Varonis Announces Third Quarter 2016 Financial Results

Total revenues of $40.9 million, up 31% year-over-yearLicense revenues of $22.6 million, up 34% year-over-year

NEW YORK, Nov. 03, 2016 (GLOBE NEWSWIRE) -- Varonis Systems, Inc. (Nasdaq:VRNS), a leading provider of software solutions that protect data from insider threats and cyberattacks, today announced results for the third quarter ended September 30, 2016.

Yaki Faitelson, Varonis CEO, said, "We delivered a strong third quarter.  For the fourth quarter in a row, both license and total revenues grew by more than 30% year over year.  We exceeded our guidance on both the top and bottom lines, and our efforts to reach enterprises with 1,000 or more employees and a larger total customer lifetime value are also paying off. Demand for our solutions increased, and we are encouraged by the positive momentum we see in the business driven by growing awareness of the insider threat and Varonis' role in protecting data. Customers are recognizing that our software provides better protections around data and enables better control of access so companies can discover where their information assets are, track and profile those who use them, spot who may be abusing them, and identify those who are responsible for them."  

Financial Highlights for the Third Quarter Ended September 30, 2016

Revenues:
  • Total revenues were $40.9 million, up 31% compared with the third quarter of 2015.
  • License revenues were $22.6 million, up 34% compared with the third quarter of 2015.
  • Maintenance and services revenues were $18.3 million, up 28% compared with the year-ago period.

Operating Loss:
  • GAAP operating loss was ($3.9) million for the quarter, compared to ($4.5) million in the third quarter of 2015.
  • Non-GAAP operating loss was ($0.4) million for the quarter, compared to ($2.2) million in the third quarter of 2015. 

Net Loss:
  • GAAP net loss was ($4.4) million, compared to GAAP net loss of ($4.9) million in the third quarter of 2015.
  • GAAP net loss per basic and diluted share was ($0.17), compared to GAAP net loss per basic and diluted share of ($0.19) in the third quarter of 2015, based on 26.5 million and 25.4 million basic and diluted common shares outstanding, respectively.
  • Non-GAAP net loss was ($0.9) million, compared to ($2.5) million in the third quarter of 2015.
  • Non-GAAP net loss per basic and diluted share was ($0.03), compared to ($0.10) in the third quarter of 2015, based on 26.5 million and 25.4 million basic and diluted common shares outstanding, respectively.

The tables at the end of this press release include a reconciliation of GAAP to non-GAAP loss from operations and net loss for the three and nine months ended September 30, 2016 and 2015. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Balance Sheet and Cash Flow:

  • As of September 30, 2016, the Company had $112.0 million in cash and cash equivalents and short-term deposits compared with $106.3 million as of December 31, 2015.
  • During the three months ended September 30, 2016, the Company generated $2.2 million in cash from operations.  Year to date, the Company generated $4.5 million in cash from operations, compared with ($4.6) million of cash used for operations in the prior-year period.             

Recent Business Highlights
  • For the third quarter of 2016, total revenues in the United States increased 41% over the prior-year period to $25.0 million, total revenues from EMEA increased 15% over the prior-year period to $12.7 million, and total revenues from Rest of World increased 31% over the prior-year period to $3.3 million.
  • Generated 54% of license and first year maintenance revenues from new customers and 46% from existing customers in the third quarter of 2016, compared to 63% and 37%, respectively, in prior-year period.
  • Added 224 new customers during the third quarter of 2016 compared with 241 in the prior-year period.
  • As of September 30, 2016, 47% of customers had purchased more than one product family, up from 44% as of September 30, 2015.
  • Recognized by Gartner in its 2016 Market Guide for File Analysis Software. Authored by Gartner Analyst Alan Dayley and others, the guide highlights the advantages of adopting file analysis along with key findings and recommendations on how to implement the software and a sample list of representative vendors.

Financial Outlook

For the fourth quarter of 2016, Varonis expects revenues in the range of $52.5 million to $54.0 million, representing 20% to 23% year-over-year growth. The Company anticipates fourth quarter 2016 non-GAAP operating income in the range of $6.3 million to $6.7 million and non-GAAP net income per diluted share in the range of $0.20 to $0.21, based on a tax provision of $0.2 million to $0.5 million and 29.3 million diluted shares outstanding. Expectations of non-GAAP income from operations and non-GAAP net income per diluted share exclude stock-based compensation expense and payroll tax expense related to stock-based compensation.

