Summary
Varonis closed fiscal 2021 with fourth-quarter revenue of $126.6 million, up 33.0% from $95.2 million in the prior-year quarter. Full-year revenue reached $390.1 million, up 33.3% from $292.7 million in 2020. Recurring business now dominates the mix: annual recurring revenue ended the year at $387.1 million, up 35% year over year, and management said 99% of license revenue and 99% of total revenue were recurring in 2021.
Profitability moved the other way. Fourth-quarter gross profit rose 32.0% to $109.2 million, but gross margin slipped to 86.3% from 86.9%, down 0.6 percentage points. GAAP operating loss widened to $17.8 million from $7.2 million, and operating margin fell to -14.1% from -7.6%, down 6.5 percentage points. GAAP net loss widened to $24.9 million from $19.0 million. The non-GAAP view inverts the story. Non-GAAP operating income was $22.4 million against $13.9 million a year earlier, and non-GAAP net income was $18.5 million, or $0.16 per diluted share, versus $12.3 million, or $0.11 per diluted share. A step-up in stock-based compensation expense, which is added back in the non-GAAP reconciliation, sits behind much of that gap.
The full year tracks the quarter. Gross profit rose 33.1% to $330.7 million, and gross margin was 84.8%, down 0.1 percentage points from 84.9%. The full-year GAAP operating loss widened to $98.7 million from $78.4 million, and the net loss widened to $116.9 million from $94.0 million. Diluted loss per share for the year was -$1.11, compared with -$1.00 in 2020. Full-year operating margin was -25.3%, an improvement from -26.8%, up 1.5 percentage points.
Cash generation was uneven. Fourth-quarter operating cash flow was $0.3 million, down 95.6% from $7.7 million in the prior-year quarter. The full year looked better: operating cash flow was $7.2 million, up from -$5.8 million in 2020. Capital expenditures were $6.4 million in the quarter, up 104.5%, and $10.5 million for the year, up 3.7%. Deferred revenue, current portion, was $104.2 million at December 31, 2021, up 5.7% from $98.6 million a year earlier. Management ties the quarterly cash swing to seasonality, since most sales close in the final three weeks of a quarter and the fourth quarter carries the largest accounts receivable balance, which collections then work down in the following period.
Customer adoption keeps widening. At year end, 73% of customers with 500 employees or more had purchased four or more licenses, up from 63% a year earlier, and 41% had purchased six or more, up from 30%. The maintenance renewal rate stayed above 90% in 2021, 2020 and 2019, which underpins the recurring revenue base.
Guidance for the first quarter of 2022 calls for revenue growth of 26% to 29%, a non-GAAP operating loss of $10.5 million to $9.5 million, and a non-GAAP net loss of $0.11 to $0.10 per basic and diluted share. For the full year 2022, the company guides to ARR of $484.0 million to $489.0 million, or growth of 25% to 26%, revenue growth of 24% to 26%, non-GAAP operating income of $26.0 million to $29.0 million, and non-GAAP net income of $0.16 to $0.17 per diluted share.
