VRNS, Varonis

Will it survive?

• Can it pay its interest? -1703.7×
  Does not cover its interest
  Operating income ($147M) ÷ interest expense $86K
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? +$431M
  Net cash
  Cash $202M + ST investments $681M − debt $452M
  What this means

  Cash and short-term investments exceed every dollar of debt by $431M, on net the company owes nothing, and can act from strength when others can't. It also holds $187M in longer-dated marketable securities; counting those, it sits at net cash of $619M. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 126d
  Long (60+ days)
  DSO 142 + DIO 0 − DPO 16 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital -25%
  Below average through the cycle
  10-yr median, range -482%–-10%; -14% latest = NOPAT ($116M) ÷ invested capital $848M
  Industry peers: median -6%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran -14% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 22%
  High, recently turned positive
  latest $135M = operating cash $147M − maintenance capex $13M; positive each of the last 3 years, after an earlier loss stretch (10-yr median 3%)
  Industry peers: median 10%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 22% of revenue this year, a 3% median across 10 years. Treating stock comp as the real expense it is (less $130M of SBC) leaves $5M.

• Are earnings backed by cash? $147M
  Loss, but cash-generative
  Net income ($129M) · cash from operations $147M
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? 85%
  Returns about half
  Dividends + buybacks $115M ÷ Owner Earnings $135M
  What this means

  Of $135M Owner Earnings, $115M (85%) went back to shareholders, $0 dividends, $115M buybacks. But the buybacks barely exceed stock issued to employees ($130M SBC), net of dilution, little was truly returned. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 1.03×
  Maintaining
  Capex $13M ÷ depreciation $12M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 1 of 5 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $624M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Near
  Current ratio ≥ 2× · 1.97×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $452M vs $640M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (10-yr record) · 10 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · none paid
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth —
  Earnings +33% over the record · —
  What this means

  Earnings were negative early in the record, a growth rate isn't meaningful.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-0.95/share (latest year $-1.13), the averaged base the calculator's gate runs on, and book value is $5.21/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 0 of 10
  What this means

  Lost money in 10 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 0 of 7 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin −8% → −23% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about −8% early to −23% lately, median −23% — competition or costs are biting in.

• Reinvestment, incremental ROIC −12%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth +33%/yr
  What this means

  Owner earnings grew about 33% a year over the record.

• Worst year 2019 · −29.9% op. margin
  What this means

  Operations went underwater in 2019, understand why before trusting the good years.