Summary
Varonis reported second-quarter 2021 revenue of $88.4 million, up 32.8% from $66.6 million in the second quarter of 2020. North America revenue rose 34% over the prior-year period and EMEA revenue rose 31%. Gross profit climbed 32.0% to $74.2 million, from $56.2 million a year earlier. Gross margin was 83.9%, down from 84.5%. The company attributed the cost pressure to higher customer success and support headcount.
The bottom line moved the other way. GAAP operating loss widened to $28.2 million from $22.1 million a year earlier, and net loss widened to $32.9 million from $24.3 million. Diluted loss per share was $0.31, compared with $0.26. Operating margin was negative 31.9%, better than negative 33.2% in the prior-year quarter. On a non-GAAP basis, the company reported operating income of $1.1 million, versus a non-GAAP operating loss of $4.0 million a year earlier. The difference between the two sets of numbers is stock-based compensation and related payroll taxes, expenses management treats as non-recurring but which recur every quarter.
Annual recurring revenue was $328.2 million as of June 30, 2021, up 39% from $235.7 million a year earlier. Adoption kept deepening. 68% of customers with 500 employees or more had purchased four or more licenses, up from 58%, and 35% had purchased six or more licenses, up from 24%. Renewal rates on perpetual license maintenance stayed above 90%. Deferred revenue, current portion, was $86.4 million at the end of the quarter, up 9.2% from $79.1 million.
Cash generation improved. Operating cash flow for the six months ended June 30, 2021 was $11.1 million, against $10.8 million used in the first half of 2020. The second quarter by itself used $9.2 million, less than the $14.7 million used a year earlier. Capital expenditures for the six months were $2.1 million, down 51.6% from $4.4 million. Year-to-date revenue was $163.2 million, up 35.2%, and the year-to-date net loss was $68.6 million.
Management's outlook covers the third quarter and the full year. For the third quarter of 2021, the company expects revenue of $96.0 million to $98.0 million, or growth of 25% to 28%, non-GAAP operating income of $3.5 million to $4.5 million, and non-GAAP net income per diluted share of $0.01 to $0.02 on 118.9 million diluted shares. For the full year 2021, it now expects revenue of $375.0 million to $379.0 million, or growth of 28% to 29%, non-GAAP operating income of $10.0 million to $13.0 million, and non-GAAP net income per diluted share of $0.03 to $0.05.
Two product moves stand out. Varonis introduced DatAdvantage Cloud to cover SaaS applications and cloud data stores including AWS, Box, GitHub, Google Drive, Jira, Okta, Salesforce, Slack and Zoom. Its platform was also selected to test Zero Trust strategies in a joint effort with the U.S. National Security Agency, U.S. Cyber Command and the Defense Information Systems Agency. Management said the new cloud products should not contribute meaningfully to 2021 revenue.
The risks are familiar. The company points to COVID-19 and its effect on client budgets, cybersecurity and data breaches, longer sales cycles, competition and pricing pressure, the timing of large transactions, international expansion, its convertible notes and the integration of the Polyrize acquisition. It is also subject to tax audits in Israel. Results depend heavily on closing large deals in the final three weeks of each quarter, a seasonality the company flags in its own filing.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $88.4M | $74.8M | +18.2% | $66.6M | +32.8% |
| Gross profit | $74.2M | $61.3M | +21.1% | $56.2M | +32.0% |
| Gross margin | 83.9% | 82.0% | +2.0 pp | 84.5% | -0.5 pp |
| Research & development | $33.3M | $30.1M | +10.9% | $24.1M | +38.5% |
| Sales & marketing | $54.9M | $51.5M | +6.7% | $43.0M | +27.8% |
| General & administrative | $14.2M | $13.8M | +2.7% | $11.3M | +25.9% |
| Total operating expenses | $102.4M | $95.4M | +7.4% | $78.3M | +30.8% |
| Operating income (loss) | -$28.2M | -$34.1M | +17.2% | -$22.1M | -27.8% |
| Operating margin | -31.9% | -45.6% | +13.6 pp | -33.2% | +1.3 pp |
| Net income (loss) | -$32.9M | -$35.7M | +7.6% | -$24.3M | -35.5% |
| Net margin | -37.3% | -47.7% | +10.4 pp | -36.5% | -0.7 pp |
| Diluted EPS | -$0.31 | — | — | — | — |
Risks
A majority of sales are made in the last three weeks of each quarter, and large transactions have longer, less predictable sales cycles, which creates quarterly revenue variability and risk of missing expectations. MD&A highlights these seasonal patterns and says expenses are relatively fixed in the short term.