Currency is the immediate swing factor in that outlook. Management said the weaker dollar against the Israeli shekel is a 350 basis point headwind to first-quarter 2022 non-GAAP operating income and a 200 basis point headwind for the full year, with hedging mitigating the pressure in 2022. The stated risk list is familiar: cybersecurity and data security breaches, the timing and rate of subscription renewals, COVID-19 pressure on customer budgets, longer sales cycles and tougher competition, hiring and retaining sales people and engineers, dependence on closing large deals each quarter, international expansion, and the convertible senior notes and capped call. Seasonality cuts the other way too. Management notes the first quarter is typically the weakest for revenue and gross margin while the fourth quarter is the strongest.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $126.6M | $100.4M | +26.1% | $95.2M | +33.0% |
| Gross profit | $109.2M | $86.0M | +27.0% | $82.7M | +32.0% |
| Gross margin | 86.3% | 85.7% | +0.6 pp | 86.9% | -0.6 pp |
| Research & development | $40.1M | $34.3M | +16.9% | $27.9M | +43.7% |
| Sales & marketing | $67.7M | $56.2M | +20.4% | $48.9M | +38.4% |
| General & administrative | $19.2M | $14.0M | +37.3% | $13.1M | +46.8% |
| Total operating expenses | $127.0M | $104.6M | +21.5% | $89.9M | +41.3% |
| Operating income (loss) | -$17.8M | -$18.6M | +3.9% | -$7.2M | -147.7% |
| Operating margin | -14.1% | -18.5% | +4.4 pp | -7.6% | -6.5 pp |
| Net income (loss) | -$24.9M | -$23.3M | -7.0% | -$19.0M | -31.1% |
| Net margin | -19.7% | -23.2% | +3.5 pp | -20.0% | +0.3 pp |
| Diluted EPS | -$0.24 | -$0.22 | -$0.02 | — | — |
Risks
The filing states we have operations in Ukraine, which is currently experiencing tensions with Russia, and our principal research and development facility is in Israel. Ongoing or future armed conflicts, terrorist activities, or political instability in the region could disrupt operations and harm results.
In 2021, channel partners fulfilled substantially all of our sales, and we expect sales to channel partners to continue to account for substantially all revenues. These agreements are generally non-exclusive and can be terminated by partners on 30 days notice, so losing a substantial number could materially hurt results.
The majority of sales are typically made during the last three weeks of every quarter, and large transactions make the sales cycle longer and less predictable. MD&A also notes Q4 typically has the highest revenues and Q1 the lowest, so failure to close expected deals in the short quarter-end window could cause a revenue miss.
Customers are not required to renew subscriptions, and renewal rates may decline due to pricing, competition, or reduced customer spending. MD&A states maintenance renewal rate was over 90% for each year ended December 31, 2021, 2020 and 2019, and 99% of license revenues and 99% of total revenues were recurring, making renewal performance critical.
The filing warns that as we augment functionality and expand into cloud and classification, we may face increased perceived and real competition from security, classification, and cloud-focused technologies. A more established entrant could lead to price cuts, alternative pricing, free or nominal-price products, reduced gross margins, longer sales cycles, lower renewal rates, and loss of market share.
Growth requires hiring and integrating sales and marketing personnel, but competition for qualified individuals is intense and it can take up to 12 months before a new sales force member meets expectations. Remote hiring and training during COVID-19 may lengthen that period, and failure to hire or integrate could materially impact projected growth.
Prolonged economic uncertainties or downturns, including inflationary pressure, government shutdowns, debt-ceiling failures, trade barriers, and COVID-19, could reduce customer IT spending and lengthen sales cycles. MD&A notes inflation could pressure costs and that the company may not fully offset higher costs through price increases.
Privacy and data protection obligations are rapidly evolving, including CCPA/CPRA, GDPR, Brexit-related uncertainty, and new Virginia and Colorado laws. Non-compliance could result in substantial fines, require changes to data handling practices or software, and increase operational costs.
In 2021, substantially all revenues came from licenses for DatAdvantage, DatAlert, Data Classification Engine, DataPrivilege, and Data Transport Engine. If these products fail to satisfy customers or achieve broader market acceptance, the business and growth prospects would be materially adversely affected.
The tax benefit available to our Israeli subsidiary terminated as of December 31, 2020. A 16% tax rate applies under the Investment Law effective January 1, 2021 if conditions are met, but failure to meet them would subject Israeli operations to the standard 23% corporate tax rate and could increase tax expenses and effective tax rates.
The 2025 Notes, related capped call transactions, and accounting under ASC 470-20 create potential dilution and counterparty risk; as of December 31, 2021 the stock price was higher than the $47.24 cap price, so incremental appreciation above the cap is unprotected. MD&A also notes adoption of ASU 2020-06 on January 1, 2022 reduced accumulated deficit and additional paid-in capital and increased liabilities.
SaaS KPIs
All quarters →Non-GAAP Operating Income
Annual Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q4 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.