Varonis Announces Third Quarter 2024 Financial Results


(MENAFN- GlobeNewsWire - Nasdaq) Annual recurring revenues grew 18% year-over-year
SaaS ARR as a percentage of total ARR was approximately 43%
Year-to-date cash from operations generated $90.9 million vs. $49.0 million last year
Year-to-date free cash flow generated $88.6 million vs. $46.0 million last year

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

Yaki Faitelson, Varonis CEO, said, "We are encouraged by the many tailwinds that are contributing to the strong growth in our business, and our third quarter results reflect the continued strong adoption of our SaaS platform and positive momentum from our Managed Data Detection and Response offering.”

Guy Melamed, Varonis CFO & COO, added,“The robust demand for Varonis SaaS from both new and existing customers is evident with 43% of total company ARR coming from SaaS. This demand is benefiting our ARR growth and cash flow generation and gives us confidence as we enter the fourth quarter.”

Financial Summary for the Third Quarter Ended September 30, 2024

  • Total revenues were $148.1 million, compared with $122.3 million in the third quarter of 2023.
  • SaaS revenues were $57.8 million, compared with $13.7 million in the third quarter of 2023.
  • Term license subscription revenues were $68.8 million, compared with $84.0 million in the third quarter of 2023.
  • Maintenance and services revenues were $21.5 million, compared with $24.6 million in the third quarter of 2023.
  • GAAP operating loss was ($23.6) million, compared to GAAP operating loss of ($29.1) million in the third quarter of 2023.
  • Non-GAAP operating income was $9.1 million, compared to non-GAAP operating income of $4.9 million in the third 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 nine months ended September 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 $610.0 million as of the end of the third quarter, up 18% year-over-year.
  • As of September 30, 2024, the Company had $1.2 billion in cash and cash equivalents, short-term deposits and short-term and long-term marketable securities.
  • During the nine months ended September 30, 2024, the Company generated $90.9 million of cash from operations, compared to $49.0 million generated in the prior year period.
  • During the nine months ended September 30, 2024, the Company generated $88.6 million of free cash flow, compared to $46.0 million generated in the prior year period.
  • Raised net proceeds of $394.1 million through an offering of 1.00% Convertible Senior Notes due 2029.
  • Announced new AI-powered data discovery and classification capabilities that enhance our industry-leading data classification technology.
  • Integrated the Varonis platform with SentinelOne and Microsoft Defender for Endpoint, expanding visibility to customers' endpoints and enabling end-to-end threat detection and response.
  • Expanded Salesforce security offering with new automated remediation capabilities.

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 fourth quarter of 2024, the Company expects:

  • Revenues of $162.0 million to $167.0 million, or year-over-year growth of 5% to 8%.
  • Non-GAAP operating income of $20.0 million to $22.0 million.
  • Non-GAAP net income per diluted share in the range of $0.13 to $0.14, based on 135.0 million diluted shares outstanding.

For full year 2024, the Company now expects:

  • ARR of $635.0 million to $639.0 million, or year-over-year growth of 17% to 18%.
  • Free cash flow of $95.0 million to $100.0 million.
  • Revenues of $554.4 million to $559.4 million, or year-over-year growth of 11% to 12%.
  • Non-GAAP operating income of $20.6 million to $22.6 million.
  • Non-GAAP net income per diluted share in the range of $0.26 to $0.27, based on 134.9 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, Tuesday, October 29, 2024, at 4:30 p.m. Eastern Time, to discuss the Company's third quarter 2024 financial results. To access this call, dial 877-425-9470 (domestic) or 201-389-0878 (international). The passcode is 13749435. A replay of this conference call will be available through November 5, 2024 at 844-512-2921 (domestic) or 412-317-6671 (international). The replay passcode is 13749435. A live webcast of this conference call will be available on the "Investors" page of the Company's website ( ), 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 and 2024, are 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 2029.

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 transactions. 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 .

Investor Relations Contact:
Tim Perz
Varonis Systems, Inc.
646-640-2112
...

