What happened

Shares of Varonis Systems (NASDAQ:VRNS) jumped on Tuesday after the data analytics company reported its third-quarter results. Varonis beat analyst estimates across the board, despite a revenue decline driven by a shift to subscriptions. The stock was up 12% at 11:15 a.m. EDT today.

So what

Third-quarter revenue was $65.6 million, down 2.2% year over year but about $4 million higher than the average analyst estimate. Varonis is moving to a subscription-based model, which is putting near-term pressure on the top line as revenue from subscriptions is recognized over time.

A chart showing a rise.

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Subscription revenue was $23.3 million, up from just $2.5 million in the prior-year period, while maintenance and services revenue rose 10% to $34.1 million. Perpetual licenses generated $8.3 million of revenue, down from $33.4 million in the prior-year period. Subscriptions now account for 74% of all license revenue.

Non-GAAP (adjusted) earnings per share came in at a loss of $0.16, down from a profit of $0.06 in the prior year period, but $0.18 better than analysts were expecting. The bottom line is also under pressure from the shift to subscriptions.

In prepared remarks included in the earnings release, CFO and COO Guy Melamed said: "We are pleased to see our customers making larger investments that allow them to more quickly realize the value of the Varonis Data Security Platform. With our rapid transition to a subscription model, the underlying fundamentals of our business continue to strengthen."

Now what

Varonis now expects subscriptions to account for 62% of license revenues in 2019, up from a previous outlook of 45%. Total revenue is expected between $252 million and $255 million for the full year, along with a non-GAAP net loss between $0.90 and $0.96 per share.

For the fourth quarter, it expects revenue between $70.5 million and $73.5 million, and a non-GAAP net loss between $0.07 and $0.13 per share.

While subscription growth put pressure on revenue and earnings in the third quarter, Varonis provided enough good news to light a fire under the stock.

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