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VARONIS SYSTEMS INC (VRNS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered double‑digit topline growth and clear SaaS transition momentum: revenue rose 17% year over year to $152.2m, SaaS revenue more than doubled, and ARR grew 19% to $693.2m .
  • The quarter was a clean beat vs guidance and Street: revenue beat guidance ($145–$150m) and consensus ($147.8m*), and non‑GAAP diluted EPS came in at $0.03 vs guidance $0.00–$0.01 and consensus $0.008*; we highlight the beat despite conversion headwinds .
  • Full‑year guidance was raised for ARR ($748–$754m) and revenue ($616–$628m), EPS raised to $0.16–$0.18, while non‑GAAP operating income range was tightened lower ($0–$6m); SaaS mix expectation increased to 82% from 80% .
  • Strategic catalysts: achieved FedRAMP authorization, launched Next‑Gen DAM, announced deeper Microsoft integration to secure Copilot and extended protection to ChatGPT Enterprise—supporting accelerating cloud/SaaS data security demand .
  • Near‑term stock reaction catalysts likely center on sustained ARR growth, raised ARR/revenue/EPS guidance, and higher SaaS mix; medium‑term thesis hinges on conversion completion and upsell motion driving NRR back above prior levels .

What Went Well and What Went Wrong

  • What Went Well

    • SaaS mix and ARR momentum: SaaS ARR hit ~69% of total, ARR rose 19% to $693.2m; management raised FY25 ARR guidance and SaaS mix target to 82% .
    • Guidance raised across key metrics: FY25 revenue, ARR, and EPS all increased; Q3 revenue/EPS outlook also healthy at $163–$168m and $0.07–$0.08 .
    • Strategic breadth: Microsoft partnership (Copilot security), FedRAMP authorization, and ChatGPT Enterprise protection broaden platform reach; “attackers do not break in, they log in” underscores Varonis’ data‑first advantage .

  • What Went Wrong

    • Profitability: non‑GAAP operating loss of ($1.9)m vs prior year non‑GAAP operating income; FY25 non‑GAAP operating income guidance tightened lower to $0–$6m reflecting conversion and investment headwinds .
    • Gross margin compression: non‑GAAP GM 80.6% vs 84.1% a year ago; operating margin negative amid ratable SaaS recognition and conversion mix .
    • Conversion friction/effort: management reiterated conversions are resource‑intensive, diluting sales efficiency and delaying upsell, with macro deal scrutiny unchanged vs Q1 .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$158.5 $136.4 $152.163
GAAP EPS ($)$(0.12) $(0.32) $(0.32)
Non-GAAP Diluted EPS ($)$0.18 $0.00 $0.03
Gross Margin % (Non-GAAP)84.4% 80.2% 80.6%
Operating Margin % (Non-GAAP)9.7% (4.7%) (1.2%)

Segment Revenue Breakdown

Revenue Type ($USD Millions)Q4 2024Q1 2025Q2 2025
SaaS$72.206 $88.560 $105.895
Term License Subscriptions$66.781 $31.488 $32.374
Maintenance & Services$19.527 $16.375 $13.894
Total Revenue$158.514 $136.423 $152.163

Key Performance Indicators

KPIQ4 2024Q1 2025Q2 2025
ARR ($USD Millions)$641.9 $664.3 $693.2
SaaS ARR Mix (%)53% ~61% ~69%
Cash, Deposits & Marketable Securities ($USD Billions)~$1.2 ~$1.2 ~$1.2
Cash from Operations (period‑to‑date) ($USD Millions)$115.2 FY $68.0 QTD $89.3 YTD
Free Cash Flow (period‑to‑date) ($USD Millions)$108.5 FY $65.3 QTD $82.7 YTD
Share RepurchasesN/A1.5m sh, $61.3m 1.0m sh, $38.7m; program completed

Actual vs Estimates (Q2 2025)

MetricQ2 2025 ConsensusQ2 2025 Actual
Revenue ($USD Millions)$147.830*$152.163
Primary EPS (GAAP, $)$0.008*$0.03 (Non‑GAAP diluted); GAAP $(0.32)
EBITDA ($USD Millions)$(0.339)*$(33.0) GAAP

Guidance vs Consensus (Q3 2025)

MetricCompany Guidance (Q3 2025)Street Consensus (Q3 2025)
Revenue ($USD Millions)$163–$168 $166.227*
Primary EPS (GAAP, $)$0.07–$0.08 (Non‑GAAP diluted) $0.054*