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


Varonis Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except for share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024 2023 2024 2023
Unaudited Unaudited
Revenues:
Term license subscriptions $ 68,751 $ 83,963 $ 187,460 $ 250,306
SaaS 57,805 13,716 136,575 21,437
Maintenance and services 21,512 24,629 68,401 73,318
Total revenues 148,068 122,308 392,436 345,061
Cost of revenues 24,007 17,381 67,792 52,404
Gross profit 124,061 104,927 324,644 292,657
Operating expenses:
Research and development 53,459 44,818 146,219 135,694
Sales and marketing 71,378 68,610 212,646 207,324
General and administrative 22,864 20,646 65,878 61,618
Total operating expenses 147,701 134,074 424,743 404,636
Operating loss (23,640 ) (29,147 ) (100,099 ) (111,979 )
Financial income, net 10,245 8,634 27,039 24,872
Loss before income taxes (13,395 ) (20,513 ) (73,060 ) (87,107 )
Income taxes (4,938 ) (2,504 ) (9,711 ) (12,911 )
Net loss $ (18,333 ) $ (23,017 ) $ (82,771 ) $ (100,018 )
Net loss per share of common stock, basic and diluted $ (0.16 ) $ (0.21 ) $ (0.74 ) $ (0.92 )
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted 112,268,210 109,429,722 111,382,582 109,187,063


Stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024 2023 2024 2023
Unaudited Unaudited
Cost of revenues $ 1,357 $ 1,416 $ 4,017 $ 5,946
Research and development 10,442 11,323 31,057 37,480
Sales and marketing 9,860 11,201 30,985 37,861
General and administrative 10,272 9,040 28,054 26,889
$ 31,931 $ 32,980 $ 94,113 $ 108,176


Payroll tax expense related to stock-based compensation for the three and nine months ended September 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024 2023 2024 2023
Unaudited Unaudited
Cost of revenues $ 15 $ 24 $ 631 $ 385
Research and development 187 75 566 232
Sales and marketing 150 122 3,050 1,820
General and administrative 49 18 1,165 486
$ 401 $ 239 $ 5,412 $ 2,923


Amortization of acquired intangibles and acquisition-related expenses for the three and nine months ended September 30, 2024 and 2023 is included in the Condensed Consolidated Statements of Operations as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024 2023 2024 2023
Unaudited Unaudited
Cost of revenues $ 381 $ 382 $ 1,143 $ 1,144
Research and development - 412 - 1,235
Sales and marketing - - - -
General and administrative - - - -
$ 381 $ 794 $ 1,143 $ 2,379


Varonis Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, 2024 December 31, 2023
Unaudited
Assets
Current assets:
Cash and cash equivalents $ 282,218 $ 230,740
Marketable securities 562,568 253,175
Short-term deposits 34,174 49,800
Trade receivables, net 119,203 169,116
Prepaid expenses and other short-term assets 76,206 64,326
Total current assets 1,074,369 767,157
Long-term assets:
Long-term marketable securities 332,329 211,063
Operating lease right-of-use assets 45,390 51,838
Property and equipment, net 28,908 33,964
Intangible assets, net 119 1,263
Goodwill 23,135 23,135
Other assets 16,904 15,490
Total long-term assets 446,785 336,753
Total assets $ 1,521,154 $ 1,103,910
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 1,489 $ 672
Accrued expenses and other short-term liabilities 123,256 125,057
Convertible senior notes, net 251,625 -
Deferred revenues 217,605 181,049
Total current liabilities 593,975 306,778
Long-term liabilities:
Convertible senior notes, net 449,759 250,477
Operating lease liabilities 43,654 51,313
Deferred revenues 1,530 886
Other liabilities 3,676 4,808
Total long-term liabilities 498,619 307,484
Stockholders' equity:
Share capital
Common stock 112 109
Accumulated other comprehensive loss (4,381 ) (8,649 )
Additional paid-in capital 1,159,990 1,142,578
Accumulated deficit (727,161 ) (644,390 )
Total stockholders' equity 428,560 489,648
Total liabilities and stockholders' equity $ 1,521,154 $ 1,103,910


