Varonis Systems is the second company TomG mentioned. IPO in 2014 amid high expectations at a price of 55, over the next two years dropped to around 15 and in the last 20 months has had a meteoric rise to the low 50s. Varonis Systems at its core is a data management company bundled as a security company. They implement a metadata (data about data) framework on top of your existing data system which allows them to provide near real time analysis and threat detection on your data. They have multiple different products which all ultimately are based on making sure your data is appropriately managed and accessed. Using their metadata they make sure the correct people have access to the correct files, file permissions are correct, out of data permissions are retired, sensitive data is appropriately secured, user behavioral analysis(is joe blow copying all your sensitive files to a thumb drive type of thing), audit trail management, and I’m sure more things that I’m missing. As far as I can tell this isn’t a company focused on keeping the bad guys out so much as not allowing them to do damage when they are in your network (whether that is your own employee or someone who has penetrated your network). They have automated and developed monitoring tools to ensure your data has a system to follows best practices. They have recently begun to target the cloud and feel well positioned to manage data for enterprises in that space (AWS etc).
Some comments from their earnings call,
“One customer is only 5 minutes of configuration, successfully analyzed and eliminated global access groups in approximately 60,000 folders. It would have taken weeks, if not months. The return on investment is clear and it is critical to understand the speed and magnitude of risk reduction”
“In Q3, the federal government agency contacted us one weekend because they were concerned about sensitive content hidden PDFs owing a potential breach. We quickly mobilize that team and we were able to locate the sensitive content they were looking for. They purchased the data for more than 10,000 to prevent data breaches and to secure sensitive data going forward.”
All data is taken from the seeking alpha transcripts and varonis’ website
I found this slide deck very helpful. https://seekingalpha.com/article/4120847-varonis-systems-inc…
Year Revenue in millions (% growth)
2012 53 (32% growth)
2013 75 (41.5%)
2014 101 (26%)
2015 127 ( 30%)
2017 (31% growth from the available data) expecting revenue to be about 211 million or 28% growth.
Last few quarters they have been guiding mid 20% revenue growth but coming in at the low 30% revenue growth.
About 40% of their revenue is international
Almost 50% of customers pay for more than one varonis product, with that number on a slow steady increase
Last two quarters they have had a non-GAAP positive earnings of 0.01 and 0.06. They still are reporting a GAAP loss of 0.12.
Gross profit margin has hovered right around 90% and they expect it to stay there.
Year to date, they generated positive operating cash flow of $10.8 million, compared to $4.5 million in the same period last year
They have ~120million in cash and cash equivalents on hand.
They have north of 5500 customers and are adding 200-250 a quarter. Their existing customers are signing up for additional products and seats which is how we are getting around 30% growth.
My comments: Security is an interesting field as I don’t think any company can approach anything close to the TAMs that are thrown about. The bigger the footprint a security company gets, the bigger the reward is for “hackers” as they can compromise one platform and have access to many enterprises. With the above disclaimer I’m not sure that I would call Varonis the typical security system as a large part of what they do is automate best data and access practices which seems easy but in reality is quite difficult. AS more and more high profile companies have high profile data breaches data management becomes a no-brainer. They also seem to have one relatively large potential catalyst in the near future. The EU passed GDPR or (General Data Protection Regulation) The law becomes enforceable across the EU May 2018. Varonis has introduced a new product to ensure GDPR compliance (so new in fact that when you click on the product page you get a 404 file not found).
Varonis isn’t cheap right now, historically their P/S peaked around 7, cratered to 3ish and now is back in the mid 7 range. They are occasionally profitable with a trend toward being always profitable which will probably happen next year. THey are projecting a 211 million in revenue for 2017, even if they blow the 4th quarter out of the water and beat by a huge 40% of revenue their p/s would still be a little under 7 assuming their stock stays the same. Long story short, this company is expensive. I find their business interesting but I don’t have a good handle on how big they can grow or how profitable they can become. They only have about 5500 customers, that number seems like it could be much much higher, onboarding customers is quick and easy. I’d say they have a pretty large runaway.
As always, I’m curious to hear others thoughts