Varonis Announces Second Quarter 2024 Financial Results


Annual recurring revenues grew 18% year-over-year
SaaS ARR as a percentage of total ARR was approximately 36%
Year-to-date cash from operations generated $68.4 million vs. $42.6 million last year
Year-to-date free cash flow generated $67.3 million vs. $40.0 million last year

NEW YORK, July 29, 2024 (GLOBE NEWSWIRE) -- Varonis Systems, Inc. (Nasdaq: VRNS), a leader in data security, today announced financial results for the second quarter ended June 30, 2024.

Yaki Faitelson, Varonis CEO, said, "Our second quarter results reflect the growing momentum of our SaaS platform and recently introduced Managed Data Detection and Response offering, which helps customers automatically prevent data breaches with very little effort.”

Guy Melamed, Varonis CFO & COO, added, “The strong adoption of our SaaS platform resulted in 36% of total company ARR coming from SaaS at the end of the second quarter. Our performance, coupled with the many tailwinds in our business gives us confidence to raise our full-year ARR and free cash flow guidance and also to increase our SaaS ARR expectations to 48% for the full-year.”

Financial Summary for the Second Quarter Ended June 30, 2024

  • Total revenues were $130.3 million, compared with $115.4 million in the second quarter of 2023.
  • SaaS revenues were $44.8 million, compared with $5.7 million in the second quarter of 2023.
  • Term license subscription revenues were $62.7 million, compared with $85.4 million in the second quarter of 2023.
  • Maintenance and services revenues were $22.8 million, compared with $24.3 million in the second quarter of 2023.
  • GAAP operating loss was ($28.8) million, compared to GAAP operating loss of ($39.7) million in the second quarter of 2023.
  • Non-GAAP operating income was $2.1 million, compared to non-GAAP operating income of $0.9 million in the second quarter of 2023.

The tables at the end of this press release include a reconciliation of GAAP operating income (loss) to non-GAAP operating income (loss) and GAAP net income (loss) to non-GAAP net income (loss) for the three and six months ended June 30, 2024 and 2023. An explanation of these measures is included below under the heading "Non-GAAP Financial Measures and Key Performance Indicators."

Key Performance Indicators and Recent Business Highlights

  • Annual recurring revenues, or ARR, was $584.2 million as of the end of the second quarter, up 18% year-over-year.
  • As of June 30, 2024, the Company had $790.3 million in cash and cash equivalents, short-term deposits and marketable securities.
  • During the six months ended June 30, 2024, the Company generated $68.4 million of cash from operations, compared to $42.6 million generated in the prior year period.
  • During the six months ended June 30, 2024, the Company generated $67.3 million of free cash flow, compared to $40.0 million generated in the prior year period.
  • Secured the "In Process" designation with the Federal Risk and Authorization Management Program (FedRAMP).
  • Announced industry-first automated remediation to strengthen data security posture and prevent data breaches in AWS.
  • Expanded Microsoft 365 Copilot security offering to include AI prompt monitoring to prevent malicious Copilot activity.
  • Recognized as a Customers' Choice in 2024 Gartner Peer Insights Voice of the Customer DSPM Report.

An explanation of ARR is included below under the heading "Non-GAAP Financial Measures and Key Performance Indicators." In addition, the tables at the end of this press release include a reconciliation of net cash provided by operating activities to non-GAAP free cash flow. An explanation of this measure is also included below under the heading "Non-GAAP Financial Measures and Key Performance Indicators."

Financial Outlook

For the third quarter of 2024, the Company expects:

  • Revenues of $140.0 million to $143.0 million, or year-over-year growth of 14% to 17%.
  • Non-GAAP operating income of $7.0 million to $8.0 million.
  • Non-GAAP net income per diluted share in the range of $0.07 to $0.08, based on 128.2 million diluted shares outstanding.