For the full year 2016, Varonis now expects revenues in the range of $162.5 million to $164.0 million, representing 28% to 29% year-over-year growth. The Company now anticipates full year 2016 non-GAAP operating loss of ($4.4) million to ($4.0) million, and non-GAAP loss per basic and diluted share in the range of ($0.22) to ($0.21), based on a tax provision of $1.0 million to $1.3 million and 26.4 million basic and diluted shares outstanding. Expectations of non-GAAP loss from operations and non-GAAP loss per basic and diluted share exclude stock-based compensation expense and payroll tax expense related to stock-based compensation.

Conference Call and Webcast

Varonis will host a conference call today, November 3, 2016, at 5:00 p.m., Eastern Time, to discuss the Company's third quarter 2016 financial results, current financial guidance and other corporate developments.  To access this call, dial 877-856-1965 (domestic) or 719-325-4760 (international).  The passcode is 3716361. A replay of this conference call will be available through November 10, 2016 at 877-870-5176 (domestic) or 858-384-5517 (international).  The replay passcode is 3716361.  A live webcast of this conference call will be available on the "Investor Relations" page of the Company's website ( www.varonis.com), and a replay will be archived on the website as well.

Non-GAAP Financial Measures

Varonis believes that the use of non-GAAP operating loss and non-GAAP net loss is helpful to our investors. These measures, which the Company refers to as our non-GAAP financial measures, are not prepared in accordance with GAAP.

For the three and nine months ended September 30, 2016 and 2015, non-GAAP operating loss is calculated as operating loss excluding (i) stock-based compensation expense and (ii) payroll tax expense related to stock-based compensation. 

For the three and nine months ended September 30, 2016 and 2015, non-GAAP net loss is calculated as net loss excluding (i) stock-based compensation expense and (ii) payroll tax expense related to stock-based compensation.

Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company's non-cash expense, the Company believes that providing non-GAAP financial measures that exclude stock-based compensation expense allow for more meaningful comparisons between our operating results from period to period. In addition, the Company excludes payroll tax expense related to stock-based compensation expense because, without excluding these tax expenses, investors would not see the full effect that excluding stock-based compensation expense had on our operating results. These expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, which factors may vary from period to period independent of the operating performance of our business. Similar to stock-based compensation expense, the Company believes that excluding this payroll tax expense provides investors and management with greater visibility to the underlying performance of our business operations and facilitates comparison with other periods as well as the results of other companies.

Each of our non-GAAP financial measures is an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time. The non-GAAP financial data are not measures of our financial performance under U.S. GAAP and should not be considered as alternatives to operating loss or net loss or any other performance measures derived in accordance with GAAP. Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on our reported financial results. Further, stock-based compensation expense and payroll tax expense related to stock-based compensation has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of the compensation provided to our employees. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Varonis urges investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measures to evaluate our business.

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, "forward-looking" statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including regarding the Company's growth rate and its expectations regarding future revenues, operating income or loss or earnings or loss per share. These statements are not guarantees of future performance, but are based on management's expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include the following: risks associated with anticipated growth in Varonis' addressable market; competitive factors, including increased sales cycle time, changes in the competitive environment, pricing changes and increased competition; the risk that Varonis may not be able to attract or retain employees, including engineers and sales personnel; general economic and industry conditions, including expenditure trends for data governance and data security software; risks associated with the closing of large transactions, including Varonis' ability to close large transactions consistently on a quarterly basis; Varonis' ability to build and expand its direct sales efforts and reseller distribution channels; new product introductions and Varonis' ability to develop and deliver innovative products; risks associated with international operations; and Varonis' ability to provide high-quality service and support offerings. These and other important risk factors are described more fully in Varonis' reports and other documents filed with the Securities and Exchange Commission and could cause actual results to vary from expectations. All information provided in this press release and in the conference call is as of the date hereof, and Varonis undertakes no duty to update or revise this information, whether as a result of new information, new developments or otherwise, except as required by law.

