Varonis Systems plunges amid weak guidance, Q3 revenue due to federal weakness

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Varonis Systems (VRNS [https://seekingalpha.com/symbol/VRNS]) was in focus on Wednesday after the cybersecurity company offered up weaker-than-expected guidance and third-quarter sales, citing weakness in its federal business.

Shares plunged nearly 30% in premarket trading.

For the period ending Sept. 30, Varonis said it earned an adjusted $0.06 per share as revenue came in at $161.6M, up 9.1% year-over-year. Software-as-a-service revenue during the period was $125.8M, up from $57.8M in the year-ago period. Term license subscription revenue was $24.8M, while annual recurring revenue came in at $718.6M, up 18% year-over-year.

Analysts were expecting the company to earn an adjusted $0.05 per share on $166.21M in sales.

“We continued to see healthy demand for our SaaS platform, which now represents 76% of total company ARR,” Varonis CEO Yaki Faitelson said in a statement. “This adoption is driven by the automated outcomes that it provides as well as customer interest in deploying AI initiatives and securing data in the cloud. At the same time, in the final weeks of the quarter, we experienced lower renewals in the Federal vertical and in our non-Federal on-prem subscription business, which led to a shortfall relative to our expectations.”

In conjunction with the weak third-quarter results, Varonis said it expects fourth-quarter revenue to be between $165M and $171M, with the $168M midpoint below the $170.79M consensus estimate. Adjusted earnings are forecast to be between $0.02 and $0.04, in-line with the $0.03 per share estimate.

Annual recurring revenue for the full-year is expected to be between $730M and $738M, while free cash flow is forecast to be between $120M and $125M. Adjusted earnings are expected to be between $0.12 and $0.13 per share.

Following the weaker-than-expected financial results, investment firm Baird downgraded Varonis to Neutral and lowered its price target to $52.

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