For full year 2024, the Company now expects:

  • ARR of $629.0 million to $635.0 million, or year-over-year growth of 16% to 17%.
  • Free cash flow of $80.0 million to $85.0 million.
  • Revenues of $544.0 million to $552.0 million, or year-over-year growth of 9% to 11%.
  • Non-GAAP operating income of $18.0 million to $21.0 million.
  • Non-GAAP net income per diluted share in the range of $0.22 to $0.24, based on 128.1 million diluted shares outstanding.

Actual results may differ materially from the Company’s Financial Outlook as a result of, among other things, the factors described below under “Forward-Looking Statements”.

Conference Call and Webcast
Varonis will host a conference call today, Monday, July 29, 2024, at 4:30 p.m. Eastern Time, to discuss the Company's second quarter 2024 financial results. To access this call, dial 877-425-9470 (domestic) or 201-389-0878 (international). The passcode is 13747734. A replay of this conference call will be available through August 5, 2024 at 844-512-2921 (domestic) or 412-317-6671 (international). The replay passcode is 13747734. A live webcast of this conference call will be available on the "Investors" page of the Company's website (www.varonis.com), and a replay will be archived on the website as well.

Non-GAAP Financial Measures and Key Performance Indicators
Varonis believes that the use of non-GAAP operating income (loss) and non-GAAP net income (loss) is helpful to our investors. These measures, which the Company refers to as our non-GAAP financial measures, are not prepared in accordance with GAAP.

Non-GAAP operating income (loss) is calculated as operating income (loss) excluding (i) stock-based compensation expense, (ii) payroll tax expense related to stock-based compensation, and (iii) amortization of acquired intangible assets and acquisition-related expenses.

Non-GAAP net income (loss) is calculated as net income (loss) excluding (i) stock-based compensation expense, (ii) payroll tax expense related to stock-based compensation, (iii) amortization of acquired intangible assets and acquisition-related expenses, (iv) foreign exchange gains (losses) which include exchange rate differences on lease contracts as a result of the implementation of ASC 842 and (v) amortization of debt issuance costs.

The Company believes that the exclusion of these expenses provides a more meaningful comparison of our operational performance from period to period and offers investors and management greater visibility to the underlying performance of our business. Specifically:

  • Stock-based compensation expenses utilize varying available valuation methodologies, subjective assumptions and a variety of equity instruments that can impact a company's non-cash expenses;
  • Payroll taxes are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, factors which may vary from period to period;
  • Acquired intangible assets are valued at the time of acquisition and are amortized over an estimated useful life after the acquisition, and acquisition-related expenses are unrelated to current operations and neither are comparable to the prior period nor predictive of future results;
  • The Company incurs foreign exchange gains or losses from the revaluation of its significant operating lease liabilities in foreign currencies as well as other assets and liabilities denominated in non-U.S. dollars, which may vary from period to period; and
  • Amortization of debt issuance costs, which relate to the Company’s convertible senior notes issued in 2020, is a non-cash item.

Free cash flow is calculated as net cash provided by or used in operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash provided by or used in our operations that, after the investments in property and equipment, can be used for strategic initiatives.

Each of our non-GAAP financial measures is an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time. The non-GAAP financial measures do not represent our financial performance under U.S. GAAP and should not be considered as alternatives to operating income (loss) or net income (loss) or any other performance measures derived in accordance with GAAP. Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, and exclude expenses that may have a material impact on our reported financial results. Further, stock-based compensation expense and payroll tax expense related to stock-based compensation have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of the compensation provided to our employees. Also, the amortization of intangible assets are expected recurring expenses over the estimated useful life of the underlying intangible asset and acquisition-related expenses will be incurred to the extent acquisitions are made in the future. Additionally, foreign exchange rates may fluctuate from one period to another, and the Company does not estimate movements in foreign currencies. Finally, the amortization of debt issuance costs are expected recurring expenses until the maturity of the senior notes in 2025.

The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Varonis urges investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measures to evaluate our business.

