Varonis(VRNS) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section covers Varonis's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents Varonis Systems, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instruments, leases, business combinations, equity, and geographic data Condensed Consolidated Balance Sheets This table presents Varonis Systems, Inc.'s condensed consolidated balance sheet data | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Assets | | | | | Cash and cash equivalents | $199,231 | $185,585 | +$13,646 | | Marketable securities (current) | $571,630 | $343,383 | +$228,247 | | Total current assets | $1,068,363 | $878,074 | +$190,289 | | Long-term marketable securities | $364,203 | $658,896 | -$294,693 | | Total assets | $1,615,012 | $1,664,275 | -$49,263 | | Liabilities | | | | | Accrued expenses and other short-term liabilities | $190,344 | $164,930 | +$25,414 | | Deferred revenues (current) | $322,791 | $290,113 | +$32,678 | | Total current liabilities | $771,398 | $709,885 | +$61,513 | | Total liabilities | $1,273,513 | $1,208,619 | +$64,894 | | Stockholders' Equity | | | | | Total stockholders' equity | $341,499 | $455,656 | -$114,157 | Unaudited Condensed Consolidated Statements of Operations This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of operations | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | SaaS Revenues | $105,895 | $44,785 | 136.5% | $194,455 | $78,770 | 146.9% | | Term License Subscriptions | $32,374 | $62,729 | (48.4)% | $63,862 | $118,709 | (46.2)% | | Maintenance and Services | $13,894 | $22,832 | (39.1)% | $30,269 | $46,889 | (35.4)% | | Total Revenues | $152,163 | $130,346 | 16.7% | $288,586 | $244,368 | 18.1% | | Cost of Revenues | $31,249 | $22,436 | 39.3% | $60,267 | $43,785 | 37.6% | | Gross Profit | $120,914 | $107,910 | 12.1% | $228,319 | $200,583 | 13.8% | | Operating Loss | $(36,552) | $(28,826) | 26.8% | $(80,318) | $(76,459) | 5.0% | | Net Loss | $(35,824) | $(23,948) | 49.6% | $(71,607) | $(64,438) | 11.1% | | Net Loss Per Share (Basic & Diluted) | $(0.32) | $(0.21) | 52.4% | $(0.64) | $(0.58) | 10.3% | Unaudited Condensed Consolidated Statements of Comprehensive Loss This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of comprehensive loss | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(35,824) | $(23,948) | $(71,607) | $(64,438) | | Total other comprehensive income (loss) | $15,659 | $(1,520) | $11,821 | $(1,976) | | Comprehensive loss | $(20,165) | $(25,468) | $(59,786) | $(66,414) | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of changes in stockholders' equity | Metric (in thousands) | Balance as of Dec 31, 2024 | Balance as of June 30, 2025 | Change | | :-------------------- | :------------------------- | :-------------------------- | :----- | | Common stock | $113 | $112 | $(1) | | Accumulated other comprehensive income | $2,676 | $14,497 | $11,821 | | Additional paid-in capital | $1,193,022 | $1,138,652 | $(54,370) | | Accumulated deficit | $(740,155) | $(811,762) | $(71,607) | | Total stockholders' equity | $455,656 | $341,499 | $(114,157) | - Key factors impacting equity during the six months ended June 30, 2025, include $66,114 thousand in stock-based compensation expense, $27,799 thousand in taxes paid related to net share settlement of equity awards, and $100,000 thousand in common stock repurchases[15][16][18] Unaudited Condensed Consolidated Statements of Cash Flows This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of cash flows | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net cash provided by operating activities | $89,349 | $68,447 | +$20,902 | | Net cash provided by (used in) investing activities | $44,933 | $(116,968) | +$161,901 | | Net cash used in financing activities | $(120,636) | $(26,816) | -$93,820 | | Increase (decrease) in cash and cash equivalents | $13,646 | $(75,337) | +$88,983 | | Cash and cash equivalents at end of period | $199,231 | $155,403 | +$43,828 | - Investing activities in H1 2025 were positively impacted by $68.3 million in net proceeds from marketable securities and $3.4 million from deposits, partially offset by $18.6 million for an acquisition and $5.7 million in capital expenditures[176] - Financing activities in H1 2025 included $100.0 million in common stock repurchases and $27.8 million in taxes paid for equity awards, partially offset by $7.2 million from employee stock plans[177] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering Varonis's business description, accounting policies for revenue, taxes, financial instruments, business combinations, and equity, as well as information on fair value measurements, leases, and geographic data NOTE 1: GENERAL This note provides an overview of Varonis's business, accounting policies, and recent accounting pronouncements a. Description of Business Varonis provides an integrated platform for data security, threat detection, and compliance across cloud and on-premises data - Varonis provides an integrated platform for data security, threat detection and response, and data privacy and compliance, covering cloud and on-premises data stores and SaaS applications[21][22][23] - The Varonis Data Security Platform, available as a SaaS solution since 2022, offers simpler deployment, faster time-to-value, and automation capabilities to prevent data breaches[22][23] b. Basis of Presentation Interim financial statements are prepared in accordance with SEC regulations for Form 10-Q - The unaudited condensed consolidated interim financial statements are prepared in accordance with SEC regulations for Form 10-Q, condensing certain information and footnotes, and should be read in conjunction with the 2024 Form 10-K[25][26] c. Revenue Recognition SaaS revenues are recognized ratably, while on-premises term license subscriptions are recognized at delivery - SaaS