Summary
Varonis reported total revenue of $173.1 million for the first quarter of fiscal 2026, up 26.9% from $136.4 million in the prior-year quarter. The mix has tilted almost entirely to SaaS, which accounted for 93.0% of total revenues, against 64.9% a year earlier. Term license subscriptions made up 4.0% of revenues, down from 23.1%, and maintenance and services was 3.0%, down from 12.0%. Those two lines fell 78.1% and 68.5%, and management attributes the vast majority of the decline to existing customers converting to the SaaS platform. SaaS ARR ended the quarter at $683.2 million, up 69% year over year, or up 29% excluding conversions. SaaS ARR excluding conversions was $522.6 million as of March 31, 2026. The SaaS renewal rate held above 90%.
The company is leaning hard into the AI security story. Varonis launched Varonis Atlas, which it says gives organizations end-to-end visibility, security and control over AI systems, and it completed the acquisition of AllTrue.ai on February 6, 2026. Management argues that AI adoption is forcing companies to put guardrails around the data their AI systems touch, and it calls that a tailwind for the platform. Revenue is still concentrated in the United States, which produced about 71% of first quarter revenues, while EMEA contributed about 21% and ROW about 8%. The company also announced the end-of-life of its self-hosted business effective December 31, 2026.
Profitability remains the soft spot. GAAP operating loss was $44.5 million for the quarter, wider than the $43.8 million loss in the prior-year quarter. GAAP net loss widened to $36.9 million from $35.8 million. Diluted EPS came in at -$0.32, flat with a year ago. Gross margin fell to 76.0% from 78.7%, pressured by higher third-party hosting costs, added customer success headcount and facilities expense. Operating margin was -25.7%, better than -32.1%. On a non-GAAP basis, the operating loss narrowed to $1.4 million from $6.5 million, helped by stock-based compensation and acquisition-related add-backs.
Cash generation slowed. Operating cash flow was $55.0 million, down 19.1% from $68.0 million a year earlier. Free cash flow was $49.0 million compared with $65.3 million, and adjusted free cash flow was $61.6 million compared with $67.0 million. Capital expenditures rose to $5.0 million from $2.3 million. Backlog metrics were stronger. Deferred revenue reached $416.4 million, up 40.6%, and remaining performance obligations were $1.10 billion, up 38.9%. The company held $899.5 million in cash and cash equivalents, short-term deposits and short-term and long-term marketable securities as of March 31, 2026. It repurchased 5,355,445 shares during the quarter at an average price of $24.67, for a net total of $132.1 million. Days sales outstanding was 83, up from 79.
Guidance points to slower reported growth ahead. For the second quarter of fiscal 2026, management guided revenue growth of 15% to 17%, SaaS ARR growth of 24% to 25% excluding conversions, a non-GAAP operating loss of $1.0 million to breakeven, and non-GAAP net income per diluted share of $0.00 to $0.01 on 131.1 million diluted shares. For the full fiscal year 2026, the company raised its total SaaS ARR outlook to $814.0 million to $845.0 million, or growth of 27% to 32%. It guided SaaS ARR growth excluding conversions to 20% to 21%, revenue growth of 17% to 18%, free cash flow of $100.0 million to $105.0 million, non-GAAP operating income of $7.0 million to $9.0 million, and non-GAAP net income per diluted share of $0.11 to $0.12 on 132.1 million diluted shares.
