Summary
Varonis reported second-quarter revenue of $152.2 million, up 16.7% year over year. Year-to-date revenue rose 18.1% to $288.6 million. The top line still grew while the company converts customers to SaaS. Annual recurring revenue was $693.2 million at June 30, 2025, up 19% from a year earlier. SaaS represented about 69% of total ARR. GAAP operating loss widened to $36.6 million. Net loss widened to $35.8 million. Diluted EPS loss widened to -$0.32. Gross margin fell to 79.5%, down 3.3 percentage points. Operating margin was -24.0%, down 1.9 percentage points. This is a transition story: revenue grows, but GAAP profitability remains under pressure.
The SaaS mix keeps climbing. Management said SaaS was about 69% of ARR, and it raised the full-year SaaS mix expectation to 82% from 80%. The company expects the SaaS transition to be complete by the end of 2025. It also expects revenue recognition variations to persist through the transition. Non-GAAP operating loss was $1.9 million, compared with non-GAAP operating income of $2.1 million in the prior-year quarter. Non-GAAP net income was $3.8 million, compared with $6.8 million. Non-GAAP diluted EPS was $0.03, compared with $0.05. Those adjusted numbers show positive earnings before stock compensation and other items, but the gap between GAAP and non-GAAP remains wide. Varonis also announced a strategic partnership with Microsoft, achieved FedRAMP authorization, and added protection for OpenAI's ChatGPT Enterprise.
Cash generation improved. For the six months ended June 30, 2025, operating cash flow rose 30.5% to $89.3 million. In the second quarter alone, operating cash flow rose 82.1% to $21.3 million. Capital expenditures rose 312.3% to $3.4 million in the quarter and rose 412.2% to $5.7 million year to date. Free cash flow was $82.7 million year to date, compared with $67.3 million in the prior-year period. Deferred revenue rose 54.5% to $322.8 million. Remaining performance obligations rose 69.2% to $870.9 million. The company completed its share repurchase authorization during the quarter.
For the third quarter of 2025, Varonis guided revenue to between $163.0 million and $168.0 million, or year-over-year growth of 10% to 13%. It expects non-GAAP operating income of $4.0 million to $7.0 million. Non-GAAP net income per diluted share is guided to $0.07 to $0.08 on 134.0 million diluted shares. For full-year 2025, the company raised ARR guidance to between $748.0 million and $754.0 million, or 17% year-over-year growth. It guided free cash flow to $120.0 million to $125.0 million. Full-year revenue is guided to $616.0 million to $628.0 million, or 12% to 14% growth. Non-GAAP operating income is guided to $0.0 million to $6.0 million. Non-GAAP net income per diluted share is guided to $0.16 to $0.18 on 134.7 million diluted shares.
The main risk is the SaaS transition itself. Revenue recognition differences can cause reported revenue to vary from period to period even as ARR grows. Term license subscription and maintenance and services revenues are expected to decline as customers convert. The renewal rate remained over 90% for the six months ended June 30, 2025. Other risks include foreign exchange fluctuations, global conflicts, economic conditions that affect enterprise spending, competition, the company's ability to close large transactions, and risks related to convertible notes. The One Big Beautiful Bill Act was enacted on July 4, 2025, after the quarter closed. Varonis has not included its impact in the reported results and is still assessing the effect. Operating expenses also grew, which keeps GAAP losses elevated.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $152.2M | $136.4M | +11.5% | $130.3M | +16.7% |
| Gross profit | $120.9M | $107.4M | +12.6% | $107.9M | +12.1% |
| Gross margin | 79.5% | 78.7% | +0.7 pp | 82.8% | -3.3 pp |
| Research & development | $56.2M | $54.2M | +3.8% | $44.9M | +25.2% |
| Sales & marketing | $76.6M | $72.8M | +5.2% | $70.0M | +9.3% |
| General & administrative | $24.6M | $24.2M | +1.8% | $21.8M | +13.2% |
| Total operating expenses | $157.5M | $151.2M | +4.2% | $136.7M | +15.2% |
| Operating income (loss) | -$36.6M | -$43.8M | +16.5% | -$28.8M | -26.8% |
| Operating margin | -24.0% | -32.1% | +8.1 pp | -22.1% | -1.9 pp |
| Net income (loss) | -$35.8M | -$35.8M | -0.1% | -$23.9M | -49.6% |
| Net margin | -23.5% | -26.2% | +2.7 pp | -18.4% | -5.2 pp |
| Diluted EPS | -$0.32 | -$0.32 | ±$0.00 | -$0.21 | -$0.11 |
Risks
Varonis is transitioning to a SaaS delivery model, which management expects to complete by the end of 2025. The filing says revenue recognition variations during the shift may negatively impact revenues and present reduced revenues versus prior periods, and for FY2025 Q2 total revenues were up 16.7% while gross margin was down 3.3 pp versus FY2024 Q2.
