management reported that the channel response has been positive, as selling SaaS requires less professional services and is easier for customers [72] Question: What is the expected SaaS mix for Q4? - Management raised the full-year SaaS mix guidance to 55% and expects Q4's SaaS mix to be 60% [36][38]