Summary
Varonis Systems reported first quarter fiscal 2025 revenue of $136.4 million, up 19.6% from the prior-year quarter. Gross profit rose to $107.4 million, up 15.9%. Gross margin was 78.7%, down 2.5 percentage points. The GAAP operating loss narrowed to $43.8 million. The net loss narrowed to $35.8 million, and diluted EPS was a loss of $0.32, a narrower loss than the prior-year quarter. Operating margin was negative 32.1%, up 9.7 percentage points. The revenue gain came even as the SaaS transition shifted recognition timing and pressured the term license and maintenance lines. The MD&A attributed the gross margin decline to higher third-party hosting costs and increased customer success headcount as more customers move to SaaS. The MD&A said total revenues still grew despite revenue recognition variations from the SaaS transition.
Cash generation was strong. Operating cash flow was $68.0 million, up 19.9% from the prior-year quarter. Capital expenditures were $2.3 million, up 687.5%. Free cash flow, a non-GAAP measure, was $65.3 million, compared with $56.4 million in the prior-year quarter. Current deferred revenue was $296.1 million, up 60.0%. Remaining performance obligations were $788.7 million, up 85.1%. Those backlog figures reflect the growing share of SaaS contracts and longer contract values. Days sales outstanding was 79. Management noted that the first quarter typically produces the lowest gross margin and the fourth quarter the highest. The company said the majority of sales occur in the last three weeks of a quarter, which concentrates collections.
Annual recurring revenue was $664.3 million at the end of the first quarter, up 19% year over year. SaaS represented approximately 61% of total ARR. The company said its renewal rate continued to be over 90%. The company said the strong adoption of its SaaS platform from new and existing customers drove the ARR growth. Non-GAAP operating loss was $6.5 million, compared with $10.6 million in the prior-year quarter. Non-GAAP net income was $0.7 million, compared with a non-GAAP net loss of $3.7 million. Management expects the SaaS transition to be complete by the end of 2025.
Guidance for the second quarter of 2025 calls for revenue growth of 11% to 15% year over year. The company guided a non-GAAP operating loss of $5.0 million to $2.0 million and non-GAAP net income per diluted share of $0.00 to $0.01, based on 135.2 million diluted shares. For full year 2025, management now expects ARR of $742.0 million to $750.0 million, free cash flow of $120.0 million to $125.0 million, non-GAAP operating income of $0.5 million to $10.5 million, and non-GAAP net income per diluted share of $0.14 to $0.17, based on 135.8 million diluted shares. The full-year ARR outlook implies 16% to 17% growth, while the revenue outlook implies 11% to 13% growth.
Operationally, Varonis completed the acquisition of Cyral, which adds database activity monitoring. It launched Varonis for Agentforce, giving security teams visibility into the agentic AI layer of Salesforce, and opened new data centers in India. The company named risks including an uncertain macro environment, foreign currency exchange rate fluctuations, international operations, competition, longer sales cycles, the timing of large transactions, cybersecurity breaches, and its convertible notes. Management also noted instability in the Middle East and the possibility that employees in Israel could be called to reserve duty. Other named risks include predicting subscription renewals, building direct sales and reseller channels, and closing large transactions consistently on a quarterly basis. The transition to SaaS remains the central swing factor for reported revenue, margins, and cash flow in coming periods.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2025 | Q4 FY2024 | QoQ | Q1 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $136.4M | $158.5M | -13.9% | $114.0M | +19.6% |
| Gross profit | $107.4M | $132.5M | -18.9% | $92.7M | +15.9% |
| Gross margin | 78.7% | 83.6% | -4.8 pp | 81.3% | -2.5 pp |
| Research & development | $54.2M | $50.5M | +7.2% | $47.8M | +13.3% |
| Sales & marketing | $72.8M | $76.1M | -4.4% | $71.2M | +2.2% |
| General & administrative | $24.2M | $23.3M | +3.7% | $21.3M | +13.9% |
| Total operating expenses | $151.2M | $150.0M | +0.8% | $140.3M | +7.7% |
| Operating income (loss) | -$43.8M | -$17.6M | -149.4% | -$47.6M | +8.1% |
| Operating margin | -32.1% | -11.1% | -21.0 pp | -41.8% | +9.7 pp |
| Net income (loss) | -$35.8M | -$13.0M | -175.4% | -$40.5M | +11.6% |
| Net margin | -26.2% | -8.2% | -18.0 pp | -35.5% | +9.3 pp |
| Diluted EPS | -$0.32 | -$0.12 | -$0.20 | -$0.37 | +$0.05 |
Risks
The company is transitioning to a SaaS delivery model and expects it to be complete by the end of 2025. MD&A states this transition may cause significant variation in reported revenues and that term license subscriptions declined 43.8% and maintenance and services revenues declined 31.9% for the three months ended March 31, 2025, while SaaS revenues grew 160.6%.