A reconciliation for non-GAAP operating income (loss) and non-GAAP net income (loss) referred to in our “Financial Outlook” is not provided because, as forward-looking statements, such reconciliation is not available without unreasonable effort due to the high variability, complexity, and difficulty of estimating certain items such as charges to stock-based compensation expense and currency fluctuations which could have an impact on our consolidated results. The Company believes the information provided is useful to investors because it can be considered in the context of the Company’s historical disclosures of this measure.

ARR is a key performance indicator defined as the annualized value of active term-based subscription license contracts, SaaS contracts, and maintenance contracts in effect at the end of that period. Subscription license contracts, SaaS contracts, and maintenance contracts are annualized by dividing the total contract value by the number of days in the term and multiplying the result by 365. The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of maintenance contracts is not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period. ARR is not a forecast of future revenues, which can be impacted by contract start and end dates and renewal rates.

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, "forward-looking" statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including regarding the Company's growth rate and its expectations regarding future revenues, operating income or loss or earnings or loss per share. These statements are not guarantees of future performance but are based on management's expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include the following: the impact of potential information technology, cybersecurity or data security breaches; risks associated with anticipated growth in Varonis’ addressable market; general economic and industry conditions, such as foreign currency exchange rate fluctuations and expenditure trends for data and cybersecurity solutions; Varonis’ ability to predict the timing and rate of subscription renewals and their impact on the Company’s future revenues and operating results; risks associated with international operations; the impact of global conflicts on the budgets of our clients and on economic conditions generally; competitive factors, including increased sales cycle time, changes in the competitive environment, pricing changes and increased competition; the risk that Varonis may not be able to attract or retain employees, including sales personnel and engineers; Varonis’ ability to build and expand its direct sales efforts and reseller distribution channels; risks associated with the closing of large transactions, including Varonis’ ability to close large transactions consistently on a quarterly basis; new product introductions and Varonis’ ability to develop and deliver innovative products; Varonis’ ability to provide high-quality service and support offerings; the expansion of cloud-delivered services; and risks associated with our convertible notes and capped-call transaction. These and other important risk factors are described more fully in Varonis’ reports and other documents filed with the Securities and Exchange Commission and could cause actual results to vary from expectations. All information provided in this press release and in the conference call is as of the date hereof, and Varonis undertakes no duty to update or revise this information, whether as a result of new information, new developments or otherwise, except as required by law.

About Varonis

Varonis (Nasdaq: VRNS) is a leader in data security, fighting a different battle than conventional cybersecurity companies. Our cloud-native Data Security Platform continuously discovers and classifies critical data, removes exposures, and detects advanced threats with AI-powered automation.

Thousands of organizations worldwide trust Varonis to defend their data wherever it lives — across SaaS, IaaS, and hybrid cloud environments. Customers use Varonis to automate a wide range of security outcomes, including data security posture management (DSPM), data classification, data access governance (DAG), data detection and response (DDR), data loss prevention (DLP), and insider risk management.

Varonis protects data first, not last. Learn more at www.varonis.com.

Investor Relations Contact:
Tim Perz
Varonis Systems, Inc.
646-640-2112
investors@varonis.com

News Media Contact:
Rachel Hunt
Varonis Systems, Inc.
877-292-8767 (ext. 1598)
pr@varonis.com

 
Varonis Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except for share and per share data)
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2024 2023 2024 2023
 Unaudited Unaudited
Revenues:       
Term license subscriptions$62,729  $85,437  $118,709  $166,343 
SaaS 44,785   5,653   78,770   7,721 
Maintenance and services 22,832   24,328   46,889   48,689 
Total revenues 130,346   115,418   244,368   222,753 
        
Cost of revenues 22,436   17,386   43,785   35,023 
        
Gross profit 107,910   98,032   200,583   187,730 
        
Operating expenses:       
Research and development 44,933   46,144   92,760   90,876 
Sales and marketing 70,041   70,321   141,268   138,714 
General and administrative 21,762   21,283   43,014   40,972 
Total operating expenses 136,736   137,748   277,042   270,562 
        
