Shares of Varonis Systems (VRNS 1.09%) climbed as much as 10% early Tuesday, then settled to close up 6.9% after the security software company announced strong third-quarter 2023 earnings.
Another strong quarter of recurring revenue growth
Varonis' quarterly revenue fell slightly from the same year-ago period, to $122.3 million -- slightly below consensus estimates for $125 million -- as a 1.7% increase in subscription revenue to $97.7 million was more than offset by a 9.9% decline in maintenance and services revenue, to $24.6 million. On the bottom line, however, that translated to adjusted (non-GAAP) net income of $10.4 million, or $0.08 per diluted share, far above estimates for adjusted earnings of $0.03 per share and up from $0.05 per share in the same year-ago period.
Annual recurring revenue (ARR) also climbed 16% year over year to $517.5 million at the end of the quarter. Around 15% of Varonis' total sales now come from software-as-a-service (SaaS) products.
"We continue to see solid demand from both new and existing customers who wish to consume Varonis through our SaaS platform, which is reflected by our third quarter SaaS mix of 59% versus our guidance of 45% and significant existing customer conversions," stated Varonis CFO and COO Guy Melamed. "This is benefiting our ARR performance and cash flow generation and positions us for a strong fourth quarter."
What's next for Varonis investors?
Varonis expects fourth-quarter 2023 revenue of $150 million to $154 million, or growth of 5% to 8% and roughly in line with Wall Street's models. Varonis also sees fourth-quarter adjusted net income per share in the range of $0.22 to $0.24, well above consensus estimates for $0.18 per share. Finally, Varonis now expects SaaS will represent 55% of new business and upsell ARR for the full year 2023 -- an increase from previous guidance for a 50% mix -- with around 60% of ARR coming from SaaS in the fourth quarter.
Between Varonis' solid bottom-line outperformance and faster-than-expected growth from its lucrative SaaS revenue streams, the stock is understandably rallying in response today. With shares now up around 40% year to date -- and if Varonis' SaaS platform can sustain its positive momentum into the new year -- I won't be the least bit surprised if the stock continues to rally in kind.
