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VARONIS SYSTEMS INC (VRNS)·Q1 2025 Earnings Summary

Executive Summary

  • Beat-and-raise quarter: revenue $136.4M (+20% YoY) and non-GAAP EPS $0.00 (diluted) beat S&P Global consensus; ARR accelerated to $664.3M (+19% YoY) and SaaS ARR mix jumped 8 pts QoQ to 61% .
  • Full-year ARR guidance raised to $742–$750M (from $737–$745M); FY non-GAAP EPS range raised at the low end to $0.14–$0.17, while FY revenue guide maintained at $610–$625M .
  • Q2 2025 guide: revenue $145–$150M and non-GAAP EPS $0.00–$0.01; management reiterated the 2025 operating margin trough amid SaaS transition but highlighted strong free cash flow and ARR contribution margin improvement .
  • Catalysts: SaaS transition progressing ahead of plan (61% ARR mix guided to ~80% by YE), rapid MDDR adoption, AI tailwinds (Copilot, Agentforce) and a $61.3M buyback in Q1 .

What Went Well and What Went Wrong

What Went Well

  • SaaS transition accelerating with ARR growth: “ended Q1 with 61% of total company ARR coming from SaaS… ARR was $664.3 million, increasing 19% year-over-year,” and FY ARR guide raised .
  • MDDR adoption and AI-driven demand: “MDDR… has been by far the fastest adopted platform sell we have ever had,” with strong interest in safely deploying Copilot and Agentic AI pushing new logos and conversions .
  • Cash generation and leverage: Q1 free cash flow $65.3M and ARR contribution margin 16.7% (+300 bps YoY), reflecting improving incremental margins amid the transition .

What Went Wrong

  • Mix headwinds to P&L: maintenance & services revenue declined 32% YoY, and SaaS mix created ~1% headwinds to YoY revenue growth and operating margin vs on-prem recognition .
  • GAAP profitability still negative during transition: GAAP operating loss of $(43.8)M and GAAP net loss of $(35.8)M in Q1 as revenue recognition shifts ratably in SaaS .
  • Gross margin compression on GAAP basis: GAAP gross margin fell vs Q4 due to mix (78.8% in Q1 vs 83.6% in Q4), consistent with management’s transition commentary .

Financial Results

Revenue and EPS vs prior periods

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$114.0 $158.5 $136.4
GAAP EPS ($)$(0.37) $(0.12) $(0.32)
Non-GAAP EPS (diluted) ($)$(0.03) $0.18 $0.00

Non-GAAP margins (management disclosure)

MetricQ1 2024Q1 2025
Gross Margin % (Non-GAAP)83.3% 80.2%
Operating Margin % (Non-GAAP)(9.3%) (4.7%)

Segment breakdown

Revenue Segment ($USD Millions)Q1 2024Q4 2024Q1 2025
SaaS$34.0 $72.2 $88.6
Term License Subscriptions$56.0 $66.8 $31.5
Maintenance & Services$24.1 $19.5 $16.4

KPIs and transition indicators

KPIQ3 2024Q4 2024Q1 2025
ARR ($USD Millions)$610.0 $641.9 $664.3
SaaS ARR Mix (% of total)43% 53% 61%
Liquidity (Cash, equivalents, deposits, marketable securities) ($USD Billions)~$1.2 ~$1.2 ~$1.2
Free Cash Flow ($USD Millions)——$65.3
Share Repurchases (Q1 2025)——$61.3

Non-GAAP adjustments (Q1 2025)