Operating loss (28,826)  (39,716)  (76,459)  (82,832)
Financial income, net 8,249   8,465   16,794   16,238 
        
Loss before income taxes (20,577)  (31,251)  (59,665)  (66,594)
Income taxes (3,371)  (7,446)  (4,773)  (10,407)
        
Net loss$(23,948) $(38,697) $(64,438) $(77,001)
        
Net loss per share of common stock, basic and diluted$(0.21) $(0.35) $(0.58) $(0.71)
        
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted 111,885,305   109,740,289   110,934,149   109,063,722 
        


 
Stock-based compensation expense for the three and six months ended June 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2024
 2023
 2024
 2023
 Unaudited Unaudited
Cost of revenues$1,298  $2,030  $2,660  $4,530 
Research and development 8,856   13,634   20,615   26,157 
Sales and marketing 10,655   13,898   21,125   26,660 
General and administrative 9,280   9,822   17,782   17,848 
 $30,089  $39,384  $62,182  $75,195 
                


 
Payroll tax expense related to stock-based compensation for the three and six months ended June 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2024
 2023
 2024
 2023
 Unaudited Unaudited
Cost of revenues$9  $75  $616  $361 
Research and development 66   50   379   157 
Sales and marketing 46   277   2,900   1,698 
General and administrative 303   51   1,116   468 
 $424  $453  $5,011  $2,684 
                


 
Amortization of acquired intangibles and acquisition-related expenses for the three and six months ended June 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2024
 2023
 2024
 2023
 Unaudited Unaudited
Cost of revenues$381  $381  $762  $762 
Research and development    411      823 
Sales and marketing           
General and administrative           
 $381  $792  $762  $1,585 
                


 
Varonis Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 June 30, 2024 December 31, 2023
 Unaudited  
Assets   
Current assets:   
Cash and cash equivalents$155,403  $230,740 
Marketable securities 427,065   253,175 
Short-term deposits 44,846   49,800 
Trade receivables, net 122,412   169,116 
Prepaid expenses and other current assets 66,418   64,326 
Total current assets 816,144   767,157 
Long-term assets:   
Long-term marketable securities 162,972   211,063 
Operating lease right-of-use assets 47,209   51,838 
Property and equipment, net 30,075   33,964 
Intangible assets, net 500   1,263 
Goodwill 23,135   23,135 
Other assets 14,780   15,490 
Total long-term assets 278,671   336,753 
Total assets$1,094,815  $1,103,910 
    
Liabilities and stockholders’ equity   
Current liabilities:   
Trade payables$2,532  $672 
Accrued expenses and other short-term liabilities 123,014   125,057 
Deferred revenues 208,907   181,049 
Total current liabilities 334,453   306,778 
Long-term liabilities:   
Convertible senior notes, net 251,239   250,477 
Operating lease liabilities 45,414   51,313 
Deferred revenues 22   886 
Other liabilities 5,081   4,808 
Total long-term liabilities 301,756   307,484 
    
Stockholders’ equity:   
Share capital   
Common stock 112   109 
Accumulated other comprehensive loss (10,625)  (8,649)
Additional paid-in capital 1,177,947   1,142,578 
Accumulated deficit (708,828)  (644,390)
Total stockholders’ equity 458,606   489,648 
Total liabilities and stockholders’ equity$1,094,815  $1,103,910 
        


 
Varonis Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 Six Months Ended
June 30,
 2024 2023
 Unaudited
Cash flows from operating activities:   
Net loss$(64,438) $(77,001)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization 5,767   5,807 
Stock-based compensation 62,182   75,196 
Amortization of deferred commissions 14,498   12,524 
Non-cash operating lease costs 4,722   4,731 
Amortization of debt issuance costs 768   754 
Amortization of premium and accretion of discount on marketable securities (7,611)  (2,724)
    
