Varonis Systems Inc 10-Q for FY2020 Q2

Varonis Systems Inc (VRNS)

10-Q 2020-08-04 For: 2020-06-30

Added on April 04, 2026

About this 10-Q

Varonis Systems Inc filed this 10-Q on August 4, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $66.57M; up 11.6% from $59.62M a year earlier
Net loss: $24.32M; compared with a net loss of $24.49M a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	VRNS	The NASDAQ Stock Market LLC


Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	☐

		Emerging growth company	☐


PART I. FINANCIAL INFORMATION			1

Item 1.	Financial Statements	1

Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019			1

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019			3

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019			4

Unaudited Consolidated Statements of Changes in Stockholders’ Equity as of June 30, 2020 and 2019			5

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019			7

Notes to Unaudited Consolidated Financial Statements			8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION			41

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	42

Item 6.	Exhibits	65

SIGNATURES		66

EXHIBIT INDEX		67


	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	239,979	$	68,929
Marketable securities	26,116		41,531
Short-term deposits	60,000		10,000
Trade receivables (net of allowance for doubtful accounts of $862 and $637 at June 30, 2020 and December 31, 2019, respectively)	48,766		75,050
Prepaid expenses and other current assets	15,568		13,047
Total current assets	390,429		208,557

Long-term assets:
Other assets	20,007		18,360
Operating lease right-of-use asset	51,294		55,057
Property and equipment, net	36,566		36,338
Total long-term assets	107,867		109,755
Total assets	$	498,296	$	318,312

Liabilities and stockholders’ equity
Current liabilities:
Trade payables	$	678	$	997
Accrued expenses and other short-term liabilities	65,094		62,607
Deferred revenues	79,129		95,975
Total current liabilities	144,901		159,579

Long-term liabilities:
Convertible senior notes, net	215,144		—
Deferred revenues	3,692		5,460
Operating lease liability	53,539		57,040
Other liabilities	2,490		2,701
Total long-term liabilities	274,865		65,201

Stockholders’ equity:
Share capital
Common stock of $0.001 par value - Authorized: 200,000,000 shares at June 30, 2020 and December 31, 2019; Issued and outstanding: 31,543,519 shares at June 30, 2020 and 30,583,311 shares at December 31, 2019	32		31
Accumulated other comprehensive income (loss)	3,536		(449)
Additional paid-in capital	347,447		310,682
Accumulated deficit	(272,485)		(216,732)
Total stockholders’ equity	78,530		93,532
Total liabilities and stockholders’ equity	$	498,296	$	318,312


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Subscriptions	$	34,086	$	14,837	$	54,451	$	21,842
Perpetual licenses	240		11,514		628		27,035
Maintenance and services	32,239		33,270		65,662		67,104
Total revenues	66,565		59,621		120,741		115,981

Cost of revenues	10,335		8,398		20,515		16,724

Gross profit	56,230		51,223		100,226		99,257

Operating costs and expenses:
Research and development	24,067		19,722		46,755		38,490
Sales and marketing	42,983		41,656		85,563		83,652
General and administrative	11,274		13,851		22,672		23,122
Total operating expenses	78,324		75,229		154,990		145,264

Operating loss	(22,094)		(24,006)		(54,764)		(46,007)
Financial income (expenses), net	(1,845)		65		(392)		(63)

Loss before income taxes	(23,939)		(23,941)		(55,156)		(46,070)
Income taxes	(384)		(547)		(597)		(1,057)

Net loss	$	(24,323)	$	(24,488)	$	(55,753)	$	(47,127)

Net loss per share of common stock, basic and diluted	$	(0.77)	$	(0.81)	$	(1.79)	$	(1.57)

Weighted average number of shares used in computing net loss per share of common stock, basic and diluted	31,494,291		30,284,421		31,195,152		30,058,593


