Varonis Systems, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Varonis sells data-security software and related services, primarily through distributors and resellers, and is shifting from self-hosted subscriptions toward SaaS delivery.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $499.2 million | $473.6 million | +5.4% |
| Subscription revenue | $400.9 million | $366.1 million | +9.5% |
| Maintenance and services revenue | $98.3 million | $107.5 million | -8.6% |
| Gross profit / margin | $427.4 million / 85.6% | $403.8 million / 85.3% | Margin +0.3 percentage points |
| Operating loss | $117.2 million | $121.2 million | Loss narrowed |
| Net loss | $100.9 million | $124.5 million | Loss narrowed |
| Net loss per diluted share | $0.92 | $1.14 | Loss per share narrowed |
| Cash provided by operating activities | $59.4 million | $11.9 million | Increased |
Operating expenses were $544.6 million, up 3.7%; general and administrative expense rose 15.1%, while research and development rose 3.3% and sales and marketing rose 1.0%. Net financial income increased to $30.3 million from $10.4 million, primarily on higher interest income. The company reported a $14.0 million income tax expense in 2023.
At year-end, cash and cash equivalents were $230.7 million, marketable securities totaled $464.2 million (including $211.1 million classified as long-term), and short-term deposits were $49.8 million. Together, these were $533.7 million of cash, securities and short-term deposits. Total assets were $1.104 billion and stockholders’ equity was $489.6 million. The company reported $253.0 million principal amount of 1.25% convertible notes due August 2025, carried at $250.5 million net of issuance costs.
Cash used in investing activities was $143.1 million, principally reflecting net purchases of marketable securities; cash used in financing activities was $53.4 million, including $43.5 million of share repurchases and $21.4 million of taxes paid on net share settlement of equity awards. The company said available liquidity and operating cash flow should be sufficient for operations and capital expenditures for at least the next 12 months.
Material changes and operating indicators
- Annual recurring revenue (ARR) grew 17% to $543.0 million from $465.1 million. SaaS represented approximately 23% of ARR at year-end.
- Remaining performance obligations were $378.2 million; management expects approximately 57% to be recognized as revenue over the next 12 months.
- Subscription revenue rose, while maintenance and services revenue declined as customers converted to subscription licenses and newer offerings required less professional services. Renewal rates remained above 90% in each of 2021–2023.
- Management said the SaaS shift creates near-term revenue-recognition headwinds because SaaS revenue is generally recognized ratably, unlike certain on-premises license revenue recognized upon delivery. The company expects SaaS to become its primary revenue driver over the next several years.
- Revenue by customer location was approximately 75% North America, 22% EMEA and 3% rest of world. Management cited tighter customer budgets and longer sales cycles, particularly in Europe, alongside currency weakness and broader economic uncertainty.
Outlook, risks and notable items
Management expects ARR to continue increasing in absolute dollars and SaaS to grow as a share of ARR, but the filing provides no specific 2024 revenue or earnings guidance. Management’s longer-term strategy emphasizes SaaS adoption, customer expansion, new products and international growth.
- SaaS execution: Adoption, customer conversions, pricing, renewals, hosting costs and sales-force readiness may affect revenue, margins and results during the transition.
- Macroeconomic and foreign-exchange exposure: Budget tightening, longer sales cycles, currency movements and customer credit or collection issues could weigh on results. Management said a hypothetical 10% foreign-exchange move, after hedging, would not have materially affected 2023 financial statements.
- Israel operations: The company’s principal R&D facility is in Israel. Following the war that began October 7, 2023, some employees were called to reserve duty; management said operations could be disrupted if conditions worsen. Insurance does not cover losses related to the Middle East security situation or resulting operational disruption.
- Cybersecurity, privacy and competition: Breaches, service interruptions, evolving privacy and AI regulations, product defects or stronger competitors could harm customer trust, sales and renewals.
- Debt and dilution: The notes’ conversion feature was triggered for January–March 2024, making them convertible during that period subject to the terms. No conversion notices had been received through issuance of the financial statements. Conversion or repayment could affect liquidity and/or dilute shareholders.
- Taxes and commitments: The filing reports $23.7 million of unrecognized tax benefit liabilities in its contractual-obligations discussion and ongoing tax audits. It also discloses $3.1 million and $52.9 million in contractual minimum purchase commitments with service providers, as well as $66.8 million of undiscounted operating lease payments.
- The company reported no material litigation and no off-balance-sheet arrangements. The independent auditor gave unqualified opinions on the financial statements and internal controls; the auditor identified revenue allocation and the estimated standalone selling price of subscription licenses as a critical audit matter.
Investor verification priorities
- Track SaaS mix, ARR, RPO and renewals alongside reported revenue, given the stated revenue-recognition transition headwinds.
- Review quarterly subscription growth, deferred revenue, receivables and cash conversion; 2023 operating cash flow benefited in part from a $69.9 million increase in deferred revenue.
- Monitor progress on the $253.0 million notes due in August 2025, including conversion, cash-settlement and dilution implications.
- Assess the effect of the Israel conflict on staffing, R&D continuity and business operations, and the company’s exposure not covered by insurance.
- Review tax-audit developments, unrecognized tax benefits, and the realization and use of net operating loss carryforwards.