Data protection and security software company Varonis (NASDAQ:VRNS) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 21.1% year on year to $148.1 million. The company expects next quarter’s revenue to be around $164.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.10 per share was also 34.4% above analysts’ consensus estimates.
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Varonis (VRNS) Q3 CY2024 Highlights:
- Revenue: $148.1 million vs analyst estimates of $141.5 million (4.7% beat)
- Adjusted EPS: $0.10 vs analyst estimates of $0.07 ($0.03 beat)
- Revenue Guidance for Q4 CY2024 is $164.5 million at the midpoint, roughly in line with what analysts were expecting
- Management raised its full-year Adjusted EPS guidance to $0.27 at the midpoint
- Gross Margin (GAAP): 83.8%, down from 85.8% in the same quarter last year
- Operating Margin: -16%, up from -23.8% in the same quarter last year
- Free Cash Flow Margin: 12.8%, up from 8.4% in the previous quarter
- Market Capitalization: $6.44 billion
Yaki Faitelson, Varonis CEO, said, "We are encouraged by the many tailwinds that are contributing to the strong growth in our business, and our third quarter results reflect the continued strong adoption of our SaaS platform and positive momentum from our Managed Data Detection and Response offering.”
Company Overview
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
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Varonis grew its sales at a tepid 15.1% compounded annual growth rate. This shows it failed to expand in any major way, a rough starting point for our analysis.
This quarter, Varonis reported robust year-on-year revenue growth of 21.1%, and its $148.1 million of revenue topped Wall Street estimates by 4.7%. Management is currently guiding for a 6.7% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.7% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates the market thinks its products and services will see some demand headwinds.
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Customer Acquisition Efficiency
Customer acquisition cost (CAC) payback represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for marketing and sales investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Varonis is extremely efficient at acquiring new customers, and its CAC payback period checked in at 7.7 months this quarter. The company’s efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving it the freedom to invest resources into new growth initiatives while maintaining optionality. 
Key Takeaways from Varonis’s Q3 Results
We liked that the company's its revenue and EPS both outperformed Wall Street’s estimates, showing strength on the top and bottom line. On the other hand, its EPS forecast for next quarter was underwhelming. The outlook is weighing on shares. The stock traded down 4.9% to $55.88 immediately after reporting.
Big picture, is Varonis a buy here and now?The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.