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Investing.com -- Shares of Varonis Systems (NASDAQ: NASDAQ:VRNS) tumbled 10% after the company provided a full-year earnings guidance that fell short of analysts’ expectations.
Varonis Systems reported fourth-quarter earnings per share (EPS) of $0.18, surpassing the analyst estimate of $0.14. However, the company’s revenue for the quarter was $158.5 million, which did not meet the consensus estimate of $165.17 million. The revenue also saw a slight increase from $154.1 million in the fourth quarter of the previous year.
The company’s guidance for the fiscal year 2025 was particularly concerning for investors. Varonis sees its EPS ranging between $0.13 to $0.17, significantly below the consensus of $0.32. Furthermore, the full-year revenue forecast is between $610 to $625 million, compared to the consensus estimate of $625.6 million.
Despite the disappointing guidance, Varonis highlighted several positive aspects of its financial performance. Annual recurring revenues (ARR) grew 18% YoY, and SaaS ARR now represents approximately 53% of total ARR. The company also reported a substantial increase in cash from operations, which reached $115.2 million compared to $59.4 million in the previous year. Free cash flow followed a similar positive trajectory, doubling from $54.3 million last year to $108.5 million.
Varonis CEO Yaki Faitelson expressed enthusiasm about the growth in ARR from new customers, attributing it to the appeal of SaaS and MDDR solutions, as well as the increased interest in Generative AI. CFO & COO Guy Melamed noted the strategic significance of SaaS representing a majority of ARR, which positions the company for strong ARR growth and improved free cash flow.
The company’s financial outlook for the first quarter of 2025 anticipates revenues of $130.0 million to $135.0 million and a non-GAAP operating loss between $14.0 million to $11.0 million.
Analysts have weighed in on the results and guidance. Morgan Stanley (NYSE:MS)’s Hamza Fodderwala lowered the price target on Varonis to $54.00 from $60.00 but maintained an Overweight rating. Meanwhile, Cantor Fitzgerald analyst Jonathan Ruykhaver reiterated an Overweight rating and a $60.00 price target, noting, "this underperformance stems directly from headwinds related to the company’s ongoing SaaS transition."
Varonis’ shift towards SaaS is seen as a strategic move, but it is also recognized as the source of current financial headwinds, as reflected in the comments from analysts and the company’s conservative guidance for the upcoming fiscal year.
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