Summary
Varonis reported fiscal 2024 third quarter revenue of $148.1 million, up 21.1% from the $122.3 million posted in the prior-year quarter. Revenue for the first nine months of 2024 was $392.4 million, up 13.7% from $345.1 million for the same period in 2023. The growth comes from a business that is being rebuilt around SaaS delivery. Management said SaaS reached about 43% of total ARR at September 30, 2024, and ARR was $610.0 million, up 18% year over year. Conversions to SaaS also drag on reported results, since they shift revenue recognition to a ratable basis, and term license and maintenance revenue are expected to keep declining.
Gross profit for the quarter was $124.1 million, up 18.2% from $104.9 million a year earlier, but gross margin fell to 83.8% from 85.8%, a decline of 2.0 percentage points. The compression came from higher customer success headcount, third-party hosting costs tied to SaaS, and support for the MDDR offering. The operating loss narrowed to $23.6 million from $29.1 million, while operating margin improved to negative 16.0% from negative 23.8%, up 7.9 percentage points. Non-GAAP operating income was $9.1 million for the quarter, compared with $4.9 million in the prior-year quarter. The net loss was $18.3 million, or $0.16 per diluted share, against a net loss of $23.0 million, or $0.21 per diluted share, a year earlier.
Cash generation improved sharply. Operating cash flow for the first nine months of 2024 was $90.9 million, up 85.7% from $49.0 million for the first nine months of 2023. Free cash flow, a non-GAAP measure, was $88.6 million for the nine months, compared with $46.0 million a year earlier. Capital expenditures for the nine months were $2.3 million, down 20.5% from $2.9 million. In the quarter alone, capital expenditures were $1.2 million, up from $0.3 million a year ago. Deferred revenue, current portion only, was $217.6 million at September 30, 2024, up 49.6% from $145.5 million. Remaining performance obligations were $581.4 million, up 124.0% from $259.6 million, and the company said it expects RPO to keep increasing in absolute dollars as it shifts to a predominantly SaaS model. Varonis also reported $1.2 billion in cash and cash equivalents, short-term deposits, and short-term and long-term marketable securities, and raised net proceeds of $394.1 million from an offering of 1.00% convertible senior notes due 2029.
Guidance points to a slower top line in the near term. For the fourth quarter of 2024, Varonis expects revenue growth of 5% to 8% year over year, non-GAAP operating income of $20.0 million to $22.0 million, and non-GAAP net income per diluted share of $0.13 to $0.14 on 135.0 million diluted shares. For the full year 2024, the company expects ARR of $635.0 million to $639.0 million, free cash flow of $95.0 million to $100.0 million, non-GAAP operating income of $20.6 million to $22.6 million, and non-GAAP net income per diluted share of $0.26 to $0.27 on 134.9 million diluted shares.
Several risks sit under these numbers. The SaaS transition will keep pressuring reported revenue, and the company says term license and maintenance revenue will decline. Renewal rates stayed above 90% for the nine months ended September 30, 2024, which matters because the model depends on the installed base converting and expanding. Revenue is also geographically concentrated, with 76% of nine-month revenue from North America, 21% from EMEA, and 3% from the rest of the world. Management noted tighter budgets and more scrutiny on enterprise spending, and said that trend may continue for the foreseeable future. Operations face a further complication, since the conflict in the Middle East has already pulled some employees in Israel into active reserve duty, and the company says its operations in the region could be disrupted if the situation worsens. Days sales outstanding was 69 for the quarter and 73 for the nine months, and sales remain heavily weighted to the final weeks of each quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $148.1M | $130.3M | +13.6% | $122.3M | +21.1% |
| Gross profit | $124.1M | $107.9M | +15.0% | $104.9M | +18.2% |
| Gross margin | 83.8% | 82.8% | +1.0 pp | 85.8% | -2.0 pp |
| Research & development | $53.5M | $44.9M | +19.0% | $44.8M | +19.3% |
| Sales & marketing | $71.4M | $70.0M | +1.9% | $68.6M | +4.0% |
| General & administrative | $22.9M | $21.8M | +5.1% | $20.6M | +10.7% |
| Total operating expenses | $147.7M | $136.7M | +8.0% | $134.1M | +10.2% |
| Operating income (loss) | -$23.6M | -$28.8M | +18.0% | -$29.1M | +18.9% |
| Operating margin | -16.0% | -22.1% | +6.1 pp | -23.8% | +7.9 pp |
| Net income (loss) | -$18.3M | -$23.9M | +23.4% | -$23.0M | +20.4% |
| Net margin | -12.4% | -18.4% | +6.0 pp | -18.8% | +6.4 pp |
| Diluted EPS | -$0.16 | -$0.21 | +$0.05 | -$0.21 | +$0.05 |
Risks
The company is transitioning to a predominantly SaaS delivery model, which MD&A states creates revenue recognition headwinds and may cause significant variation in reported revenues. For the nine months ended September 30, 2024, term license subscriptions decreased 25.1% while SaaS revenues increased 537.1%, and management expects term license subscription revenues to continue to decline.
MD&A states customers have shown budgetary tightening and additional scrutiny on enterprise spending due to a higher inflation and interest rate environment and a general economic slowdown, a trend that may continue. Risk Factors warn this can cause customers to delay purchasing decisions and lengthen sales cycles.
Risk Factors state that the majority of sales are typically made during the last three weeks of every quarter and that large transactions have longer, less predictable sales cycles. Failure to close expected transactions in that short window could cause the company to miss quarterly expectations.
In 2023 and for the nine months ended September 30, 2024, channel partners fulfilled substantially all of the company's sales. The agreements are generally non-exclusive, allow termination on 30 days' notice, and the loss of a substantial number of channel partners could materially and adversely affect results of operations.
In September 2024 the company issued $460.0 million aggregate principal amount of 2029 Notes, and as of September 30, 2024 it had approximately $713.0 million outstanding aggregate principal amount of Notes. Risk Factors state this indebtedness may limit business flexibility and require substantial cash flow for debt service, and conversion may dilute existing stockholders.
MD&A notes that due to the war that began on October 7, 2023, a portion of employees in Israel have been called to active reserve duty and operations in the region may be disrupted if the situation deteriorates. Risk Factors also cite armed conflicts, sanctions from the Russia/Ukraine war, and related regulatory and compliance costs.
Risk Factors cite increased competition from established or emerging companies that may have greater name recognition, larger sales and marketing resources, and larger customer bases. The company also faces direct competition in specific use cases including data migration, data subject access requests, and Active Directory security.
Risk Factors state that as of September 30, 2024 the tax benefit for the Israeli subsidiary terminated; if conditions are not met, the subsidiary could face the 23% standard corporate tax rate instead of 16%. They also note Section 174 R&E capitalization could significantly increase tax expenses and decrease cash flows from operations once NOLs or credits are fully utilized.
Risk Factors describe a rapidly evolving privacy and data protection framework including GDPR, CCPA, CPRA, and multiple new U.S. state laws, as well as data localization laws that may deter cloud adoption. Non-compliance could result in substantial fines, lawsuits, and required changes to business practices or software.
Risk Factors state the SaaS transition has increased challenges in finding, hiring, and retaining qualified sales force members, and that it can take up to 12 months before a new sales force member is trained and operating at expected levels. Competition for engineers in Israel is also described as intense.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Annual Recurring Revenue
Non-GAAP Operating Income
Renewal Rate
SaaS ARR as a Percentage of Total ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q3 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.