Competition is intensifying as data security attracts established and emerging players, and increasing AI usage plus broader product coverage places Varonis in more direct competition in areas such as DSPM, data discovery and classification, and cloud data security. The filing warns this could lead to price cuts, reduced gross margins, longer sales cycles, lower renewal rates, and loss of market share.
Prolonged economic uncertainty, inflationary pressure, higher interest rates, tariffs implemented in 2025, and potential government budget pressures could cause customers to delay or reduce IT spending and lengthen sales cycles. Management notes recent changes in customer buying patterns including budgetary tightening and additional scrutiny on enterprise spending.
The company says a majority of sales occur in the last three weeks of each quarter, and large transactions have longer, less predictable sales cycles. Converting existing customers to the SaaS platform can take longer than acquiring new customers, increasing the risk of missing quarterly revenue expectations.
Varonis has significant operations in Israel, including its principal research and development facility, and is exposed to the ongoing war and regional instability. A portion of employees have been called to active reserve duty, and insurance does not cover losses from Middle East security events.
The SaaS transition requires a more consultative and technically skilled sales force, while hiring and onboarding qualified personnel is difficult, especially in Israel. The filing notes sales personnel can take up to 12 months to ramp to expected productivity, and remote hiring, high attrition, and stock price declines could hurt recruiting and retention.
Gross margin was down 3.3 pp for FY2025 Q2 versus FY2024 Q2, and operating loss widened for the quarter. The filing links margin pressure to the SaaS transition, including increased hosting and customer success costs needed to support cloud delivery and maintain renewal rates.
Substantially all sales are fulfilled through channel partners, and agreements are generally non-exclusive and terminable by partners on 30 days notice. The loss of a substantial number of channel partners or failure to recruit additional partners could materially harm results.
The company has substantial convertible notes outstanding, including the 2025 Notes and 2029 Notes, which may limit flexibility and require significant cash for debt service. The Capped Call Transactions add counterparty risk, and note conversions could dilute existing stockholders.
A portion of revenues comes from federal, state, local, and foreign government contracts, which are subject to budgetary cycles, funding delays, and government shutdown risk. The filing cites the January 20, 2025 executive order establishing the Department of Government Efficiency and related uncertainty over U.S. federal budget priorities.
Expanding privacy and data protection laws, including GDPR and CCPA, and data localization laws may increase compliance costs, restrict data handling, and deter customers from using cloud-based services. Non-compliance could result in substantial fines or required changes to products.
The tax benefits for the Israeli subsidiary terminated in 2020, and the subsidiary may be subject to an increased tax rate of 16% or the standard 23% rate if conditions are not met. The One Big Beautiful Bill Act was enacted after June 30, 2025, and the company is still assessing its impact.
The filing specifically notes investor confusion with respect to the company's results of operations during the SaaS transition as a factor that may cause stock price volatility. The company's stock price has been and is likely to continue to be volatile.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Non-GAAP Operating Loss
SaaS ARR as a Percentage of Total ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q2 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.