Varonis Systems Stock

Varonis Systems, Inc. and its subsidiaries (Varonis) operate as a leader in data security.

The company’s offering's comprehensive data coverage allows organizations to keep pace with the relentless data growth, sprawl and complexity. The company offers coverage for more than 40 of the most mission-critical cloud and on-premises data stores, SaaS applications and cloud infrastructures. In 2022, the company announced the availability of its flagship Varonis Data Security Platform as a SaaS, which offers simpler deployment, faster time-to-value, and groundbreaking automation capabilities that help customers prevent data breaches.

Varonis software enables enterprises of all sizes and industries to protect data stored on-premises and in the cloud, including sensitive files, emails and databases; confidential personal data belonging to customers, patients and employees; financial records; source code, strategic and product plans; and other intellectual property. Recognizing the challenge of protecting data with growing volume, velocity and variety, the company has built an integrated platform to simplify and streamline data security, threat detection and response and data privacy and compliance.

The Varonis Data Security Platform helps enterprises protect data against cyberattacks from both external and internal threats. The company’s technology enables enterprises to analyze data, account activity and user behavior to help detect and prevent attacks. Varonis prevents or restricts unauthorized use of sensitive information, detects and stops potential cyberattacks and limits potential damage by automatically locking down data, allowing access to only those who need it, and automating the removal of stale data when it is no longer useful.

The Varonis Data Security Platform is driven by a proprietary technology, the company’s Metadata Framework, that extracts critical metadata, or data about data, from an enterprise’s information technology (‘IT’) infrastructure. The company’s platform uses this contextual information to map functional relationships among employees, data objects, systems, content and usage. In doing so, the company’s platform provides real-time intelligence about an enterprise’s massive volumes of data, making it more secure, accessible and manageable.

The broad applicability of the company’s technology has resulted in its customers deploying its software for numerous use cases. These use cases include automatic discovery and classification of high-risk, sensitive data; data security posture management; SaaS security posture management; automated remediation of over-exposed data; centralized visibility and risk analysis of enterprise data and monitoring of user behavior and file activity; security monitoring and risk reduction; data breach, insider threat, malware and ransomware detection; automatic response to ransomware and other severe incidents to limit exposure and reduce recovery times; data ownership identification, assignment, and automatic involvement; forensics, reporting and auditing with searchable logs; meeting security policy and compliance regulation; automatic data migration; cloud migration; the automation of retention and disposition policies; automatic data quarantine; intelligent archiving; and automated indexing for data subject requests related to privacy and compliance requirements.

The company sells substantially all its products and services to channel partners, including distributors and resellers, which sell to end-user customers, whom the company refers to as its customers. The company’s products are also available to trial and purchase via the Azure Marketplace, AWS Marketplace, and Salesforce AppExchange. The company’s sales model, which combines the leverage of a channel sales model with its highly trained and professional sales force, has and will continue to play a major role in the company’s ability to grow and successfully deliver its unique value proposition for securing enterprise data. While the company’s products serve customers of all sizes, in all industries and all geographies, the marketing focus and majority of the company’s sales focus is on targeting organizations with 1,000 users or more who can make larger initial purchases with the company and, over time, have a greater potential lifetime value.

The company’s customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors.

Technology

The company’s proprietary technology extracts critical information about an enterprise’s data and its supporting infrastructure, and uses this contextual information, or metadata, to create a functional map of an enterprise’s data and underlying file systems. The company’s Metadata Framework technology has been architected to process large volumes of enterprise data and related metadata at a massive scale with minimal demands on the existing IT infrastructure. On October 31, 2022, Varonis announced the availability of the company’s flagship Varonis Data Security Platform as a SaaS.

On November 14, 2023, the company announced an expansion of its AI and machine learning capabilities with the launch of Athena AI, a new Gen AI layer within the Varonis Data Security Platform. The initial functionality provided by Athena AI includes an AI-powered security operations center (SOC) analyst that combines large language models (LLMs) with Varonis' unique context about an organization's data, identities, devices and previous alerts to instantly generate tailored alert response playbooks and recommendations; and a natural language search interface that lets users run reports, perform risk analysis and conduct security investigations without any domain-specific knowledge or product expertise.

Growth Strategy

The key elements of the company’s growth strategy are to extend its technological capabilities through innovation and strategic transactions; grow its customer base; increase sales to existing customers; grow sales from the company’s new products and functionality; expand its sales force; establish the company’s data security platform as the industry standard; and continue international expansion.

Products

With the introduction of the company’s flagship Varonis Data Security Platform as a SaaS, the company’s licensing model is expanding. While the company’s on-premises subscription licensing will remain the same, the company is transitioning away from selling only those licenses, in which the company offers an array of modular licenses that customers can purchase individually or as a bundle, to SaaS, which will be sold as platform licenses providing, by default, the functionality of multiple core modules.

