Summary
Varonis Systems opened fiscal 2022 with revenue of $96.3 million, up 28.7% from a year earlier. Annual recurring revenue reached $404.5 million, up 32%. Subscription revenue grew 53% to $69.0 million, while maintenance and services revenue declined from the prior year. Gross margin was 81.5%, down 0.5 percentage points. Management said 74% of customers with 500 employees or more bought four or more licenses, up from 66%, and 42% bought six or more, up from 32%. The maintenance renewal rate stayed above 90%. The company sells through channel partners and targets organizations with 1,000 users or more.
Profitability stayed under pressure. GAAP operating loss widened to $48.1 million, and net loss widened to $48.8 million. GAAP diluted loss per share was $0.45. Operating margin was -50.0%, down 4.4 percentage points. Non-GAAP operating loss was $7.9 million, against a non-GAAP operating loss of $6.3 million a year earlier. The gap between the two measures reflects stock-based compensation, payroll taxes tied to stock compensation, and amortization of acquired intangibles. Operating cash flow was $24.5 million, up 20.4%. Capital expenditures were $3.5 million, up 213.2%. Deferred revenue was $98.8 million, up 7.8%. Days sales outstanding was 63, compared with 69 a year ago. The first quarter typically carries the lowest gross margin of the year, and the fourth quarter the highest.
The quarter absorbed a write-off of the Russia business. Management said the write-off created a $3 million headwind to ARR in the quarter and would trim original full-year revenue and ARR expectations by roughly $4 to $5 million. Even so, the company reaffirmed its original full-year guidance for both metrics. For the second quarter of 2022, guidance calls for revenue growth of 25% to 27%. Non-GAAP operating income is expected to land between breakeven and $1.0 million, and non-GAAP net loss per basic and diluted share is expected in the range of $0.02 to $0.01, based on 109.7 million basic and diluted shares outstanding. For full year 2022, ARR is guided to $484.0 million to $489.0 million, or growth of 25% to 26%, with revenue growth of 24% to 26%. Full-year non-GAAP operating income is expected at $27.0 million to $30.0 million, and non-GAAP net income per diluted share at $0.16 to $0.18, based on 127.3 million diluted shares outstanding. The outlook also reflects a foreign exchange headwind from the weakening U.S. dollar against the New Israeli Shekel: 300 basis points in the second quarter and 200 basis points for the full year, which the company has hedged for 2022.
Product news centered on Version 8.6 of the Data Security Platform, which adds Microsoft 365 protections, new ransomware threat models, and automated labeling for sensitive files. Varonis introduced an Insights Dashboard in DatAdvantage Cloud that flags organization-wide configuration risks and adds SaaS Security Posture Management. The company also completed a SOC 2 Type II compliance audit for DatAdvantage Cloud. North America supplied 72% of revenue, EMEA 25%, and the rest of the world 3%. Customers span more than 85 countries. More than 99% of license revenue came from subscriptions, and more than 99% of total revenue was recurring.
The risk list is long. It includes potential information technology, cybersecurity, or data security breaches; the ability to predict subscription renewals and their effect on revenue; COVID-19 and global conflicts weighing on customer budgets; competitive pressure, longer sales cycles, and pricing changes; hiring and retention of sales personnel and engineers; expansion of direct sales and reseller channels; foreign currency swings; the timing of large transactions; new product introductions; international operations; and the convertible notes and capped-call transaction. Varonis also faces tax audits in Israel and a state tax audit in the United States, and it carries a full valuation allowance against U.S. deferred tax assets.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $96.3M | $126.6M | -24.0% | $74.8M | +28.7% |
| Gross profit | $78.5M | $109.2M | -28.2% | $61.3M | +28.0% |
| Gross margin | 81.5% | 86.3% | -4.8 pp | 82.0% | -0.5 pp |
| Research & development | $43.6M | $40.1M | +8.5% | $30.1M | +44.9% |
| Sales & marketing | $64.8M | $67.7M | -4.3% | $51.5M | +25.8% |
| General & administrative | $18.2M | $19.2M | -5.4% | $13.8M | +31.5% |
| Total operating expenses | $126.5M | $127.0M | -0.4% | $95.4M | +32.7% |
| Operating income (loss) | -$48.1M | -$17.8M | -169.6% | -$34.1M | -41.1% |
| Operating margin | -50.0% | -14.1% | -35.9 pp | -45.6% | -4.4 pp |
| Net income (loss) | -$48.8M | -$24.9M | -95.5% | -$35.7M | -36.8% |
| Net margin | -50.7% | -19.7% | -30.9 pp | -47.7% | -3.0 pp |
| Diluted EPS | -$0.45 | -$0.24 | -$0.21 | — | — |
Risks
Prolonged economic uncertainties or downturns, including inflationary pressure, a higher interest rate environment, and geopolitical turmoil from the Russia-Ukraine war, could cause customers to delay or cancel IT projects and lengthen sales cycles. MD&A notes total revenues were up 28.7% in the quarter ended March 31, 2022, but the risk factors warn such conditions could reduce enterprise software spending.
Quarterly results fluctuate due to variability in revenues; the majority of sales are typically made in the last three weeks of each quarter, and large transactions have longer and less predictable sales cycles. Failure to close expected transactions in that short period could disproportionately and adversely affect quarterly financial results.
Channel partners fulfilled substantially all of the company's sales in 2021 and the three months ended March 31, 2022. The non-exclusive partner agreements generally allow termination for any reason upon 30 days' notice, so loss of channel partners or failure to maintain relationships could materially and adversely affect results.
The company has operations in Ukraine and Israel, and the Russia-Ukraine military conflict has led to sanctions and export controls on Russia, adding regulatory risk and compliance costs. Armed conflicts, terrorism, or political instability in Israel and the region could disrupt the principal research and development facility and operations.
Tax benefits available to the Israeli subsidiary terminated as of December 31, 2020, and the subsidiary is subject to a 16% rate under the Investment Law if conditions are met, or a standard 23% rate if not. The company is also subject to tax audits in Israel and a state tax audit in the United States, which could increase tax expenses and effective tax rates.
The company has substantial outstanding 2025 Notes, which may reduce business flexibility and could dilute stockholders upon conversion. As of March 31, 2022, the stock price was above the $47.24 Cap Price, so the incremental amount above the cap is not protected under the capped call transactions, and counterparty default risk exists.
The company may face increased competition from established companies with greater name recognition, larger sales and marketing resources, and larger customer bases, as well as from cloud-focused and security/classification technologies. Increased competition could lead to price cuts, longer sales cycles, lower renewal rates, and loss of market share.
The company must hire, integrate, and retain qualified sales and marketing personnel and engineers, and competition for such individuals is intense, particularly in Israel. Based on past experience, it can take up to 12 months before a new sales force member is trained and operating at expected levels, and remote hiring and training during COVID-19 may lengthen that period.
The company is subject to rapidly evolving privacy and data protection laws, including the CCPA as expanded by the California Privacy Rights Act, the Virginia Consumer Data Protection Act, the Colorado Privacy Rights Act, and the GDPR, with new obligations and enforcement dates in 2023. Non-compliance could result in substantial fines, lawsuits, required changes to data handling practices, and increased operational costs.
The company has completed its transition to a subscription-based business model, but it is uncertain whether the benefits achieved will continue. Renewal rates may decline or fluctuate due to pricing, competition, or economic downturns, and the shift has raised customer concerns about pricing changes over time.
SaaS KPIs
All quarters →Annual Recurring Revenue (ARR)
Non-GAAP Operating Loss
Customers with 500+ employees purchasing 4+ licenses
Customers with 500+ employees purchasing 6+ licenses
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.