To find out more about Varonis, visit www.varonis.com.

About Varonis

Varonis is a leading provider of software solutions that protect data from insider threats and cyberattacks. Through an innovative software platform, Varonis allows organizations to analyze, secure, manage, and migrate their volumes of unstructured data. Varonis specializes in file and email systems that store valuable spreadsheets, word processing documents, presentations, audio and video files, emails, and text. This rapidly growing data often contains an enterprise's financial information, product plans, strategic initiatives, intellectual property, and confidential employee, customer or patient records. IT and business personnel deploy Varonis software for a variety of use cases, including data security, governance and compliance, user behavior analytics, archiving, search, and file synchronization and sharing. With offices and partners worldwide, Varonis had approximately 5,000 customers as of September 30, 2016, spanning leading firms in financial services, healthcare, public, industrial, insurance, energy and utilities, media and entertainment, consumer and retail, technology and education sectors.

 
Varonis Systems, Inc.
Consolidated Statements of Operations
(in thousands, except for share and per share data)
 
    Three Months Ended September 30,     Nine Months Ended September 30,
        2016           2015             2016           2015  
                                                 
    Unaudited     Unaudited
Revenues:                  
Licenses    $      22,591        $      16,862          $      58,177        $      43,031  
Maintenance and services         18,346             14,375               51,870             40,342  
Total revenues         40,937             31,237               110,047             83,373  
                                                 
Cost of revenues         4,116             3,044               11,333             8,740  
                                                 
Gross profit         36,821             28,193               98,714             74,633  
                                                 
Operating costs and expenses:                                                
Research and development         9,290             8,085               27,033             23,617  
Sales and marketing         26,410             20,617               77,607             62,072  
General and administrative         5,051             4,036               14,379             11,576  
Total operating expenses         40,751             32,738               119,019             97,265  
                                                 
Operating loss         (3,930 )           (4,545 )             (20,305 )           (22,632 )
                                                 
Financial expenses, net          (187 )           (104 )             (146 )           (743 )
                                                 
Loss before income taxes         (4,117 )           (4,649 )             (20,451 )           (23,375 )
                                                 
Income taxes         (272 )           (276 )             (781 )           (542 )
                                                 
Net loss    $      (4,389 )      $      (4,925 )        $      (21,232 )      $      (23,917 )
                                                 
                                                 
Net loss per share of common stock, basic and diluted   $     (0.17 )     $     (0.19 )       $     (0.81 )     $     (0.96 )
                                                 
                                                 
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted       26,492,313           25,367,347             26,294,936           24,997,856  

 
Stock-based compensation expense for the three and nine months ended September 30, 2016 and 2015 is included in the Consolidated Statements of Operations as follows (in thousands):
 
    Three Months Ended September 30,     Nine Months Ended September 30,
      2016       2015         2016       2015  
                                   
      Unaudited       Unaudited         Unaudited       Unaudited  
                                   
Cost of revenues    $    186     $   98        $    504      $    300  
Research and development       805         524           2,263         1,535  
Sales and marketing       1,613         756           4,416         2,195  
General and administrative       854         679           2,272         1,674  
     $    3,458     $   2,057        $    9,455      $    5,704  
                                   

 
Varonis Systems, Inc.
Consolidated Balance Sheets
(in thousands)
           
        September 30,           December 31,  
        2016           2015  
    Unaudited    
Assets                      
Current assets:                      
Cash and cash equivalents    $      41,688        $      49,241  
Short-term deposits         70,353             57,103  
Trade receivables, net          30,125             47,436  
Prepaid expenses and other current assets         3,932             2,622  
Total current assets         146,098             156,402  
                       
Long-term assets:                      
Other assets         545             477  
Property and equipment, net         9,231             8,265  
Total long-term assets         9,776             8,742  
                       
Total assets    $      155,874        $      165,144  
                       
Liabilities and stockholders' equity                      
Current liabilities:                      
Trade payables    $      944        $      2,612  
Accrued expenses and other liabilities         22,197             23,029  
Deferred revenues         46,434             45,675  
Total current liabilities         69,575             71,316  
                       
