Summary
Varonis posted total revenue of $111.4 million for the second quarter of 2022, up 26% from $88.4 million a year earlier. Subscription revenue rose 44% year over year and now dominates the mix. Maintenance and services revenue fell as perpetual licenses fade. Management said 99% of total revenue was recurring for the three and six months ended June 30, 2022. Annual recurring revenue closed the quarter at $426.3 million, up 30% year over year, or 32% adjusted for currency moves and the exit from the Russia business.
Customer expansion metrics improved. As of June 30, 2022, 75% of customers with 500 employees or more had purchased four or more licenses, up from 68% a year earlier, and 45% had bought six or more, up from 35%. The maintenance renewal rate stayed above 90%. Current deferred revenue was $98.4 million, up 13.8% from a year earlier. The company held $788.8 million in cash and cash equivalents, short term deposits and marketable securities as of June 30, 2022.
Profitability moved the other way. Gross profit rose to $93.6 million, up 26.2% from $74.2 million in the prior-year quarter, and gross margin held at 84.0%, essentially flat against 83.9%. The operating loss widened to $37.6 million from $28.2 million, and operating margin slipped to negative 33.7% from negative 31.9%. The net loss widened to $36.3 million from $32.9 million, and diluted loss per share widened to $0.33 from $0.31. Non-GAAP operating income was $1.7 million, compared with $1.1 million a year earlier. That measure strips out stock-based compensation, related payroll taxes, intangible amortization and acquisition costs.
Cash generation softened in the quarter. Operating cash flow was negative $14.5 million, compared with negative $9.2 million in the second quarter of 2021. For the six months ended June 30, 2022, operating cash flow was $10.1 million, down from $11.1 million. Capital expenditures were $2.6 million in the quarter, up from $1.0 million, and $6.1 million for the six months, up from $2.1 million.
Guidance covers the third quarter and the full year. For the third quarter of 2022, management guides to year-over-year growth of 23% to 25%, non-GAAP operating income of $8.5 million to $10.0 million, and non-GAAP net income per diluted share of $0.05 to $0.06 on 127.1 million diluted shares. For the full year 2022, the company expects ARR of $484.0 million to $489.0 million, revenue growth of 24% to 26%, non-GAAP operating income of $32.5 million to $36.5 million, and non-GAAP net income per diluted share of $0.19 to $0.22 on 126.9 million diluted shares. Management reaffirmed its full-year ARR and revenue guidance and raised its full-year non-GAAP operating income outlook.
Currency and geopolitics are the loudest headwinds. The strengthening U.S. dollar against the Euro and Pound, plus the Russia exit, trims full-year revenue and ARR guidance by roughly $4 million to $5 million, and management expects a 200 basis point hit in both the third quarter and the full year. EMEA revenue was $27.2 million, up 11%; adjusted for currency and Russia, it grew 25%. Exposure to the New Israeli Shekel is partly hedged. The filing also names risks around longer sales cycles, competition and pricing pressure, hiring and retaining sales personnel and engineers, information security breaches, and general economic conditions. Year-to-date revenue was $207.7 million, up 27.3%, yet the year-to-date operating loss widened to $85.7 million from $62.3 million and the year-to-date net loss widened to $85.1 million from $68.6 million. Growth remains solid; the cost of chasing it keeps landing in the loss line.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $111.4M | $96.3M | +15.8% | $88.4M | +26.0% |
| Gross profit | $93.6M | $78.5M | +19.4% | $74.2M | +26.2% |
| Gross margin | 84.0% | 81.5% | +2.5 pp | 83.9% | +0.1 pp |
| Research & development | $44.8M | $43.6M | +2.9% | $33.3M | +34.4% |
| Sales & marketing | $68.7M | $64.8M | +6.1% | $54.9M | +25.1% |
| General & administrative | $17.7M | $18.2M | -2.7% | $14.2M | +24.6% |
| Total operating expenses | $131.2M | $126.5M | +3.7% | $102.4M | +28.1% |
| Operating income (loss) | -$37.6M | -$48.1M | +21.9% | -$28.2M | -33.1% |
| Operating margin | -33.7% | -50.0% | +16.2 pp | -31.9% | -1.8 pp |
| Net income (loss) | -$36.3M | -$48.8M | +25.6% | -$32.9M | -10.1% |
| Net margin | -32.6% | -50.7% | +18.1 pp | -37.3% | +4.7 pp |
| Diluted EPS | -$0.33 | -$0.45 | +$0.12 | -$0.31 | -$0.02 |
Risks
Prolonged economic uncertainty, inflationary pressure and a higher interest rate environment could cause customers to delay or cancel IT projects and lengthen sales cycles; MD&A says first half 2022 EMEA operations were negatively impacted by the U.S. dollar significantly strengthening against the Euro and Pound Sterling and by the exit of the Russia business.
The majority of sales are typically made in the last three weeks of each quarter and large transactions have longer, less predictable sales cycles; for FY2022 Q2 revenue was up 26.0% to $111.45 million, but operating loss widened to $37.57 million and net loss widened to $36.29 million.
The market for enterprise data security is evolving and competition may increase, including from more established companies with greater name recognition and resources; this could lead to price cuts, longer sales cycles, lower renewal rates and loss of market share.
As a security software provider, Varonis may be an attractive target for cyberattacks, and a breach of its IT or production systems could expose customer data, cause significant liability and harm its competitive position.
Substantially all sales are fulfilled through channel partners, and agreements are generally non-exclusive and terminable on 30 days' notice; loss of a substantial number of partners or failure to recruit replacements could materially harm results.
Varonis has operations in Ukraine amid the Russia-Ukraine military conflict and its principal R&D facility in Israel, exposing it to sanctions, regulatory compliance costs and regional hostilities; some Israeli employees may be called to military reserve duty.
Expanding privacy and data protection laws, including CCPA/CPRA, Virginia, Colorado, Utah and Connecticut laws, GDPR and post-Brexit UK rules, could increase compliance costs and require changes to data handling or product features.
Growth depends on hiring, integrating and retaining sales and marketing personnel and engineers, with competition intense particularly in Israel; training a new salesperson can take up to 12 months, and failure to do so may hurt projected growth.
Customers are not required to renew subscriptions and may reduce scope or delay purchases; maintenance and services revenues decreased 9.8% for the quarter and 9.0% for the six months ended June 30, 2022, and the company expects these revenues to continue declining.
As of June 30, 2022, Varonis had $253.0 million outstanding aggregate principal amount of 2025 Notes, and Credit Facility covenants plus potential conversion dilution could limit flexibility and burden future cash resources.
Tax benefits for the Israeli subsidiary terminated at the end of 2020, so it should pay 16% under the Investment Law or a 23% standard rate if conditions are not met; the company is also subject to tax audits in Israel and a U.S. state tax audit.
Accounts receivable and contract assets are subject to collection and credit risks, especially for multiyear subscription commitments invoiced over multiple periods; significant customer or reseller bankruptcies could negatively impact revenues and cash flows.
A portion of revenues comes from federal, state, local and foreign government contracts, which are subject to budgetary cycles, funding delays, procurement rules and audits that could delay or reduce purchases.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q2 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.