Summary
Varonis reported first quarter 2024 revenue of $114.0 million, up 6.2% from $107.3 million in the first quarter of 2023. The total masks a large mix shift. Term license subscription revenue fell to $56.0 million from $80.9 million a year earlier, while SaaS revenue climbed sharply as customers shifted to the hosted platform. Maintenance and services revenue was $24.1 million, just below the $24.4 million reported a year ago. Management ties the swing to the planned move to a predominantly SaaS delivery model, where revenue is recognized ratably instead of upfront. Growth in SaaS came from new customer additions, conversions of existing customers and a high renewal rate.
Annual recurring revenue offers a cleaner read on demand. ARR was $560.3 million as of March 31, 2024, up 17% year over year, and SaaS accounted for roughly 30% of total ARR. RPO stood at $426.2 million at quarter end, and management expects that balance to keep rising during the transition. Current deferred revenue was $185.1 million, up 69.3% from a year earlier, and the renewal rate stayed above 90% for the quarter. The company launched Varonis for Microsoft 365 Copilot and continued to push its managed detection and response offering, which management calls a game changer for the business.
Profitability moved the wrong way. Gross profit rose 3.3% to $92.7 million, but gross margin fell to 81.3% from 83.6% as third-party hosting costs grew with the SaaS build-out. Cost of revenues rose 21% and total operating expenses rose 5.6%. The GAAP operating loss widened to $47.6 million from $43.1 million, and operating margin slipped to negative 41.8% from negative 40.2%. The net loss widened to $40.5 million from $38.3 million, with diluted loss per share of $0.37 against $0.35. Stock-based compensation of $32.1 million is the biggest bridge to the non-GAAP operating loss of $10.6 million, wider than the $4.3 million non-GAAP operating loss reported a year earlier.
Cash generation was the bright spot. Operating cash flow was $56.7 million, up 54.0% from $36.8 million in the prior-year quarter. Free cash flow, which the company defines as operating cash flow less purchases of property and equipment, was $56.4 million versus $35.7 million. Capital expenditures were only $0.3 million, down 73.2% from $1.1 million. Varonis held $774.4 million in cash and cash equivalents, short-term deposits and marketable securities as of March 31, 2024. Days sales outstanding rose to 78 from 64, tracking a collections pattern that follows a heavy fourth quarter.
Guidance points to a softer near term. For the second quarter of 2024, Varonis expects revenue of $123.0 million to $126.0 million, or growth of 7% to 9% year over year, a non-GAAP operating loss of $6.0 million to $5.0 million, and a non-GAAP net loss per basic and diluted share of $0.03 to $0.02 on 111.7 million shares. For the full year 2024, the company now expects ARR of $622.0 million to $628.0 million, growth of 15% to 16%, revenue growth of 7% to 9%, non-GAAP operating income of $9.0 million to $14.0 million, non-GAAP net income per diluted share of $0.13 to $0.16 on 128.4 million diluted shares, and free cash flow of $70.0 million to $75.0 million.
Risks sit mostly in the transition itself. Management warns that SaaS conversions create revenue recognition headwinds and could produce significant variation in reported revenue from period to period. It also flags macroeconomic pressure, budgetary tightening and longer renewal cycles, and says those buying patterns may continue for the foreseeable future. The war that began on October 7, 2023 has put some Israel-based employees on active reserve duty, and operations in the region could be disrupted if the situation worsens. Other named concerns include reliance on channel partners, the difficulty of closing large transactions consistently, competition and pricing pressure, and convertible senior notes outstanding. Geographic concentration matters too: about 76% of revenue came from North America, 21% from EMEA and 3% from ROW, alongside a $50.7 million minimum purchase commitment to a service provider running through December 31, 2026.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $114.0M | $154.1M | -26.0% | $107.3M | +6.2% |
| Gross profit | $92.7M | $134.8M | -31.2% | $89.7M | +3.3% |
| Gross margin | 81.3% | 87.5% | -6.2 pp | 83.6% | -2.3 pp |
| Research & development | $47.8M | $48.1M | -0.7% | $44.7M | +6.9% |
| Sales & marketing | $71.2M | $70.6M | +0.9% | $68.4M | +4.1% |
| General & administrative | $21.3M | $21.3M | -0.1% | $19.7M | +7.9% |
| Total operating expenses | $140.3M | $140.0M | +0.2% | $132.8M | +5.6% |
| Operating income (loss) | -$47.6M | -$5.2M | -808.3% | -$43.1M | -10.5% |
| Operating margin | -41.8% | -3.4% | -38.4 pp | -40.2% | -1.6 pp |
| Net income (loss) | -$40.5M | -$898.0K | -4408.9% | -$38.3M | -5.7% |
| Net margin | -35.5% | -0.6% | -34.9 pp | -35.7% | +0.2 pp |
| Diluted EPS | -$0.37 | -$0.01 | -$0.36 | -$0.35 | -$0.02 |
Risks
The company is transitioning to a predominantly SaaS delivery model, which is creating revenue recognition headwinds. For the three months ended March 31, 2024, term license subscription revenues decreased 30.8% to $55.98 million while SaaS revenues increased 1,543.4% to $33.99 million, and management expects term license subscription declines to continue.
The company has a history of losses and reported an operating loss of $47.6 million and a net loss of $40.5 million for the three months ended March 31, 2024, with both losses widening compared with the prior-year quarter. Management expects operating expenses to increase as it hires personnel and expands distribution.
Prolonged economic uncertainty, inflationary pressure, higher interest rates and a general economic slowdown have caused budgetary tightening and longer renewal cycles in regions such as Europe, and management expects this trend may continue.
Due to the war that began on October 7, 2023, a portion of employees in Israel have been called to active reserve duty, and operations in the region may be disrupted if the situation deteriorates. The company's principal research and development facility is in Israel.
Gross margin decreased to 81.3% for the three months ended March 31, 2024 from 83.6% for the three months ended March 31, 2023, due in part to higher third-party hosting costs and increased customer success headcount to support the SaaS transition.
A majority of sales occur in the last three weeks of each quarter, and large transactions are becoming less predictable. The SaaS transition may also cause investor confusion and revenue variability, which could lead to failure to meet quarterly expectations.
The SaaS transition has increased complexity in finding, hiring and retaining qualified sales force members, and it can take up to 12 months before a new sales force member is trained and operating at expected levels.
Substantially all sales are fulfilled through channel partners, and agreements are generally non-exclusive and terminable on 30 days' notice, so loss of channel partners could materially affect results.
As of March 31, 2024, the company had $253.0 million outstanding aggregate principal amount of 2025 Notes, which may limit flexibility, require cash for debt service, and dilute existing stockholders upon conversion.
The Israeli subsidiary's tax benefit terminated, and its eligible income may be taxed at 16% or, if conditions are not met, the standard 23% rate. R&E capitalization under the TCJA may significantly increase tax expenses once net operating losses are used.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Renewal Rate
Non-GAAP Operating Loss
SaaS ARR as a Percentage of Total ARR
Free Cash Flow
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q1 FY2024 (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.