Varonis(US:VRNS)2022-11-01 02:39Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 26% year-over-year to $447.8 million, or 30% when adjusted for foreign exchange (FX) and the impact of exiting the Russia business [9][32] - Total revenue increased 23% year-over-year to $123.3 million, or 27% adjusted for FX and Russia [12][22] - Subscription revenues reached $96.1 million, growing 37% year-over-year [32] - Gross profit for Q3 was $108.9 million, representing a gross margin of 88.3%, compared to 88.0% in Q3 2021 [34] Business Line Data and Key Metrics Changes - North America revenue grew 30% year-over-year to $98 million, accounting for 79% of total revenues [33] - EMEA revenue declined 3% to $22.1 million, but grew 16% when adjusted for FX and Russia [22][33] - Rest of World revenues increased 63% to $3.2 million, representing 3% of total revenues [33] Market Data and Key Metrics Changes - The economic uncertainty in EMEA led to a softer than anticipated outcome, with longer sales cycles and deal scrutiny impacting performance [10][12] - The U.S. Federal business experienced a shortfall of approximately $4 million to $5 million against expectations [10][44] Company Strategy and Development Direction - The company is transitioning to a SaaS delivery model for its flagship Data Security Platform, which is expected to enhance customer flexibility and reduce upfront costs [16][20] - The strategic priority remains focused on addressing data protection challenges amid increasing government regulations and the growing sophistication of cyber threats [14][15] - A 5% reduction in headcount is being implemented as part of cost management initiatives due to the uncertain macroeconomic environment [13][26] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued economic deterioration in EMEA, which may also affect the U.S. business [12][25] - Despite short-term challenges, management maintains a long-term positive outlook for both the EMEA and U.S. Federal segments [11][44] - The company expects to achieve free cash flow levels of $20 million to $25 million for the full year 2023, with ARR and revenue growth projected at 10% to 12% [30][39] Other Important Information - The company has authorized a $100 million share repurchase program, supported by a strong balance sheet with nearly $800 million in cash [40] - The transition to SaaS is expected to take four to six years, with a focus on ensuring a smooth rollout and minimizing customer confusion [28][84] Q&A Session Summary Question: Insights on the macroeconomic environment and its impact - Management noted that EMEA deteriorated faster than expected, with longer sales cycles and lower close rates impacting both EMEA and potentially the U.S. business [44] Question: Update on Data Advantage Cloud and its performance - The expectation for Data Advantage Cloud remains at $5 million ARR, with significant opportunities identified in the market [46][49] Question: Reasons for federal deals slipping and managing customer confusion during the SaaS transition - Federal deals fell short due to longer sales cycles and the need for more time to close, while the company plans to manage customer education around the new SaaS options carefully [52][55] Question: Revenue recognition differences between term and SaaS models - The transition to SaaS will impact revenue recognition, with SaaS revenues being fully ratable from the outset, while on-prem subscription deals recognize approximately 80% upfront [28][61] Question: Competitive landscape and win rates - The competitive landscape remains stable, with the company maintaining a strong position in the market despite some emerging competition [65] Question: Headcount reduction specifics and EMEA market softness - The headcount reduction is across the company, aimed at improving efficiency, while EMEA softness was felt broadly without significant losses to competition [71]