The biggest structural risk is the end-of-life of the self-hosted business on December 31, 2026. Management expects increased variability from remaining self-hosted customers through that transition, and renewal timing plus conversion rates can swing reported revenue from one period to the next. The company also flags competitive pressure and longer sales cycles, inconsistent closing of large deals, difficulty hiring and retaining sales personnel, foreign currency moves, the cost of international expansion, global conflicts, cybersecurity and data breaches, and its convertible notes and capped call transactions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2026 | Q4 FY2025 | QoQ | Q1 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $173.1M | $173.4M | -0.1% | $136.4M | +26.9% |
| Gross profit | $131.6M | $136.8M | -3.8% | $107.4M | +22.5% |
| Gross margin | 76.0% | 78.9% | -2.9 pp | 78.7% | -2.7 pp |
| Research & development | $69.8M | $64.6M | +8.0% | $54.2M | +28.7% |
| Sales & marketing | $80.3M | $78.0M | +3.0% | $72.8M | +10.4% |
| General & administrative | $25.9M | $24.5M | +6.0% | $24.2M | +7.2% |
| Total operating expenses | $176.0M | $167.1M | +5.4% | $151.2M | +16.4% |
| Operating income (loss) | -$44.5M | -$30.3M | -47.0% | -$43.8M | -1.6% |
| Operating margin | -25.7% | -17.5% | -8.2 pp | -32.1% | +6.4 pp |
| Net income (loss) | -$36.9M | -$27.8M | -32.7% | -$35.8M | -3.0% |
| Net margin | -21.3% | -16.0% | -5.3 pp | -26.2% | +4.9 pp |
| Diluted EPS | -$0.32 | -$0.24 | -$0.08 | -$0.32 | ±$0.00 |
Risks
Varonis expanded its platform with AI security capabilities after the AllTrue.ai acquisition and now competes more directly with vendors focused on AI security, AI governance and risk management, and cloud security. Management also says increasing AI usage is intensifying the competitive landscape, which could lead to price cuts, longer sales cycles and lower renewal rates.
Varonis has announced end-of-life for its self-hosted business effective December 31, 2026 and expects increased variability with remaining self-hosted customers. The filing says this may cause revenues to decline and be more difficult to predict, and failure to manage the process could lead to customer dissatisfaction and contractual liabilities.
A majority of sales are typically made in the last three weeks of each quarter, and large transactions and conversions of existing customers to SaaS can take longer and be less predictable. The MD&A also notes first-quarter seasonality and negative sequential sales, which can cause quarterly results to fluctuate significantly.
Varonis has a principal research and development facility and significant workforce in Israel, which is currently in a war, and some employees have been called to active reserve duty. The filing states insurance does not cover losses from an event associated with the security situation in the Middle East or related operational disruption.
Prolonged economic uncertainty, tariffs, inflation and higher interest rates may cause customers to delay or reduce IT and cybersecurity spending. The MD&A states that recent years have seen budgetary tightening and additional scrutiny on enterprise spending due to the higher inflation and interest rate environment.
Growth depends on hiring and retaining a more consultative, technically skilled sales force and research and development personnel, with sales ramp times that can reach 12 months. Competition for talent is especially intense in Israel, and a decline in stock price or changes to equity programs may make compensation less attractive.
Privacy and data protection requirements continue to expand, including new comprehensive state privacy laws in 2025 and additional laws scheduled for 2026, plus the UK Data (Use and Access) Act 2025. Compliance may require significant operational changes and costs, while non-compliance could result in substantial fines, litigation and reputational harm.
A portion of revenues comes from federal, state, local and foreign government contracts, and sales can be hurt by public sector budgetary cycles, funding reductions or delays, and extended government shutdowns. The filing specifically cites uncertainty from the Department of Government Efficiency and pressures on the U.S. federal budget.
Substantially all sales are fulfilled through channel partners, and those agreements are generally non-exclusive and terminable on 30 days' notice. Loss of a substantial number of channel partners or failure to recruit additional partners could materially and adversely affect results.
As of March 31, 2026, $460.0 million aggregate principal amount of 2029 Notes was outstanding. The debt may limit flexibility, require substantial cash for debt service, and any conversion could dilute existing stockholders and depress the stock price.
A purported securities class action was filed against Varonis and certain executive officers in January 2026, as described in the notes to the financial statements. The filing says such litigation could lead to substantial costs, divert management attention, and increase directors and officers insurance premiums.
The OBBBA revisions to the TCJA require capitalization and amortization of certain non-U.S. research and development expenses over 15 years. Once available net operating losses or tax credits are fully utilized, Varonis could see a significant increase in tax expenses and a decrease in operating cash flow, and its Israeli tax benefits also terminated in 2020.
Varonis has recently acquired Cyral, SlashNext and AllTrue.ai and may pursue more acquisitions. Acquisitions can disrupt operations, divert management, result in integration difficulties, dilutive equity issuances, impairment charges, and unknown liabilities.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Non-GAAP Operating Loss
Free Cash Flow
SaaS ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q1 FY2026 (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.