Summary
Varonis Systems reported fiscal 2024 second quarter results on July 29, 2024. Total revenue was $130.3 million, up 12.9% from the prior-year quarter. Gross profit was $107.9 million, up 10.1%. Gross margin was 82.8%, down 2.1 percentage points from the prior-year quarter. The operating loss was $28.8 million, narrower than the prior-year quarter, when the operating loss was $39.7 million. The net loss was $23.9 million, narrower than the $38.7 million net loss a year earlier. Diluted EPS was -$0.21, narrower than -$0.35.
For the six months ended June 30, 2024, revenue was $244.4 million, up 9.7% from the year-earlier period. Gross profit was $200.6 million, up 6.8%. The year-to-date operating loss was $76.5 million, narrower than the year-earlier $82.8 million, and the year-to-date net loss was $64.4 million, narrower than $77.0 million. Year-to-date diluted EPS was -$0.58, narrower than -$0.71.
The move to a SaaS delivery model keeps reshaping the revenue mix. In the quarter, SaaS revenue rose 692.2%, term license subscription revenue fell 26.6%, and maintenance and services revenue fell 6.1%. Management said the SaaS transition and customer conversions create revenue recognition headwinds, since SaaS revenue is recognized ratably while term license revenue is recognized at a point in time. Annual recurring revenue was $584.2 million as of June 30, 2024, up 18% year over year. SaaS ARR was approximately 36% of total ARR at the end of the second quarter, and the company raised its full-year SaaS ARR expectation to 48%. Remaining performance obligations were $514.7 million, up 162.9% from the prior-year quarter. Deferred revenue, current portion, was $208.9 million, up 59.8%. The dollar renewal rate stayed over 90% for the six months ended June 30, 2024.
Cash generation improved sharply. Operating cash flow was $11.7 million in the quarter, up 101.9% from the prior-year quarter. For the six months ended June 30, 2024, operating cash flow was $68.4 million, up 60.5% from the year-earlier period. Capital expenditures were $0.8 million in the quarter, down 45.1%, and $1.1 million year to date, down 57.1%. Free cash flow, a non-GAAP measure, was $67.3 million for the six months ended June 30, 2024, compared with $40.0 million in the prior-year period.
The quarter also brought product and channel news. Varonis secured an "In Process" designation with the Federal Risk and Authorization Management Program, or FedRAMP. It announced automated remediation for AWS and expanded its Microsoft 365 Copilot security offering to include AI prompt monitoring. It was named a Customers' Choice in the 2024 Gartner Peer Insights Voice of the Customer DSPM Report. Non-GAAP operating income was $2.1 million, compared with $0.9 million in the prior-year quarter.
For the third quarter of 2024, the outlook points to $140.0 million to $143.0 million in total revenues, representing year-over-year growth of 14% to 17%. Non-GAAP operating income is expected to be $7.0 million to $8.0 million, and non-GAAP net income per diluted share is expected to be $0.07 to $0.08, based on 128.2 million diluted shares outstanding. For full-year 2024, the company raised its ARR guidance to $629.0 million to $635.0 million, up 16% to 17% year over year, and its free cash flow guidance to $80.0 million to $85.0 million. The full-year outlook also points to $544.0 million to $552.0 million in total revenues, growth of 9% to 11%, plus non-GAAP operating income of $18.0 million to $21.0 million and non-GAAP net income per diluted share of $0.22 to $0.24, based on 128.1 million diluted shares outstanding.
The main risks sit with the transition and the broader environment. The pace of customer conversions to SaaS drives how much reported revenue varies from period to period. Macroeconomic conditions, including higher inflation and interest rates and a general economic slowdown, have already led to budgetary tightening and longer renewal cycles, and those patterns may continue. The war in the Middle East that began on October 7, 2023 has called some employees in Israel to active reserve duty, and operations in the region could be disrupted if conditions worsen. Other named risks include competition, longer sales cycles, dependence on channel partners, data security breaches, and the convertible notes and capped call transaction. The timing of large deals remains a swing factor for any given quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $130.3M | $114.0M | +14.3% | $115.4M | +12.9% |
| Gross profit | $107.9M | $92.7M | +16.4% | $98.0M | +10.1% |
| Gross margin | 82.8% | 81.3% | +1.5 pp | 84.9% | -2.1 pp |
| Research & development | $44.9M | $47.8M | -6.1% | $46.1M | -2.6% |
| Sales & marketing | $70.0M | $71.2M | -1.7% | $70.3M | -0.4% |
| General & administrative | $21.8M | $21.3M | +2.4% | $21.3M | +2.3% |
| Total operating expenses | $136.7M | $140.3M | -2.5% | $137.7M | -0.7% |
| Operating income (loss) | -$28.8M | -$47.6M | +39.5% | -$39.7M | +27.4% |
| Operating margin | -22.1% | -41.8% | +19.7 pp | -34.4% | +12.3 pp |
| Net income (loss) | -$23.9M | -$40.5M | +40.9% | -$38.7M | +38.1% |
| Net margin | -18.4% | -35.5% | +17.1 pp | -33.5% | +15.2 pp |
| Diluted EPS | -$0.21 | -$0.37 | +$0.16 | -$0.35 | +$0.14 |
Risks
MD&A states the transition to a predominantly SaaS delivery model is expected to create revenue recognition headwinds and drive term license subscription revenues down 26.6% for the three months ended June 30, 2024 and down 28.6% for the six months ended June 30, 2024; SaaS as a percentage of total ARR was approximately 36% as of June 30, 2024.
Risk Factors and MD&A highlight the war in Israel that began on October 7, 2023; a portion of employees in Israel have been called to active reserve duty and additional employees may be called, and the principal research and development facility is in Israel, so operations could be disrupted.
MD&A notes operations were negatively impacted by broader macroeconomic conditions including a higher inflation and interest rate environment and a general economic slowdown, leading to changes in customer buying patterns such as budgetary tightening and longer renewal cycles that may continue.
Risk Factors state channel partners fulfilled substantially all of sales in 2023 and for the six months ended June 30, 2024, contracts generally allow termination on 30 days' notice, and loss of a substantial number of channel partners could materially adversely affect results of operations.
Gross margin decreased to 82.8% in FY2024 Q2 from 84.9% in FY2023 Q2 and to 82.1% year to date from 84.3% year to date, per reported figures, driven by SaaS transition costs including higher third-party hosting costs and customer success headcount.
Risk Factors state the SaaS transition has increased complexity and challenges 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.
Risk Factors state renewal rates cannot be accurately predicted and customers may not renew, may reduce scope, or renew for shorter terms or less favorable terms; MD&A says the renewal rate continued to be over 90% for the six months ended June 30, 2024.
Risk Factors state increased competition, including from more established companies with greater resources and cloud-focused technologies, could lead to price cuts, reduced gross margins, longer sales cycles, lower renewal rates, and loss of market share.
Risk Factors state the Israeli subsidiary's Beneficiary Enterprise tax benefit terminated as of June 30, 2024, so eligible income may be taxed at 16% or, if conditions are not met, the standard 23% rate, potentially increasing the effective tax rate.
As of June 30, 2024, $253.0 million aggregate principal amount of 2025 Notes was outstanding; Risk Factors cite limits on business flexibility, potential dilution upon conversion, and counterparty risk on the Capped Call Transactions.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Annual Recurring Revenue
Non-GAAP Operating Income
SaaS ARR as % of Total ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q2 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.