  • Add-backs: stock-based comp $32.255M; payroll tax $3.067M; amortization of acquired intangibles & acquisition-related expenses $1.986M; FX differences $(2.135)M; amortization of debt issuance costs $0.887M; acquisition-related taxes $0.391M; non-GAAP net income $0.668M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ARR ($USD Millions)FY 2025$737–$745 $742–$750 Raised
Revenue ($USD Millions)FY 2025$610–$625 $610–$625 Maintained
Free Cash Flow ($USD Millions)FY 2025$120–$125 $120–$125 Maintained
Non-GAAP Operating Income ($USD Millions)FY 2025$0.5–$10.5 $0.5–$10.5 Maintained
Non-GAAP EPS (diluted) ($)FY 2025$0.13–$0.17 $0.14–$0.17 Raised low end
Revenue ($USD Millions)Q2 2025—$145–$150 New
Non-GAAP EPS (diluted) ($)Q2 2025—$0.00–$0.01 New
Non-GAAP Operating Loss ($USD Millions)Q2 2025—$(5)–$(2) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2025)Trend
SaaS transition and ARR focusSaaS ARR mix 43% (Q3) with ARR $610M; Q4 SaaS >50% ARR and TAM expansion across Google Cloud/Databricks/ServiceNow SaaS mix 61%; ARR $664.3M; ARR contribution margin 16.7%; FY ARR guide raised Accelerating
MDDR adoptionNew AI-powered discovery; integrations expanding (SentinelOne, Microsoft Defender, Salesforce remediation) “Fastest adopted platform sell we have ever had”; strong upsell motion Strengthening
Gen AI/Copilot & Agentic AICopilot/AI awareness supporting demand; expanded cloud coverage Agentforce launch for Salesforce; AI a major driver of new logos and conversions Expanding
Margin trajectoryNon-GAAP profitability in Q4; transition-related volatility noted Trough in 2025; keep focus on ARR, FCF, ARR contribution margin Nearing inflection
Federal vertical & FedRAMPNot a major revenue driver previouslyFederal ~5% of ARR; FedRAMP progressing; no DAG-specific changes assumed in guide Stable
Regional expansion/data sovereignty—New data centers in India to support regulatory needs and localization Positive

Management Commentary

  • CEO: “Our first quarter results reflect the momentum of our SaaS platform… including MDDR and Generative AI… we look forward to completing our SaaS transition this year” .
  • CFO: “61% of total company ARR coming from SaaS… highlighted by an acceleration in ARR growth, leverage in our model and healthy cash flow generation… we raise our full-year ARR guidance” .
  • CEO on AI: “We continue to see very healthy customer interest in safely deploying Copilot and other generative AI tools… serving as a reason for new customers… and existing ones to convert to our SaaS platform” .
  • CFO on margin trough: “I do think that the trough will happen this year… keep everyone focused on ARR, free cash flow, and ARR contribution margin” .

Q&A Highlights

  • Confidence in >20% ARR growth: SaaS NRR significantly above total NRR; strong new logo momentum and upsell into additional platforms .
  • MDDR adoption: fastest in company history; management believes every customer should have MDDR over time; AI-driven automation enhances analyst productivity .
  • Transition dynamics: 2025 is the P&L trough year with volatility from conversions; strategic focus remains ARR, FCF, and ARR contribution margin .
  • Macro: pipeline strong despite uncertainty; ARR guide raised; SaaS mix raised to ~80% by YE (from 78%) .
  • Cyral acquisition: ~$4M OpEx addition in 2025; no ARR or revenue contribution expected in 2025; expands unified data security across structured/unstructured .

Estimates Context

  • Q1 2025 vs S&P Global consensus: Revenue $136.4M vs $133.3M*; Non-GAAP EPS (diluted) $0.00 vs $(0.048)* — clear beat on both .
  • Q2 2025 guidance vs consensus: Company revenue guide $145–$150M vs consensus $147.8M*; Company non-GAAP EPS (diluted) $0.00–$0.01 vs consensus $0.008* — broadly in line .
    Values retrieved from S&P Global.

Detailed comparison tables

Q1 2025 actual vs consensus and guidance

MetricConsensus*Company GuidanceActual
Revenue ($USD Millions)$133.3*$130–$135 $136.4
Non-GAAP EPS (diluted) ($)$(0.048)*$(0.06)–$(0.04) $0.00

Q2 2025 guidance vs consensus

MetricConsensus*Company Guidance
Revenue ($USD Millions)$147.8*$145–$150
Non-GAAP EPS (diluted) ($)$0.008*$0.00–$0.01

Key Takeaways for Investors

  • Beat-and-raise quarter with ARR acceleration and SaaS mix jumping to 61%; management guiding to ~80% SaaS ARR mix by year-end — supports re-rating as transition nears completion .
  • Strong cash generation ($65.3M FCF) and improving ARR contribution margins (16.7%) provide ballast through P&L volatility inherent in SaaS conversion .
  • Rapid MDDR adoption and AI tailwinds (Copilot and Agentforce) enhance new logo capture and upsells across cloud data stores — broadening TAM .
  • FY ARR guide raised; FY non-GAAP EPS range tightened upward at the low end; FY revenue maintained — consensus should adjust to higher ARR trajectory .
  • Near-term: expect continued GAAP margin noise from mix and conversion timing; management reiterated 2025 as operating margin trough, with improving trajectory beyond .
  • Strategic expansion into structured data via Cyral enhances unified platform positioning; no FY25 revenue contribution but incremental OpEx is manageable (~$4M) .
  • Capital allocation: $61.3M buyback in Q1 signals confidence; liquidity robust at ~$1.2B in cash and securities .