Gross margin declined to 78.7% for the quarter from 81.3% in the prior-year quarter, a decrease of 2.5 percentage points. MD&A attributes higher cost of revenues, up 35.9%, primarily to a $4.1 million increase in third-party hosting costs and higher customer success headcount to support the SaaS transition and MDDR offering.
Risk Factors highlight prolonged economic uncertainty, inflationary pressure, higher interest rates and tariffs implemented in April 2025 that may cause budgetary tightening and longer sales cycles. MD&A notes customers have shown some budgetary tightening and additional scrutiny on enterprise spending.
Risk Factors state the majority of sales occur in the last three weeks of each quarter and the conversion of on-premises subscription customers to SaaS can take longer than acquiring new customers. Economic uncertainty and tariffs could further lengthen sales cycles and delay purchasing decisions.
A principal research and development facility is in Israel, which is currently in a war and has experienced regional hostilities. Risk Factors note a portion of Israeli employees have been called to active reserve duty and future call-ups or conflict expansion could disrupt operations.
The company sells substantially all products and services through channel partners, including distributors and resellers. These agreements are generally non-exclusive and can be terminated on 30 days notice, so loss of a substantial number of channel partners could materially harm results.
Varonis derives revenue from federal, state, local and foreign government entities. Risk Factors cite the January 20, 2025 executive order establishing the Department of Government Efficiency and uncertainty around the U.S. federal budget, which could delay public sector purchasing decisions.
The company incorporates machine learning and AI into its platform and faces competition from rivals that may add AI more quickly. Evolving AI regulations in Europe and the United States may require significant compliance resources, and MD&A notes customer interest in Gen AI as a driver of SaaS demand.
The renewal rate continued to be over 90% for the three months ended March 31, 2025, but customers are not required to renew and may reduce scope, renew for shorter terms or renew on less favorable terms. MD&A says SaaS conversions caused a decline in maintenance and services revenues despite high renewal rates.
As of March 31, 2025, Varonis had approximately $711.5 million outstanding aggregate principal amount of convertible notes. Risk Factors cite limited business flexibility, potential dilution upon conversion, capped call counterparty risk and possible burdens on future cash resources.
The SaaS transition increases complexity in finding, hiring and retaining qualified sales personnel, and competition for engineers in Israel is intense. Risk Factors note it can take up to 12 months for a new sales force member to reach expected productivity and equity compensation is a critical retention tool.
On March 17, 2025, Varonis completed the acquisition of Cyral, Inc., a database activity monitoring company. Risk Factors describe acquisition integration risks including diversion of management, integration difficulties and potential impairment of acquired assets or goodwill.
The tax benefit for the Israeli subsidiary terminated as of March 31, 2025, and it may be subject to a 16% rate or the standard 23% rate if conditions are not met. Risk Factors also note TCJA R&E capitalization could significantly increase tax expenses and decrease operating cash flow once NOLs are utilized.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Annual Recurring Revenue
Renewal Rate
Non-GAAP Operating Loss
Free Cash Flow
SaaS ARR as % of Total ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q1 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.