Varonis relies on channel partners, including distributors and resellers, for substantially all sales, and the agreements are generally non-exclusive and terminable on 30 days' notice. Loss of a substantial number of channel partners or their failure to effectively market and sell its software could materially and adversely affect results.
Failure to maintain sales and marketing productivity or to hire and integrate additional sales personnel could limit growth, and new sales personnel can take up to 12 months to reach expected productivity, with remote training during COVID-19 potentially taking longer. The filing also notes increased attrition risks among new hires and existing personnel.
As a data security provider, Varonis may be an attractive target for cyber attackers, and remote and hybrid work arrangements may increase the risk of cybersecurity incidents or data breaches. A breach could impair operations, harm reputation, and expose the company to litigation, fines, and remediation costs.
Prolonged economic uncertainty or downturns, including conditions resulting from COVID-19, could reduce customer IT and cybersecurity spending, delay purchases, and lengthen sales cycles. MD&A says COVID-19 accelerated digital transformation, but the filing notes elevated scrutiny of corporate expenditures and difficulty forecasting pipeline conversion.
The company has completed its transition to a subscription-based model, but failure to achieve expected renewals or pricing could negatively affect results, and maintenance and services revenues are expected to continue to decline. Subscription revenues increased 70% for the three months ended June 30, 2021 and 89% for the six months ended June 30, 2021, while maintenance and services revenues decreased 6.9% and 9.1% over those periods.
The market for enterprise data security and analytics may not continue to grow at the same pace, and increased competition from established or emerging companies with greater resources could lead to price cuts, longer sales cycles, lower renewal rates, and loss of market share. The filing also cites potential competition in cloud-focused, classification, and insider threat technologies.
The company is subject to rapidly evolving privacy and data protection laws, including CCPA and GDPR, and Brexit has created uncertainty around UK data protection regulation. Compliance may require operational changes, and non-compliance could lead to fines, lawsuits, and limitations on product features.
The Israeli subsidiary's tax benefits under the Investment Law terminated as of December 31, 2020, and it expects to pay a 16% tax rate effective January 1, 2021, or the standard 23% rate if approval is not received, which could increase tax expense and effective tax rates. Operations in Israel also face risks from armed conflict, military reserve duty, and boycott activity.
The company has substantial debt from the $253.0 million aggregate principal amount of 2025 Notes and a $70.0 million revolving credit facility, which may reduce business flexibility, increase borrowing costs, and require cash settlement or dilution upon conversion. The 2025 Notes and credit facility also contain restrictive covenants and anti-takeover provisions.
For the quarter and six months ended June 30, 2021, approximately 70% of revenues came from North America, EMEA accounted for 28% and 27%, and ROW accounted for 2% and 3%. International expansion increases exposure to foreign regulatory, tax, labor, and economic risks, and ROW revenue growth may fluctuate based on deal closure timing.
Accounts receivable and contract assets are subject to collection and credit risks, and the COVID-19 pandemic may cause customers to renegotiate contracts or fail to make payments. Significant bankruptcies among customers and resellers could negatively impact revenues and cash flows.
The company may pursue acquisitions, such as the fourth quarter 2020 Polyrize acquisition, that could disrupt operations, divert management, require debt or equity issuance, and expose it to integration, impairment, and unknown liability risks. The filing states its ability to successfully acquire and integrate technologies or businesses is unproven.
SaaS KPIs
All quarters →Annual Recurring Revenue
Non-GAAP Operating Income
Customers with 500+ employees purchasing 4+ licenses
Customers with 500+ employees purchasing 6+ licenses
Perpetual License Maintenance Renewal Rate
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q2 FY2021 (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.