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common stock			Additional paid-in capital	Accumulated other comprehensive income (loss)	Accumulated deficit	Total stockholders’ equity
	Number	Amount
Balance as of December 31, 2018	29,576,880	30	266,941	(3,633)	(137,968)	125,370
Stock-based compensation expense	—	—	8,961	—	—	8,961
Common stock issued under employee stock plans, net	686,357	—	(4,642)	—	—	(4,642)
Unrealized income on derivative instruments	—	—	—	2,935	—	2,935
Unrealized income on available for sale securities	—	—	—	10	—	10
Net loss	—	—	—	—	(22,639)	(22,639)
Balance as of March 31, 2019	30,263,237	30	271,260	(688)	(160,607)	109,995
Stock-based compensation expense	—	—	14,796	—	—	14,796
Common stock issued under employee stock plans, net	63,790	—	(1,055)	—	—	(1,055)
Unrealized income on derivative instruments	—	—	—	912	—	912
Unrealized income on available for sale securities	—	—	—	34	—	34
Net loss	—	—	—	—	(24,488)	(24,488)
Balance as of June 30, 2019	30,327,027	30	285,001	258	(185,095)	100,194


	Common stock					Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit		Total stockholders’ equity
	Number	Amount
Balance as of December 31, 2019	30,583,311	$	31	$	310,682	$	(449)	$	(216,732)	$	93,532
Stock-based compensation expense	—	—		12,883		—		—		12,883
Common stock issued under employee stock plans, net	882,959	—		4,316		—		—		4,316
Unrealized income on derivative instruments	—	—		—		545		—		545
Unrealized income on available for sale securities	—	—		—		195		—		195
Net loss	—	—		—		—		(31,430)		(31,430)
Balance as of March 31, 2020	31,466,270	31		327,881		291		(248,162)		80,041
Stock-based compensation expense	—	—		17,623		—		—		17,623
Common stock issued under employee stock plans, net	77,249	1		497		—		—		498
Realized and unrealized income on derivative instruments	—	—		—		3,367		—		3,367
Unrealized loss on available for sale securities	—	—		—		(122)		—		(122)
Purchase of capped calls related to Convertible senior notes	—	—		(29,348)		—		—		(29,348)
Equity component of Convertible senior notes, net	—	—		30,794		—		—		30,794
Net loss	—	—		—		—		(24,323)		(24,323)
Balance as of June 30, 2020	31,543,519	32		347,447		3,536		(272,485)		78,530


	Assets (liabilities) as of June 30, 2020 (unaudited)						Assets (liabilities) as of December 31, 2019
	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in prepaid expenses and other current assets and accrued expenses and other short-term liabilities	$	79,911	$	424	$	84,968	$	(470)
Foreign exchange forward contract derivatives in cash flow hedging relationships included in other long-term assets	$	15,694	$	546	$	—	$	—
Foreign exchange forward contract derivatives for monetary items included in prepaid expenses and other current assets and accrued expenses and other short-term liabilities	$	14,592	$	(35)	$	26,995	$	5


f.			Cash, Cash Equivalents, Marketable Securities and Short-Term Investments:


	As of June 30, 2020
	(unaudited)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents
Money market funds	$	18,634	$	—	$	—	$	18,634
Total	$	18,634	$	—	$	—	$	18,634

Marketable securities
US Treasury securities	$	26,021	$	95	$	—	$	26,116
Total	$	26,021	$	95	$	—	$	26,116

Short-term deposits
Term bank deposits	$	60,000	$	—	$	—	$	60,000
Total	$	60,000	$	—	$	—	$	60,000


	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents
Money market funds	$	4,789	$	—	$	—	$	4,789
Total	$	4,789	$	—	$	—	$	4,789

Marketable securities
US Treasury securities	$	41,510	$	23	$	(2)	$	41,531
Total	$	41,510	$	23	$	(2)	$	41,531

Short-term deposits
Term bank deposits	$	10,000	$	—	$	—	$	10,000
Total	$	10,000	$	—	$	—	$	10,000


j.			Recently Issued Accounting Pronouncements Not Yet Adopted:


Financial assets:
Cash equivalents:
Money market funds	18,634		—		—		18,634		4,789		—		—		4,789
Marketable securities:
US Treasury securities	26,116		—		—		26,116		41,531		—		—		41,531
Prepaid expenses and other current assets:
Forward foreign exchange contracts	—		424		—		424		—		5		—		5
Other long-term assets:
Forward foreign exchange contracts	—		546		—		546		—		—		—		—
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts	—		(35)		—		(35)		—		(470)		—		(470)
Total financial assets (liabilities)	$	44,750	$	935	$	—	$	45,685	$	46,320	$	(465)	$	—	$	45,855


a.			Description of Business:


b.			Basis of Presentation:


c.			Revenue Recognition:


d.			Contract Costs:


