Varonis Systems ((VRNS)) has held its Q4 earnings call. Read on for the main highlights of the call.
Maximize Your Portfolio with Data Driven Insights:
- Leverage the power of TipRanks' Smart Score, a data-driven tool to help you uncover top performing stocks and make informed investment decisions.
- Monitor your stock picks and compare them to top Wall Street Analysts' recommendations with Your Smart Portfolio
Varonis Systems’ recent earnings call presented a mixed sentiment, showcasing remarkable strides in their SaaS transition and new customer acquisition, while also acknowledging challenges like revenue growth headwinds and operating margin pressures. The company’s achievements in cash flow and ARR contribution margin stand out, but pressures on net retention rates provide a sobering counterpoint.
Significant SaaS Transition Progress
Varonis has made significant progress in its SaaS transition, adding over $200 million in SaaS ARR in 2024 and closing the year with about $340 million in SaaS ARR, which constitutes 53% of the total company ARR. This progress is ahead of schedule, with the transition expected to complete by the end of 2025, a year earlier than previously planned.
Strong New Customer Growth
The company experienced robust new customer growth, with ARR per new customer increasing by approximately 20% year-over-year, and new business ACV growing by 50%. This growth is attributed to the simplicity of the SaaS platform, MDDR, and increased demand for GenAI-related solutions.
Free Cash Flow Milestone
In 2024, Varonis achieved a remarkable milestone by generating $108.5 million in free cash flow, doubling from $54.3 million the previous year, and successfully crossing the significant $100 million milestone.
Record-Breaking ARR Contribution Margin
Varonis reported an improvement in ARR contribution margin to 16.6% in 2024, up from 13.4% last year, highlighting significant leverage improvement.
Revenue Growth Headwind
Despite positive developments, total revenues for Q4 2024 were $158.5 million, reflecting a modest 3% year-over-year increase, with an 18% headwind due to increased SaaS sales in the bookings mix.
Operating Margin Decline
The company faced a decline in operating margin, which decreased to 9.7% in Q4 2024 from 17.7% in the same period last year, primarily due to a 13% headwind from the SaaS transition.
Net Retention Rate Pressure
Varonis encountered pressure on its dollar-based net retention rate for subscription customers, which stood at 105% at the end of 2024. This reflects limited upsell and cross-sell activity as efforts focused on converting self-hosted customers to SaaS.
Forward-Looking Guidance
Looking ahead, Varonis Systems is placing a strong emphasis on accelerating its transition to a SaaS model. The company plans to complete this transition by the end of 2025, expecting SaaS ARR to reach approximately $580 million, or 78% of total ARR. For 2025, Varonis projects ARR growth of 15% to 16%, targeting $737 million to $745 million. Total revenues are expected to grow by 11% to 13%, reaching $610 million to $625 million, with free cash flow anticipated to increase to $120 million to $125 million. The transition is expected to drive better retention rates, sales productivity, and upsell opportunities, with a long-term ARR growth target of over 20%.
In summary, Varonis Systems’ earnings call reflects both impressive achievements and ongoing challenges. While the company has made notable progress in its SaaS transition and customer growth, it continues to face headwinds in revenue growth and operating margins. Forward-looking guidance is optimistic, with a strategic focus on completing the SaaS transition ahead of schedule and achieving substantial ARR and revenue growth in the coming year.