On-Premises Subscription (‘OPS’)

The company’s self-hosted product licenses utilize its core technology to deliver features and functionality that allow enterprises to fully understand, secure and benefit from the value of their data. This architecture gives the company’s clients the ability to select the features they require for their business needs and the flexibility to expand their usage simply by adding a license, and the fully integrated nature of the company’s products allows individual products to enhance the functionality of the others. At the same time, the ease of consumption under a subscription-based model has allowed the company to deliver on customer demand for a greater number of its licenses, providing the company’s customers more value more quickly while leading to substantial future license upsell and cross-sell opportunities.

DatAdvantage: DatAdvantage, the company’s flagship product, captures, aggregates, normalizes and analyzes every data access event for every user on Windows and UNIX/Linux servers, storage devices, email systems, Intranet servers, cloud applications and data stores, without requiring native operating system auditing functionalities or impacting performance or storage on file systems.

DatAlert: DatAlert profiles users and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise, provides a web-based dashboard and investigative interface and seamlessly integrates with security information and event management systems (SIEM). DatAlert helps enterprises quickly detect suspicious activity, prevents data breaches and cyberattacks, performs security forensics, visualizes risk and prioritizes and accelerates investigation.

Data Classification Engine: Data Classification Engine identifies and tags data based on criteria set in multiple metadata dimensions and provides business and IT personnel with actionable intelligence about this data, including a prioritized list of folders and files containing the most sensitive data and with the most inadequate permissions. For the identified folders and files, it also identifies who has access to that data, who is using it, who owns it, and recommendations for how to restrict access without disrupting workflow.

DataPrivilege: DataPrivilege provides a self-service web portal that allows users to request access to data necessary for their business functions, and allows owners to review accessibility, sensitivity and usage of their data assets and grant and revoke access without IT intervention.

Data Transport Engine: Data Transport Engine provides an execution engine that unifies the manipulation of data and metadata, translating business decisions and instructions into technical commands, such as data migration or archiving. Data Transport Engine allows both IT and business personnel to standardize and streamline activities for data management and retention.

DatAnswers: DatAnswers provides a secure, relevant and timely search functionality for enterprise data and helps companies comply with data privacy regulations, eDiscovery requests and to facilitate data subject access requests.

Software-as-a-Service (‘SaaS’)

The company’s SaaS product portfolio includes two product lines: the company’s flagship Varonis Data Security Platform, which protects Microsoft 365, Windows file shares, Active Directory, Edge devices (VPN, DNS, proxy), UNIX/Linux and hybrid NAS storage; and DatAdvantage Cloud, which protects SaaS and IaaS environments, such as Salesforce, AWS, Azure, Google Drive, Box, GitHub, Zoom, Slack, Jira and Okta.

Varonis Data Security Platform: The success of the company’s license bundles under the OPS model demonstrated that customers want to utilize and benefit from the majority of Varonis’ core functionality from the start. The company knows that customers who utilize a higher number of licenses see more value upfront through automation and synergy between modules. Therefore, the company drastically simplified its subscription licensing under SaaS, combining five of the company’s most popular licenses into a single Varonis Data Security Platform license. The Varonis Data Security Platform SaaS license will include, by default, the functionality of five core modules: DatAdvantage, DatAlert, Automation Engine, Data Classification Engine and Data Classification Policy Pack. The company will no longer refer to these licenses by name; rather, they will be considered built-in functionality of the Varonis Data Security Platform SaaS license. In addition to the functionality mentioned above, the Varonis Data Security Platform SaaS license includes new capabilities not available in the company’s self-hosted product suite. Today, the Varonis Data Security Platform SaaS license includes:

Data Security Posture Management (DSPM): Provides customers with real-time visibility of their data security posture across their multi-cloud and on-premises data, helps prioritize remediation efforts, and tracks progress over time.

Data Access Intelligence: Combines data sensitivity, permissions, and activity to show customers who has access to critical data (i.e., their data blast radius), how they got access, and whether access is necessary.

Data Discovery & Classification: Automatically and continuously scans the contents of files, folders, and other objects to determine sensitivity with a high degree of accuracy and precision.

Discovery Policy Library: A frequently updated library for identifying and classifying personal information specific to GDPR, CCPA, and the U.S. federal controlled unclassified information (CUI).

Least Privilege Automation: Automatically and continuously remediates excessive data access granted via shared links, direct permissions, and group memberships without manual effort and without impacting business continuity.

Data Activity Monitoring: Gives customers a real-time view into who is accessing data via a normalized and enriched log of data-centric events, such as create, open, read, move, modify, and delete. Varonis also tracks, among other things, permission changes, authentication events, password updates and shared link activity.

Data Detection and Response: Provides high-fidelity, data-centric alerts and automated response actions. Includes a web-based alerts dashboard and investigative interface, and seamlessly integrates with security information and event management systems (SIEM).

User & Entity Behavior Analytics: Profiles users and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise. New UEBA threat models are automatically delivered to customers to guard against evolving tactics used by cybercriminals, insiders and advanced persistent threats (APTs).

Varonis Data Security Platform SaaS customers can decide which data stores, applications, and infrastructure they want to protect by purchasing ‘Protection Packages.’ The company’s SaaS platform supports virtually every resource covered by its self-hosted version, and the company’s SaaS architecture will allow the company to add support for new resources faster than ever.