Changes in assets and liabilities:   
Trade receivables 46,704   32,311 
Prepaid expenses and other current assets (3,399)  (10,065)
Deferred commissions (15,297)  (12,423)
Other long-term assets (58)  (447)
Trade payables 1,860   (2,282)
Accrued expenses and other short-term liabilities (4,374)  (5,799)
Deferred revenues 26,995   19,322 
Other long-term liabilities 128   2,732 
Net cash provided by operating activities 68,447   42,636 
    
Cash flows from investing activities:   
Proceeds from sales and maturities of marketable securities 45,101   20,850 
Investment in marketable securities (166,099)  (59,698)
Proceeds from short-term and long-term deposits 14,338   162,012 
Investment in short-term and long-term deposits (9,192)  (110,652)
Purchases of property and equipment (1,116)  (2,603)
Net cash provided by (used in) investing activities (116,968)  9,909 
    
Cash flows from financing activities:   
Proceeds from employee stock plans 9,792   5,889 
Taxes paid related to net share settlement of equity awards (36,608)  (19,439)
Repurchase of common stock    (7,599)
Net cash used in financing activities (26,816)  (21,149)
Increase (decrease) in cash and cash equivalents (75,337)  31,396 
Cash and cash equivalents at beginning of period 230,740   367,800 
Cash and cash equivalents at end of period$155,403  $399,196 
        


 
Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP
(in thousands, except share and per share data)
 Three Months Ended June 30, Six Months Ended
June 30,
 2024 2023 2024 2023
 Unaudited Unaudited
Reconciliation to non-GAAP operating income (loss):       
        
GAAP operating loss$(28,826) $(39,716) $(76,459) $(82,832)
        
Add back:       
Stock-based compensation expense 30,089   39,384   62,182   75,195 
Payroll tax expenses related to stock-based compensation 424   453   5,011   2,684 
Amortization of acquired intangible assets and acquisition-related expenses 381   792   762   1,585 
Non-GAAP operating income (loss)$2,068  $913  $(8,504) $(3,368)
        
Reconciliation to non-GAAP net income:       
        
GAAP net loss$(23,948) $(38,697) $(64,438) $(77,001)
        
Add back:       
Stock-based compensation expense 30,089   39,384   62,182   75,195 
Payroll tax expenses related to stock-based compensation 424   453   5,011   2,684 
Amortization of acquired intangible assets and acquisition-related expenses 381   792   762   1,585 
Foreign exchange rate differences, net (569)  (1,220)  (1,250)  (2,204)
Amortization of debt issuance costs 385   378   768   754 
Non-GAAP net income$6,762  $1,090  $3,035  $1,013 
        
GAAP weighted average number of shares used in computing net loss per share of common stock - basic and diluted 111,885,305   109,740,289   110,934,149   109,063,722 
Non-GAAP weighted average number of shares used in computing net income per share of common stock - basic 111,885,305   109,740,289   110,934,149   109,063,722 
Non-GAAP weighted average number of shares used in computing net income per share of common stock - diluted 128,023,643   127,294,881   128,045,793   126,753,984 
        
GAAP net loss per share of common stock - basic and diluted$(0.21) $(0.35) $(0.58) $(0.71)
Non-GAAP net income per share of common stock - basic$0.06  $0.01  $0.03  $0.01 
Non-GAAP net income per share of common stock - diluted$0.05  $0.01  $0.02  $0.01 
                


 
Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP
(in millions)
    
 Six Months Ended June 30,
 2024 2023
 Unaudited
Reconciliation to non-GAAP free cash flow:   
Net cash provided by operating activities$68.4  $42.6 
Purchases of property and equipment (1.1)  (2.6)
Free cash flow$67.3  $40.0 
        


 
Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP
(in millions)
    
 Twelve Months Ended December 31, 2024
 Low High
Reconciliation to non-GAAP free cash flow:   
Net cash provided by operating activities$85.0  $92.0 
Purchases of property and equipment (5.0)  (7.0)
Free cash flow$80.0  $85.0