Varonis (NASDAQ:VRNS) Reports Q1 In Line With Expectations But Full Year Guidance Underwhelms

Jabin Bastian /
2023/05/01 4:26 pm EDT
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Data protection and security software company Varonis (NASDAQ:VRNS) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 11.5% year on year to $107.3 million. However, guidance for the next quarter was less impressive, coming in at $119 million at the midpoint, being 3.42% below analyst estimates. Varonis made a GAAP loss of $38.3 million, improving on its loss of $48.8 million, in the same quarter last year.

Is now the time to buy Varonis? Access our full analysis of the earnings results here, it's free.

Varonis (VRNS) Q1 FY2023 Highlights:

  • Revenue: $107.3 million vs analyst estimates of $107 million (small beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.05 ($0.05 beat)
  • Revenue guidance for Q2 2023 is $119 million at the midpoint, below analyst estimates of $123.2 million
  • The company dropped revenue guidance for the full year, from $524 million to $515 million at the midpoint, a 1.72% decrease
  • Free cash flow of $35.7 million, up from negative free cash flow of $328 thousand in previous quarter
  • Gross Margin (GAAP): 83.6%, up from 81.5% same quarter last year

Yaki Faitelson, Varonis CEO, said, "It is clear that the simplicity and the automated protection of Varonis SaaS is resonating with our customers and our sales force, which leaves me optimistic about our SaaS transition, in spite of the economic slowdown that is impacting our customers.”

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.

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 strong over the last two years, growing from quarterly revenue of $74.8 million in Q1 FY2021, to $107.3 million.

Varonis Total Revenue

This quarter, Varonis's quarterly revenue was once again up 11.5% year on year. But the revenue actually decreased by $35.3 million in Q1, compared to $19.3 million increase in Q4 2022.However, Varonis's sales do seem to have a seasonal pattern to them, and since management is guiding for revenue to rebound in the coming quarter we wouldn't be too concerned.

Guidance for the next quarter indicates Varonis is expecting revenue to grow 6.78% year on year to $119 million, slowing down from the 26% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 11.1% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Varonis's free cash flow came in at $35.7 million in Q1, up 69.6% year on year.

Varonis Free Cash Flow

Varonis has generated $15.1 million in free cash flow over the last twelve months, 3.12% of revenues. This FCF margin is a result of Varonis asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.

Key Takeaways from Varonis's Q1 Results

With a market capitalization of $2.54 billion Varonis is among smaller companies, but its more than $756.3 million in cash and positive free cash flow over the last twelve months give us confidence that Varonis has the resources it needs to pursue a high growth business strategy.

In-line revenue in the quarter and a beat on free cash flow were positives. On the other hand, it was unfortunate to see that Varonis's revenue and operating profit guidance for the full year missed analysts' expectations, as did the same guidance for next quarter. Overall, this quarter's results were not the best we've seen from Varonis. The company is down 3.02% on the results and currently trades at $22.5 per share.

Varonis may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.