The Protection Packages available for the Varonis Data Security Platform SaaS are:

Microsoft 365: Includes support for SharePoint Online, OneDrive for Business, Microsoft Teams, and Entra ID (formerly known as Azure AD). Customers can purchase add-on support for Exchange Online.

Windows & NAS: Includes support for Windows/CIFS-based file shares and NAS storage such as NetApp and Dell EMC. Customers can purchase add-on support for on-premises Active Directory, UNIX/Linux and Edge devices (VPN, DNS, proxy).

Hybrid: Combined support for the protected resources in the Microsoft 365 and Windows & NAS packages.

Varonis DatAdvantage Cloud: DatAdvantage Cloud is a SaaS platform that helps organizations protect data across SaaS applications and IaaS environments. DatAdvantage Cloud offers functionality similar to the company’s flagship Varonis Data Security Platform, including but not limited to, data security posture management, SaaS security posture management, data classification, data access intelligence, data activity monitoring, data detection and response, and least privilege automation. The protected resources available for DatAdvantage Cloud are Salesforce, Google Drive, Box, AWS (including S3), GitHub, Slack, Zoom, Okta, and Jira.

Customers

The company has customers in over 90 countries. The company’s customers span numerous industries and vary greatly in size, ranging from small and medium businesses to large multinational enterprises and government agencies. The company’s customers include leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors, with hundreds of thousands of employees and petabytes of data.

Services

Maintenance and Support of Subscription and Perpetual Licenses

Maintenance and support associated with a subscription license is included in the Subscriptions revenue line of the statement of operations. Maintenance and support associated with perpetual licenses is included in the Maintenance and services line of the statement of operations. These maintenance agreements provide customers the right to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period and access to the company’s technical support services.

The company maintains a customer support organization that provides all levels of support to its customers. The company’s customers that purchase maintenance and support services receive guaranteed response times, direct telephonic support and access to online support portals. The company’s customer support organization has global capabilities with expertise in both its software and complex IT environments and associated third-party infrastructure.

Professional Services

While users can easily deploy the company’s software on their own, certain enterprises use the company’s professional service team to provide fee-based services, which include training the company’s customers in the use of its products, providing advice on network design, product configuration and implementation, automating and customizing reports and tuning policies and configuration of the company’s products for the particular characteristics of the customer’s environment.

Sales and Marketing

Sales

The company sells substantially all of its products and services to a global network of resellers and distributors that the company refers to as its channel partners. The company’s channel partners, in turn, sell the products they purchase from the company to customers. In addition, the company maintains a highly trained professional sales force that is responsible for overall market development, including the management of the relationships with its channel partners and supporting channel partners in winning customers through operating demonstrations and risk assessments. The company’s channel partners identify potential sales targets, maintain relationships with customers and introduce new products to existing customers.

Marketing

The company markets its software as the Varonis Data Security Platform, a solution for securing and managing enterprise data. The company’s marketing organization is responsible for branding, content creation, demand generation, field marketing and product marketing, and works with the company’s business operations team to support channel marketing and sales support programs. The company provides one-on-one and community education and awareness, and promotes the expanded use of the company’s software. The company hosts in-person or virtual Varonis Connect! customer events across sales regions, as well as free, online technical webinars across multiple regions. The company focuses its efforts on highly relevant content, events, campaigns and activities that can be leveraged by the company’s channel partners worldwide to extend the company’s marketing reach, such as information regarding product awards and technical certifications, security training, regional seminars and conferences, webinars, podcasts and various other demand-generation activities. The company’s marketing efforts also include public relations across multiple regions, industry analyst relations, customer marketing, account-based marketing, targeted advertising, extensive content development available through the company’s website and content syndication, and its active blog.

Intellectual Property

As of December 31, 2023, the company had 88 issued patents and 16 pending patent applications in the United States. The company’s issued U.S. patents expire between 2025 and 2042. The company also had 67 patents issued and 31 applications pending for examination in non-U.S. jurisdictions, and seven pending Patent Cooperation Treaty (‘PCT’) patent applications, all of which are counterparts of the company’s U.S. patent applications.

Moreover, the company has registered the ‘Varonis’ name and logo and ‘DatAdvantage,’ ‘DataPrivilege,’ ‘DatAlert,’ and other names in the United States and, as related to some of these names, certain other countries.

Seasonality

When selling on-premises subscription products, the company’s quarterly results reflect seasonality in the sale of its products and services. Historically, the company has experienced a pattern of increased sales in the fourth quarter (year ended December 2023). This trend makes it difficult to achieve sequential revenue growth in the first quarter of the following year. Because of purchasing trends, demand for the company’s products and services is typically slowest in the first quarter, resulting in a decrease in quarterly revenues from the fourth quarter to the first quarter of the subsequent fiscal year. The company’s gross margins and operating margins have been affected by these historical trends because the majority of the company’s expenses are relatively fixed quarter over quarter.

History

Varonis Systems, Inc. was incorporated under the laws of the state of Delaware in 2004.