Values with * are retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ARR ($USD Millions)FY 2025$742–$750 $748–$754 Raised
Revenue ($USD Millions)FY 2025$610–$625 $616–$628 Raised
Non‑GAAP Operating Income ($USD Millions)FY 2025$0.5–$10.5 $0–$6 Lowered
Non‑GAAP Diluted EPS ($)FY 2025$0.14–$0.17 $0.16–$0.18 Raised
Free Cash Flow ($USD Millions)FY 2025$120–$125 $120–$125 Maintained
SaaS Mix (%)FY 202580% 82% Raised
Revenue ($USD Millions)Q3 2025N/A$163–$168 New
Non‑GAAP Diluted EPS ($)Q3 2025N/A$0.07–$0.08 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
AI/Copilot & MDDRCopilot/MDDR driving new logos; packaging incentivizes both; new users protected in M365 nearly doubled YoY Agentforce for Salesforce; MDDR fastest‑adopted product; GenAI tailwinds Deeper Microsoft integration to secure Copilot; ChatGPT Enterprise protection Strengthening
Competitive DSPM landscapeEmphasis on Find‑Fix‑Alert; limited direct competition; point tools are discovery only TAM expansion; DSPM not security; incumbents lack automation Critique of DSPM sampling; avoidance of production POCs; differentiation on outcomes Consistent positioning
Macro/tariffs/macro scrutinyNew logos strong; conversions a drag; revenue headwind from faster SaaS mix Macro uncertain but pipeline strong; raised ARR guidance Macro similar to Q1; continued deal scrutiny Neutral
Regulatory/FedRAMPN/AFedRAMP progress; federal ~5% ARR; strongest Fed quarter Q3 Achieved FedRAMP authorization; federal remains ~5% ARR; too early to call Q3 impact Positive milestone
Product/R&D executionPlatform breadth; strong SaaS efficiency Cyral acquisition (Next‑Gen DAM); faster innovation via SaaS Launch Next‑Gen DAM; identity protection suite Expanding coverage
Upsell/NRR trajectoryNRR 105% constrained by conversion; post‑transition NRR to improve SaaS NRR significantly above total NRR; path to >20% ARR growth Plan to complete conversion; focus on upsell post‑transition Improving post‑transition

Management Commentary

  • “Attackers do not break in, they log in… Performing only one or two of these tasks is insufficient to protect data” — CEO, on Varonis’ data‑first approach and the need to Find, Fix, Alert .
  • “We ended Q2 with 69% of total company ARR coming from SaaS… this demand is benefiting our ARR growth and cash flow generation” — CFO/COO, on SaaS progress and cash generation .
  • “We achieved FedRAMP authorization… and announced a strategic partnership with Microsoft to help secure the next generation of workplace AI” — prepared remarks highlighting milestones .
  • “DSPM tools are compliance band‑aids and not security solutions” — CEO contrasting Varonis with DSPM point tools .

Q&A Highlights

  • Competitive dynamics: Varonis differentiates vs DSPM vendors through outcomes and scalability; DSPM sampling and avoidance of production POCs cited as weaknesses .
  • Microsoft partnership: joint engineering development to secure Copilot; pipeline building and seller compensation alignment underway .
  • ARR trajectory: SaaS NRR is higher than reported NRR; management reiterates confidence on >20% ARR growth post‑transition .
  • Macro and conversions: macro similar to Q1 with deal scrutiny; SaaS mix target raised to 82% supported by improved conversion execution .
  • Federal: FedRAMP authorization opens federal SaaS opportunity; federal ARR ~5% with longer‑term growth potential .

Estimates Context

  • Q2 2025: Revenue beat Street ($152.163m vs $147.830m*), EPS beat ($0.03 non‑GAAP diluted vs $0.008*), while GAAP EBITDA was below consensus reflecting stock‑based comp and conversion dynamics .
  • Q3 2025: Company revenue guidance ($163–$168m) brackets consensus ($166.227m*); EPS guidance ($0.07–$0.08) is above consensus ($0.054*)—suggesting potential upward estimate revisions if execution sustains .

Values with * are retrieved from S&P Global.

Key Takeaways for Investors

  • SaaS transition ahead of plan: SaaS ARR ~69% and FY25 mix lifted to 82%; completion in 2025 should free sales capacity for upsell and drive NRR higher .
  • Durable ARR growth: ARR up 19% YoY to $693.2m; FY25 ARR guidance raised to $748–$754m, signaling confidence in pipeline and conversion cadence .
  • Profitability near‑term constrained: non‑GAAP operating loss this quarter and lowered FY25 non‑GAAP operating income range reflect transition investments; watch margin trajectory as conversions subside .
  • Multiple AI‑led catalysts: Microsoft Copilot integration, ChatGPT Enterprise protection, and Next‑Gen DAM expand TAM and support platform consolidation .
  • Consensus setup: Q3 EPS guidance above Street; any continued beats and raised ARR/revenue could drive estimate upgrades* .
  • Federal tailwind optionality: FedRAMP authorization opens federal SaaS demand, with commercial signalling value of certification even beyond federal .
  • Trading lens: Focus on ARR growth, SaaS mix progression, and Q3 execution vs guidance; messaging around DSPM differentiation and POC wins remains a positive narrative driver .