Varonis Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
September 30,
2024 2023
Unaudited
Cash flows from operating activities:
Net loss $ (82,771 ) $ (100,018 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 8,543 8,736
Stock-based compensation 94,113 108,176
Amortization of deferred commissions 19,906 17,547
Non-cash operating lease costs 7,050 7,087
Amortization of debt issuance costs 1,264 1,133
Amortization of premium and accretion of discount on marketable securities (11,288 ) (5,557 )
Acquired in-process research and development 6,653 -
Changes in assets and liabilities:
Trade receivables 49,913 24,895
Prepaid expenses and other short-term assets (10,889 ) (11,118 )
Deferred commissions (23,846 ) (18,338 )
Other long-term assets (129 ) (963 )
Trade payables 817 (1,634 )
Accrued expenses and other short-term liabilities (5,882 ) (17,652 )
Deferred revenues 37,200 33,555
Other long-term liabilities 272 3,120
Net cash provided by operating activities 90,926 48,969
Cash flows from investing activities:
Proceeds from maturities of marketable securities 157,100 28,850
Investment in marketable securities (576,753 ) (331,651 )
Proceeds from short-term and long-term deposits 25,038 170,925
Investment in short-term and long-term deposits (9,233 ) (118,605 )
Purchase of in-process research and development (6,653 ) -
Purchases of property and equipment (2,342 ) (2,945 )
Net cash used in investing activities (412,843 ) (253,426 )
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs 450,099 -
Purchases of capped calls (55,522 ) -
Proceeds from employee stock plans 16,082 11,346
Taxes paid related to net share settlement of equity awards (37,264 ) (19,971 )
Repurchase of common stock - (43,522 )
Net cash provided by (used in) financing activities 373,395 (52,147 )
Increase (decrease) in cash and cash equivalents 51,478 (256,604 )
Cash and cash equivalents at beginning of period 230,740 367,800
Cash and cash equivalents at end of period $ 282,218 $ 111,196


Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP
(in thousands, except share and per share data)
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Unaudited Unaudited
Reconciliation to non-GAAP operating income:
GAAP operating loss $ (23,640 ) $ (29,147 ) $ (100,099 ) $ (111,979 )
Add back:
Stock-based compensation expense 31,931 32,980 94,113 108,176
Payroll tax expenses related to stock-based compensation 401 239 5,412 2,923
Amortization of acquired intangible assets and acquisition-related expenses 381 794 1,143 2,379
Non-GAAP operating income $ 9,073 $ 4,866 $ 569 $ 1,499
Reconciliation to non-GAAP net income:
GAAP net loss $ (18,333 ) $ (23,017 ) $ (82,771 ) $ (100,018 )
Add back:
Stock-based compensation expense 31,931 32,980 94,113 108,176
Payroll tax expenses related to stock-based compensation 401 239 5,412 2,923
Amortization of acquired intangible assets and acquisition-related expenses 381 794 1,143 2,379
Foreign exchange rate differences, net (1,052 ) (1,002 ) (2,302 ) (3,206 )
Amortization of debt issuance costs 496 379 1,264 1,133
Non-GAAP net income $ 13,824 $ 10,373 $ 16,859 $ 11,387
GAAP weighted average number of shares used in computing net loss per share of common stock - basic and diluted 112,268,210 109,429,722 111,382,582 109,187,063
Non-GAAP weighted average number of shares used in computing net income per share of common stock - basic 112,268,210 109,429,722 111,382,582 109,187,063
Non-GAAP weighted average number of shares used in computing net income per share of common stock - diluted 134,713,048 126,748,606 134,821,002 126,777,843
GAAP net loss per share of common stock - basic and diluted $ (0.16 ) $ (0.21 ) $ (0.74 ) $ (0.92 )
Non-GAAP net income per share of common stock - basic $ 0.12 $ 0.09 $ 0.15 $ 0.10
Non-GAAP net income per share of common stock - diluted $ 0.10 $ 0.08 $ 0.13 $ 0.09


Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP
(in millions)
Nine Months Ended September 30,
2024 2023
Unaudited
Reconciliation to non-GAAP free cash flow:
Net cash provided by operating activities $ 90.9 $ 49.0
Purchases of property and equipment (2.3 ) (3.0 )
Free cash flow $ 88.6 $ 46.0


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 $ 100.0 $ 107.0
Purchases of property and equipment (5.0 ) (7.0 )
Free cash flow $ 95.0 $ 100.0

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