Summary
Varonis crossed $100 million in quarterly revenue for the first time. Total revenues reached $100.4 million in the third quarter of 2021, up 30.8% from $76.75 million in the third quarter of 2020. Gross profit rose 31.4% to $86.0 million and gross margin ticked up to 85.7% from 85.3%. Subscription revenues climbed 59% to $70.0 million from $44.1 million a year earlier, while maintenance and services revenues slipped to $30.0 million from $32.3 million.
The growth did not carry through to the bottom line. GAAP operating loss widened 12.8% to $18.6 million from $16.5 million in the prior-year quarter, and net loss widened 21.3% to $23.3 million from $19.2 million. Diluted loss per share was $0.22, compared with $0.20 a year earlier. Operating margin improved to negative 18.5% from negative 21.4%, so the loss widened even as the margin improved.
For the nine months ended September 30, 2021, revenue was $263.6 million, up 33.5%, and net loss was $91.9 million, wider than the $75.0 million loss in the first nine months of 2020. Cost growth drove the gap. Research and development expenses rose on an $8.8 million increase in salaries, benefits and stock-based compensation, and sales and marketing carried a $10.3 million increase on the same lines.
Non-GAAP results also improved. Non-GAAP operating income was $8.1 million, compared with $3.1 million in the third quarter of 2020. Non-GAAP net income was $5.65 million, or $0.05 per diluted share, against $2.13 million, or $0.02 per diluted share, a year earlier. Annual recurring revenues reached $354.2 million, up 36% over the prior-year period, and renewal rates on perpetual license maintenance stayed above 90%.
Customer engagement metrics kept climbing. As of September 30, 2021, 70% of customers with 500 employees or more had purchased four or more licenses, up from 60% a year earlier, and 37% had purchased six or more, up from 26%. North America revenues rose 32% to $75.6 million and EMEA revenues rose 28% to $22.8 million, with Rest of World contributing $1.9 million. Cash, cash equivalents, marketable securities and short-term deposits totaled $813.4 million at quarter end.
Cash generation was mixed. Operating cash flow for the nine months ended September 30, 2021 was $6.84 million, compared with $13.5 million used in the same period a year earlier. The third quarter alone produced negative operating cash flow of $4.30 million, worse than the $2.69 million used in the prior-year quarter. Capital expenditures for the nine months fell 41.2% to $4.12 million. Current deferred revenue was $86.25 million, up 6.2% from a year earlier.
Management guided for the fourth quarter of 2021 to non-GAAP operating income of $16.5 million to $18.5 million and non-GAAP net income per diluted share of $0.12 to $0.13 on 119.8 million diluted shares, with revenue growth of 26% to 29% year over year. For the full year 2021, the company now expects revenue growth of 31% to 32%, non-GAAP operating income of $19.5 million to $21.5 million, and non-GAAP net income per diluted share of $0.10 to $0.11 on 118.0 million diluted shares.
Risks flagged in the filing cover COVID-19 budget pressure, information technology and cybersecurity breaches, longer sales cycles, competition and pricing, hiring and retention of sales personnel, foreign exchange swings, and the convertible notes and capped call transaction. The company plans to adopt ASU 2020-06 on January 1, 2022, which will reclassify about $31.8 million from additional paid-in capital to liabilities. Product news in the quarter included Data Classification Cloud for Box and Google Drive and the launch of DatAdvantage Cloud.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $100.4M | $88.4M | +13.5% | $76.8M | +30.8% |
| Gross profit | $86.0M | $74.2M | +15.9% | $65.5M | +31.4% |
| Gross margin | 85.7% | 83.9% | +1.8 pp | 85.3% | +0.4 pp |
| Research & development | $34.3M | $33.3M | +3.0% | $24.7M | +39.2% |
| Sales & marketing | $56.2M | $54.9M | +2.4% | $45.4M | +23.8% |
| General & administrative | $14.0M | $14.2M | -1.4% | $11.8M | +18.5% |
| Total operating expenses | $104.6M | $102.4M | +2.1% | $81.9M | +27.7% |
| Operating income (loss) | -$18.6M | -$28.2M | +34.3% | -$16.5M | -12.8% |
| Operating margin | -18.5% | -31.9% | +13.4 pp | -21.4% | +3.0 pp |
| Net income (loss) | -$23.3M | -$32.9M | +29.2% | -$19.2M | -21.3% |
| Net margin | -23.2% | -37.3% | +14.0 pp | -25.1% | +1.8 pp |
| Diluted EPS | -$0.22 | -$0.31 | +$0.09 | — | — |
Risks
A majority of sales are made in the last three weeks of each quarter, and large transactions lengthen and make sales cycles less predictable. Failure to close expected deals in that short window could cause quarterly revenue shortfalls and a significant stock price decline.
The enterprise data security market is new and evolving, and more established vendors with greater resources could enter. Increased competition could lead to price cuts, longer sales cycles, lower renewal rates and loss of market share, especially as Varonis expands cloud coverage.
Varonis must hire and integrate sales and marketing personnel, and the subscription model adds selling complexity. Remote training during COVID-19 may lengthen ramp times, historically up to 12 months, and failure to maintain sales productivity could materially impact projected growth.
Substantially all sales are fulfilled through channel partners, whose agreements are generally non-exclusive and terminable on 30 days notice. Loss of a substantial number of partners or failure to recruit additional partners could materially and adversely affect results of operations.
As a data security vendor, Varonis may be an attractive target for cyberattacks, and remote work increases risk. A breach of its IT systems or software could cause significant liability, remediation costs, reputational harm and loss of customers.
Prolonged economic uncertainty and the COVID-19 pandemic could cause customers to delay or cancel IT projects, lengthen sales cycles and make pipeline conversion difficult. MD&A notes the pandemic remains unpredictable and could meaningfully impact business, results of operations and guidance.
Expanding privacy and data protection laws such as CCPA, CPRA, the Virginia Consumer Data Protection Act and the Colorado Privacy Rights Act impose compliance costs and may require changes to data handling or software. Noncompliance could lead to fines, lawsuits and liability.
Although the transition to a subscription-based model is complete, the expected benefits are uncertain. Customers are not required to renew, pricing changes may concern them, and if renewal rates decline Varonis could see lower revenues and earnings.
Varonis principal R&D facility and some support teams are in Israel, exposing it to regional hostilities, boycott activity and military reserve duty disruptions. The Israeli subsidiary Beneficiary Enterprise tax benefit terminated in 2020, and it may face a 16% or standard 23% corporate tax rate.
The 2025 Notes and capped call transactions create dilution, accounting complexity and counterparty risk. As of September 30, 2021, the stock price was above the $47.24 Cap Price, so incremental appreciation above that level is not protected under the capped calls.
For the nine months ended September 30, 2021, approximately 72% of revenues were from North America and 26% from EMEA. Further international expansion increases exposure to foreign regulatory, economic, currency and collection risks.
Varonis has incurred net losses since inception, and net loss widened to $91.9 million for the nine months ended September 30, 2021 from $75.0 million in the prior-year period. Operating expenses are expected to continue increasing in absolute dollars.
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 Q3 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.