	June 30, 2020
	(unaudited)
Operating right-of-use assets	$	51,294

Operating lease liabilities, current	$	8,188
Operating lease liabilities long-term	53,539
Total operating lease liabilities	$	61,727


Remaining lease term and discount rate:
Weighted average remaining lease term (years)	7.92

Weighted average discount rate	4.04	%


	As of
	June 30, 2020
	(in thousands)
Liability component
Principal	$	253,000
Unamortized discount	(31,138)
Unamortized issuance costs	(6,718)
Net carrying amount	$	215,144

Equity component, net of discount and issuance costs	$	30,794


	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
	(in thousands)
Contractual interest expense	$	430	$	430
Amortization of debt discount	641		641
Amortization of debt issuance costs	138		138
Total	$	1,209	$	1,209


	Six Months Ended June 30, 2020 (unaudited)
	Number	Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)

Options outstanding as of January 1, 2020	454,348	$	20.628	$	25,935	4.343
Granted	—	$	—
Exercised	(64,005)	$	19.991
Forfeited and expired	(500)	$	1.576

Options outstanding and exercisable as of June 30, 2020	389,843	$	20.757	$	26,401	3.925


Range of exercise price						Options outstanding and exercisable as of June 30, 2020		Weighted average remaining contractual life (years)	Weighted average exercise price of options outstanding and exercisable

$	6.230	—	8.800	10,856	1.566	$	8.216


$	12.470	—	16.870	109,838	3.621	$	14.232
$	19.510	—	21.660	147,900	4.127	$	21.158
$	22.010	—	24.230	54,367	3.807	$	22.277
		$29.880		53,088	4.647	$	29.880
		$39.860		13,794	3.726	$	39.860

				389,843	3.925	$	20.757


	Options outstanding and exercisable as of June 30, 2020	Exercise price per share		Exercisable through
	(number)

February 2013	1,500	$	12.470	February 2023
August 2013	4,000	$	21.140	August 2023
March 2014	2,700	$	39.860	March 2024
May 2014	3,700	$	22.010	May 2024
November 2014	4,038	$	21.660	November 2024
May 2015	1,057	$	19.510	May 2025
February 2016	1,950	$	16.870	February 2026

	18,945


	Number of shares underlying outstanding restricted stock units	Weighted- average grant date fair value
Unvested balance - January 1, 2020	2,559,083	$	49.58
Granted	1,296,911	$	84.52
Vested	(833,037)	$	43.77
Forfeited	(131,362)	$	59.87
Unvested balance – June 30, 2020	2,891,595	$	66.46


g.			Stock-based compensation expense for employees and consultants:


Financial income (expenses), net	(2.8)		0.1
Loss before income taxes	(36.0)		(40.2)
Income taxes	(0.5)		(0.9)
Net loss	(36.5)	%	(41.1)	%


	Payments Due by Period
	2020		2021		2022		2023		2024		Thereafter		Total
	(in thousands)
Operating lease obligations	$	5,405	$	10,365	$	9,176	$	8,967	$	8,576	$	30,378	$	72,867


Exhibit Number			Description of the Document

3.1(1)			Amended and Restated Certificate of Incorporation

3.2(2)			Amended and Restated Bylaws

4.1			Indenture, dated as of May 11, 2020, by and between Varonis Systems, Inc. and U.S. Bank National Association, as Trustee (including Form of Note, representing Varonis Systems, Inc.’s 1.25% Convertible Senior Notes due 2025 ) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-k filed on May 11, 2020).

10.1			Form of Confirmation for Capped Call Transactions (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-k filed on May 11, 2020).

31.1			Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002

32.1*			Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002

32.2*			Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002

101			The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations, (iii) the Unaudited Consolidated Statements of Comprehensive Loss, (iv) the Unaudited Consolidated Statements of Changes in Stockholders' Equity, (v) the Unaudited Consolidated Statements of Cash Flows and (vi) related notes to these consolidated financial statements, tagged as blocks of text and in detail

104			Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)


†			Indicates management contract or compensatory plan or arrangement.
*			Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.
(1)			Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014 (File No. 001-35324) (the “Company’s First Quarter 2014 Form 10-Q”) and incorporated herein by reference.
(2)			Filed as Exhibit 3.2 to the Company’s First Quarter 2014 Form 10-Q and incorporated herein by reference.