Yahoo Finance Varonis (NASDAQ:VRNS) Reports Bullish Q2, Stock Soars
Data protection and security software company Varonis (NASDAQ:VRNS) beat analysts' expectations in Q2 CY2024, with revenue up 12.9% year on year to $130.3 million. On top of that, next quarter's revenue guidance ($141.5 million at the midpoint) was surprisingly good and 4.4% above what analysts were expecting. It made a non-GAAP profit of $0.05 per share, improving from its profit of $0.01 per share in the same quarter last year.
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Varonis (VRNS) Q2 CY2024 Highlights:
Revenue: $130.3 million vs analyst estimates of $124.9 million (4.4% beat)
EPS (non-GAAP): $0.05 vs analyst estimates of -$0.02 ($0.07 beat)
Revenue Guidance for Q3 CY2024 is $141.5 million at the midpoint, above analyst estimates of $135.6 million
The company lifted its revenue guidance for the full year from $541 million to $548 million at the midpoint, a 1.3% increase
Gross Margin (GAAP): 82.8%, down from 84.9% in the same quarter last year
Free Cash Flow of $13.14 million, down 76.7% from the previous quarter
Market Capitalization: $5.40 billion
Yaki Faitelson, Varonis CEO, said, "Our second quarter results reflect the growing momentum of our SaaS platform and recently introduced Managed Data Detection and Response offering, which helps customers automatically prevent data breaches with very little effort.”
Founded by a duo of former Israeli Defense Forces cyber warfare engineers, Varonis (NASDAQ:VRNS) offers software-as-service that helps customers protect data from cyber threats and gain visibility into how enterprise data is being used.
Endpoint Security
Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. As the volume of internet enabled devices grows, every device that employees use to connect to business networks represents a potential risk. Endpoint security software enables businesses to protect devices (endpoints) that employees use for work purposes either on a network or in the cloud from cyber threats.
Sales Growth
As you can see below, Varonis's revenue growth has been sluggish over the last three years, growing from $88.42 million in Q2 2021 to $130.3 million this quarter.
This quarter, Varonis's quarterly revenue was once again up 12.9% year on year. On top of that, its revenue increased $16.32 million quarter on quarter, a strong improvement from the $40.08 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Varonis is expecting revenue to grow 15.7% year on year to $141.5 million, improving on the 0.8% year-on-year decline it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.2% over the next 12 months before the earnings results announcement.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Varonis has shown impressive cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that give it the option to invest in new products and services rather than sales and marketing. The company's free cash flow margin averaged 16.1% over the last year, better than the broader software sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.
Varonis's free cash flow clocked in at $13.14 million in Q2, equivalent to a 10.1% margin. This quarter's result was good as its margin was 6.3 percentage points higher than in the same quarter last year, but we note it was lower than its one-year cash profitability. Nevertheless, we wouldn't put too much weight on a single quarter because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.
Over the next year, analysts predict Varonis's cash conversion will fall. Their consensus estimates imply its free cash flow margin of 16.1% for the last 12 months will decrease to 12.2%.
Key Takeaways from Varonis's Q2 Results
We were excited to see both revenue and EPS beat analysts' expectations. In addition, it was great to see Varonis' optimistic revenue guidance and outlook for next quarter, which exceeded analysts' expectations. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 8.4% to $52.50 immediately after reporting.
Varonis may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
