Varonis Systems (VRNS 56.40, -15.50, -21.56%) is trading sharply lower today after reporting Q2 results last night. The company provides data security and
analytics, but says it fights a different battle than conventional
cybersecurity companies. Varonis provides software that provides ways to track
and protect data wherever it is stored, on premises and in the cloud. This
includes sensitive files and emails; confidential customer, patient, and
employee data; financial records; strategic plans; and more.
Its Varonis Data Security Platform enables customers to analyze data, account activity, and user behavior to detect cyberattacks. Its Metadata Framework extracts critical data and metadata from an IT infrastructure, then its security platform uses this contextual information to map functional relationships among employees, content, data, and usage.
Varonis compares it to the revolution in internet search that occurred when search engines began to mine internet metadata, such as the links between pages, in addition to page content. Similarly, Varonis's platform creates advanced, searchable data structures out of available content and metadata, providing real-time intelligence about massive volumes of data that makes it more accessible, manageable, and secured. Its platform analyzes how employees use and access data, baselines "normal" behavior patterns, and alerts on significant deviations from profiled behaviors.
Its clients are able to detect rogue insiders, attackers that have compromised internal systems and employee accounts, malware, and other significant threats. Unstructured data represents a critical business asset, and companies are increasingly seeking ways to maximize the value of this data. Also, regulations such as GDPR in the EU are causing holders of data to be more accountable.
Turning to the Q2 results, Varonis reported a non-GAAP loss of $(0.08) per share, which was below prior guidance of $(0.07)-(0.04). Revenue rose 25.8% year/year to $62.2 mln, which was in-line with prior guidance of $61.5-62.5 mln. The guidance for Q3 is for is as follows: sees non-GAAP EPS of ($0.02)-$0.01 and revs of $64-65 mln. Both are roughly in-line with market expectations.
License revenue rose 23% to $33.5 mln while maintenance and services revenues rose 30% to $28.7 mln. Varonis says demand for its platform remains strong. There is an increasing need for companies to track and protect their data wherever it is stored. With its platform approach, an increasing number of customers are adopting more product families, driving Varonis' land and expand strategy.
On the call, Varonis talked about how its growth in North America was impacted by underperformance in the West Coast region. It has moved top sales leadership into the area to help ensure it more effectively captures demand there. Varonis feels confident that these changes will result in improvements in the second half of the year.
In sum, the stock is selling off as investors were not expecting an EPS miss. They are not common events for the company; this was its first EPS miss since 1Q15. Furthermore, the last few beats have been pretty substantial. It seems the hiccup on the West Coast impacted results in Q2. The good news is that Varonis is taking steps to remedy that regional weak performance, but investors are clearly spooked by the Q2 results.
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