revenues, including MDDR, are recognized ratably over the contract period, while on-premises term license subscriptions are recognized at the point of delivery[27][29][30] - Maintenance and services revenues are recognized ratably over the contract term, with professional services recognized upon delivery or service term expiration[27][31] | Metric | June 30, 2025 | | :---------------------------- | :------------ | | Remaining Performance Obligations | $870,891 thousand | | Expected Revenue Recognition (next 12 months) | ~53% | d. Contract Costs Sales commissions are capitalized and amortized over an expected benefit period of approximately four years - Sales commissions are capitalized and amortized over an expected benefit period of approximately four years for initial contracts and on a straight-line basis for renewal contracts, included in sales and marketing expenses[37] e. Derivative Instruments Varonis uses forward foreign exchange contracts to hedge against currency rate changes for revenues and expenses - Varonis uses forward foreign exchange contracts to hedge against foreign currency rate changes for forecasted revenues (Euro, Pound Sterling) and operating expenses (New Israeli Shekel, Euro, Pound Sterling)[38][39][191] | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss related to cash flow hedges | $(1,337) | $(3,145) | $(1,999) | $(6,388) | f. Income Taxes Varonis maintains a full valuation allowance against deferred tax assets and is assessing new tax legislation - Varonis maintains a full valuation allowance against deferred tax assets due to a history of operating losses[41][144] - The U.S. "One Big Beautiful Bill Act" (OBBBA), enacted July 4, 2025, allows immediate expensing of U.S. R&D and certain capital expenditures, and changes foreign operations taxation. Varonis is assessing its financial impact, as it was enacted after June 30, 2025[48][146] g. Cash, Cash Equivalents, Marketable Securities and Short-Term Investments This section details Varonis's cash, marketable securities, and short-term investments, including unrealized losses | Asset Category (in thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :---------------------------- | :------------------------- | :----------------------------- | | Cash equivalents (Money market funds) | $120,316 | $133,113 | | Marketable securities (US Treasury) | $571,630 | $343,383 | | Short-term deposits (Term bank deposits) | $36,587 | $39,450 | | Long-term marketable securities (US Treasury) | $364,203 | $658,896 | - Unrealized losses on available-for-sale securities were in a continuous unrealized loss position of less than one year as of June 30, 2025, and December 31, 2024, primarily due to changes in interest rates[52][53] h. Business Combinations Varonis accounts for business combinations using the acquisition method, allocating purchase consideration at fair value - Varonis accounts for business combinations using the acquisition method, allocating purchase consideration to acquired assets and assumed liabilities at fair value, with any excess recorded as goodwill. Acquisition costs are expensed as incurred[54] i. Goodwill and Other Long-Lived Assets, including Acquired Intangible Assets Goodwill is tested for impairment annually, and finite-lived intangible assets are amortized on a straight-line basis - Goodwill is not amortized but tested for impairment annually. Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, with amortization expense recorded in cost of revenues[55][56] j. Capitalized Internal-use Software Development Costs Varonis capitalizes development costs for its internal-use SaaS platform software once it reaches the development stage - Varonis capitalizes certain development costs for its internal-use SaaS platform software once it reaches the development stage, recording them as property and equipment. No amortization was recorded as of June 30, 2025, as assets were in development[57] k. Concentration of Credit Risks Varonis's financial instruments are subject to credit risk, managed through limits and allowances for trade receivables - The company's financial instruments, including cash, marketable securities, and trade receivables, are subject to credit risk. Trade receivables are diversified geographically, with credit risk managed through limits, evaluation, and allowances[58][59][60] l. Basic and Diluted Net Loss Per Share Basic and diluted net loss per share were identical due to the anti-dilutive effect of potential common stock shares - Basic and diluted net loss per share were identical for the periods presented because the inclusion of all potential common stock shares would have been anti-dilutive[62] | Potentially Dilutive Shares | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Stock options, RSUs, PSUs | 8,102,463 | 7,807,411 | | Convertible Notes | 14,966,942 | 8,239,049 | m. Contractual Purchase Obligations This table outlines Varonis's contractual minimum purchase commitments with service providers | Commitment Type | Due in next 12 months (in thousands) | Due thereafter (in thousands) | Total (in thousands) | | :-------------- | :----------------------------------- | :---------------------------- | :------------------- | | Service Provider 1 | $2,043 | $21,000 | $23,043 | | Service Provider 2 | $46,700 | $377,620 | $424,320 | n. Recently Issued Accounting Pronouncements Not Yet Adopted Varonis is evaluating new accounting pronouncements related to income taxes and expense disaggregation disclosures - Varonis is evaluating ASU 2023-09 (Income Taxes), effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2026[63][64][65] NOTE 2: FAIR VALUE MEASUREMENTS This note details the fair value measurements of Varonis's financial assets and liabilities by hierarchy levels | Financial Asset/Liability (in thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | Fair Value