Summary
Varonis reported third-quarter 2022 revenue of $123.3 million, up 22.9% from $100.4 million in the prior-year quarter. Gross profit was $106.1 million, up 23.4% from $86.0 million. For the first nine months, revenue was $331.0 million, up 25.6% from $263.6 million. Annual recurring revenue reached $447.8 million at quarter-end, up 26% year over year. The company announced early availability of its Data Security Platform as a SaaS delivery model, a move management called a significant milestone. Varonis also authorized a $100.0 million share repurchase program expected to be completed over the next 12 months. The SaaS offering is designed to be quick to deploy and easy to maintain, and management expects it to support long-term growth.
Profitability remained under pressure. GAAP operating loss widened to $25.6 million from $18.6 million in the quarter, and net loss widened to $28.7 million from $23.3 million. Diluted EPS was negative $0.26, compared with negative $0.22. Gross margin was 86.1%, up from 85.7%, but operating margin fell to negative 20.7% from negative 18.5%. For the first nine months, operating loss widened to $111.2 million from $80.9 million, and net loss widened to $113.8 million from $91.9 million. Diluted EPS for the nine months was negative $1.04, compared with negative $0.88. Gross margin for the nine months was 84.0%, flat compared with 84.1%, while operating margin was negative 33.6%, down from negative 30.7%. On a non-GAAP basis, third-quarter operating income was $9.8 million, compared with $8.1 million. The gap between GAAP and non-GAAP results reflects large stock-based compensation and related costs. Operating expenses grew faster than revenue, driven by headcount additions across research and development, sales and marketing, and general and administrative functions.
Cash flow improved. Operating cash flow for the quarter was negative $1.6 million, up from negative $4.3 million. For the first nine months, operating cash flow was $8.4 million, up from $6.8 million. Capital expenditures were $1.5 million in the quarter, down from $2.0 million, and $7.6 million year to date, up from $4.1 million. Deferred revenue, current portion, was $94.2 million, up 9.2% from a year earlier. Days sales outstanding was 71 for the quarter and 67 for the nine months. Customer metrics also strengthened. As of September 30, 2022, 76% of customers with 500 employees or more bought four or more licenses, up from 70% a year earlier, and 47% bought six or more, up from 37%. The renewal rate stayed above 90%.
Management pointed to macroeconomic uncertainty and continued foreign currency weakness as near-term headwinds. On a constant currency basis and adjusting for the exit of the Russia business, ARR grew 30% and total revenues grew 27%. The company said it is taking prudent measures on factors it controls while continuing to invest in the business. Risks include budgetary tightening and longer sales cycles in EMEA, foreign currency volatility, inflation in the United States, competition, and the challenge of hiring and retaining sales personnel. Varonis also faces risks associated with the expansion of cloud-delivered services and new product introductions, along with the potential for information technology and cybersecurity breaches. The company noted that foreign currency headwinds are expected to be 50 basis points in the fourth quarter and 200 basis points for the full year.
For the fourth quarter of 2022, Varonis expects revenue of $139.0 million to $142.0 million, or year-over-year growth of 10% to 12%. It also guides to fourth-quarter non-GAAP operating income of $22.0 million to $24.0 million and non-GAAP net income per diluted share of $0.17 to $0.18, based on 127.3 million diluted shares. For the full year 2022, management now expects revenue of $470.0 million to $473.0 million, or growth of 20% to 21%, and ARR of $460.0 million to $463.0 million, or growth of 19% to 20%. Full-year non-GAAP operating income is guided to $25.5 million to $27.5 million, with non-GAAP net income per diluted share of $0.14 to $0.15, based on 126.7 million diluted shares. The guidance cut reflects near-term headwinds from macroeconomic uncertainty and continued foreign currency weakness. The company said it will continue to strategically invest to capture the long-term opportunity.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $123.3M | $111.4M | +10.6% | $100.4M | +22.9% |
| Gross profit | $106.1M | $93.6M | +13.3% | $86.0M | +23.4% |
| Gross margin | 86.0% | 84.0% | +2.0 pp | 85.7% | +0.3 pp |
| Research & development | $44.5M | $44.8M | -0.8% | $34.3M | +29.5% |
| Sales & marketing | $69.8M | $68.7M | +1.6% | $56.2M | +24.2% |
| General & administrative | $17.4M | $17.7M | -1.6% | $14.0M | +24.3% |
| Total operating expenses | $131.7M | $131.2M | +0.4% | $104.6M | +25.9% |
| Operating income (loss) | -$25.6M | -$37.6M | +31.9% | -$18.6M | -37.9% |
| Operating margin | -20.8% | -33.7% | +13.0 pp | -18.5% | -2.3 pp |
| Net income (loss) | -$28.7M | -$36.3M | +20.9% | -$23.3M | -23.2% |
| Net margin | -23.3% | -32.6% | +9.3 pp | -23.2% | -0.1 pp |
| Diluted EPS | -$0.26 | -$0.33 | +$0.07 | -$0.22 | -$0.04 |
Risks
MD&A states EMEA operations were negatively impacted throughout 2022 by the broader macroeconomic environment, including weakening of the Euro and Pound Sterling and the exit of the Russia business, and the company has seen increased budgetary tightening and longer sales cycles in the region that it expects to continue through the end of 2022. EMEA represented approximately 18% of revenue for the three months ended September 30, 2022 and 22% for the nine months ended September 30, 2022.
On October 31, 2022 the company announced availability of the Varonis Data Security Platform under a SaaS delivery model, which was previously sold only on-premises. The risk factors note this expansion may require considerable resources, relies on third-party data center providers, faces data localization laws, and the cloud product offering and pricing is new and may be more expensive than anticipated, while related revenue is not expected to be significant in 2022.
The company reported an operating loss of $25.6 million for the quarter ended September 30, 2022, with the loss widened from $18.6 million in the prior-year quarter, and net loss of $113.8 million for the nine months ended September 30, 2022, with the loss widened from $91.9 million. MD&A attributes the losses in part to increased headcount and expenses.
The company relies on channel partners for substantially all sales, and agreements are generally non-exclusive and can be terminated by partners on 30 days' notice. Loss of a substantial number of channel partners or failure of partners to market the software could materially adversely affect results.
The company's principal research and development facility is in Israel, and it has operations in Ukraine, exposing it to the Russia-Ukraine military conflict, sanctions, and Middle East security conditions. Risk factors state insurance does not cover losses from Middle East security events and Israeli employees may be called to military reserve duty.
The company faces challenges hiring, integrating and retaining qualified sales personnel and engineers, with intense competition particularly in Israel. Failure to maintain sales and marketing productivity or to retain key personnel, including co-founder CEO Yakov Faitelson, could adversely affect growth prospects.
New and expanding privacy laws, including the California Privacy Rights Act effective January 1, 2023, the Virginia Consumer Data Protection Act, Colorado Privacy Act, Utah Consumer Data Protection Act and Connecticut Act Concerning Personal Data Privacy and Online Monitoring all set to go into effect in 2023, impose additional compliance obligations and could require changes to data handling practices or product features.
As of September 30, 2022 the company had $253.0 million outstanding aggregate principal amount of 2025 Notes. Risk factors cite potential dilution from conversion, capped call counterparty risk, and restrictive covenants that may reduce business flexibility or increase borrowing costs.
SaaS KPIs
All quarters →Renewal Rate
Annual Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q3 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.