Long-term liabilities:                      
Deferred revenues         2,739             3,096  
Severance pay         1,556             1,528  
Other liabilities         5,681             5,617  
Total long-term liabilities         9,976             10,241  
                       
Stockholders' equity:                      
Common stock         27             26  
Accumulated other comprehensive income (loss)         379             (331 )
Additional paid-in capital         185,583             172,326  
Accumulated deficit         (109,666 )           (88,434 )
Total stockholders' equity         76,323             83,587  
Total liabilities and stockholders' equity    $      155,874        $      165,144  
               

 
Varonis Systems, Inc.  
Consolidated Statements of Cash Flows  
(in thousands)  
                 
    Nine Months Ended September 30,  
        2016           2015      
    Unaudited   Unaudited  
Cash flows from operating activities:                          
Net loss    $     (21,232 )      $     (23,917 )    
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                          
Depreciation          1,610             1,051      
Stock-based compensation          9,455             5,704      
Capital gain from disposal of fixed assets         (2 )           (2 )    
Changes in assets and liabilities:                          
Trade receivables         17,311             9,683      
Prepaid expenses and other current assets         (930 )           688      
Trade payables         (1,668 )           (488 )    
Accrued expenses and other liabilities         (502 )           2,301      
Severance pay         28             29      
Deferred revenues         402             664      
Other long term liabilities         64             (346 )    
Net cash provided by (used in) operating activities         4,536             (4,633 )    
                           
Cash flows from investing activities:                          
Increase in short-term deposits        (13,250 )           -       
Decrease (increase) in long-term deposits         (27 )           11      
Increase in restricted cash         (41 )           (154 )    
Proceeds from sale of property and equipment         2             -       
Purchase of property and equipment         (2,576 )           (3,537 )    
Net cash used in investing activities        (15,892 )           (3,680 )    
                           
Cash flows from financing activities:                          
Proceeds from employee stock plans         3,803             1,647      
Net cash provided by financing activities         3,803             1,647      
                           
Decrease in cash and cash equivalents         (7,553 )           (6,666 )    
Cash and cash equivalents at beginning of period         49,241             76,593      
Cash and cash equivalents at end of period    $      41,688        $      69,927      
           

 
Varonis Systems, Inc.
Reconciliation of GAAP Measures to non-GAAP  
(in thousands, except share and per share data)
                   
    Three Months Ended September 30,     Nine Months Ended September 30,
        2016           2015             2016           2015    
    Unaudited     Unaudited
Reconciliation to non-GAAP loss from operations:                  
                   
GAAP operating loss    $      (3,930 )      $      (4,545 )        $      (20,305 )      $      (22,632 )  
                                   
Add back:                                  
Stock-based compensation expense         3,458             2,057               9,455             5,704    
Payroll tax expenses related to stock-based compensation         54             320               231             320    
                                   
Non-GAAP operating loss    $      (418 )      $      (2,168 )        $      (10,619 )      $      (16,608 )  
                   
Reconciliation to non-GAAP net loss:                  
                   
GAAP net loss    $      (4,389 )      $      (4,925 )        $      (21,232 )      $      (23,917 )  
                                   
Add back:                                  
Stock-based compensation expense         3,458             2,057               9,455             5,704    
Payroll tax expenses related to stock-based compensation         54             320               231             320    
                                   
Non-GAAP net loss    $      (877 )      $      (2,548 )        $      (11,546 )      $      (17,893 )  
                   
GAAP & Non-GAAP weighted average number shares used in computing                                  
  net loss per share of common stock - basic and diluted         26,492,313             25,367,347               26,294,936             24,997,856    
                                   
Non-GAAP net loss per share of common stock - basic and diluted    $      (0.03 )      $      (0.10 )        $      (0.44 )      $      (0.72 )  
GAAP net loss per share of common stock - basic and diluted    $      (0.17 )      $      (0.19 )        $      (0.81 )      $      (0.96 )  
                                   

Investor Relations Contact:Staci MortensonICR646-706-7516Email: investors@varonis.comNews Media Contacts:Mark FredricksonCTP617-412-4000 x274or 978-314-6739Email: mfredrickson@ctpboston.com

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