Summary
Varonis reported third quarter revenue of $161.6 million, up 9.1% from the prior-year quarter. Gross profit rose 1.9% to $126.4 million, but gross margin fell 5.5 percentage points to 78.2% as hosting and customer success costs rose with the SaaS transition. The operating loss widened 52.0% to $35.9 million, and the net loss widened 63.3% to $29.9 million. Diluted loss per share was $0.26, wider by $0.10. Annual recurring revenue was $718.6 million, up 18% year over year, and SaaS reached about 76% of total ARR as the company completed its delivery-model transition. On a nine-month basis, revenue rose 14.7% to $450.2 million. Gross profit rose 9.3% to $354.7 million. The operating loss widened 16.1% to $116.3 million, and the net loss widened 22.7% to $101.5 million. Diluted loss per share was $0.90, wider by $0.16. Non-GAAP operating income was $0.2 million for the quarter, down from $9.1 million a year earlier, and non-GAAP net income was $8.4 million. Non-GAAP diluted earnings per share was $0.06.
That mix shift showed in the top line. SaaS is now the main revenue driver, while term license subscriptions and maintenance and services continue to decline as customers convert. Cash generation improved. Operating cash flow was $33.4 million for the quarter, up 48.6%, and $122.7 million for the nine-month period, up 35.0%. Free cash flow for the nine-month period was $111.6 million versus $88.6 million a year earlier. Capital expenditures were $2.97 million for the quarter, up 142.3%, and $8.69 million for the nine-month period, up 270.9%. Deferred revenue was $333.6 million, up 53.3% from a year earlier, and remaining performance obligations were $930.7 million, up 60.1%. The company also announced a $150.0 million share repurchase authorization expected to be completed over the next 12 months.
Operationally, Varonis closed the acquisition of SlashNext, an AI-native email security provider, and launched Varonis Interceptor for email security. It also introduced Next-Gen Database Activity Monitoring and AI identity protection for Salesforce Agentforce. Guidance now carries a tougher on-prem subscription backdrop. For the fourth quarter, the company expects non-GAAP operating income of $0.0 million to $3.0 million and non-GAAP net income per diluted share of $0.02 to $0.04. For full year 2025, it expects ARR of $730.0 million to $738.0 million, or year-over-year growth of 14% to 15%, free cash flow of $120.0 million to $125.0 million, a non-GAAP operating loss of ($8.2) million to ($5.2) million, and non-GAAP net income per diluted share of $0.12 to $0.13. Management said it trimmed the full-year ARR outlook to account for the on-prem subscription shortfall and assumed an even lower renewal rate there in the fourth quarter.
Risks are concentrated in the on-premises business. Varonis saw lower renewals in the Federal vertical and in its non-Federal on-prem subscription business in the final weeks of the quarter. The company has also set an end of life for its self-hosted solution and term license subscription business as of December 31, 2026, which adds uncertainty with remaining term license customers. Varonis expects revenue variations to persist as it converts those customers to SaaS. Other risks include general economic and industry conditions, foreign currency moves, competition, longer sales cycles, the ability to close large transactions consistently, and cybersecurity or data security breaches. The renewal rate for the nine months ended September 30, 2025 remained over 90%, but the mix shift continues to pressure near-term reported revenue and margins.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $161.6M | $152.2M | +6.2% | $148.1M | +9.1% |
| Gross profit | $126.4M | $120.9M | +4.6% | $124.1M | +1.9% |
| Gross margin | 78.3% | 79.5% | -1.2 pp | 83.8% | -5.5 pp |
| Research & development | $62.7M | $56.2M | +11.5% | $53.5M | +17.4% |
| Sales & marketing | $74.0M | $76.6M | -3.3% | $71.4M | +3.7% |
| General & administrative | $25.6M | $24.6M | +3.9% | $22.9M | +12.0% |
| Total operating expenses | $162.4M | $157.5M | +3.1% | $147.7M | +9.9% |
| Operating income (loss) | -$35.9M | -$36.6M | +1.7% | -$23.6M | -52.0% |
| Operating margin | -22.2% | -24.0% | +1.8 pp | -16.0% | -6.3 pp |
| Net income (loss) | -$29.9M | -$35.8M | +16.4% | -$18.3M | -63.3% |
| Net margin | -18.5% | -23.5% | +5.0 pp | -12.4% | -6.2 pp |
| Diluted EPS | -$0.26 | -$0.32 | +$0.06 | -$0.16 | -$0.10 |
Risks
The company plans to end of life its term license subscription business as of December 31, 2026, and for the three months ended September 30, 2025 that business underperformed relative to past periods, producing weaker renewals in the final weeks of the quarter. Management expects revenue variations to persist as remaining term license customers convert to SaaS.
SaaS reached approximately 76% of total ARR as of September 30, 2025, marking completion of the transition, but the filing cites revenue recognition variations and the risk that cloud expansion costs or customer conversion pace may not match expectations. Hosting costs rose and total gross margin was down 5.5 pp in FY2025 Q3 versus the prior-year quarter and down 3.9 pp year to date.
Cost of revenues increased primarily from third-party hosting and customer success headcount, and the current quarter operating loss widened 52.0% versus the prior-year quarter. Gross margin declines and fixed operating expenses could make even small revenue shortfalls disproportionately harmful.
Risk factors cite prolonged economic uncertainty, inflationary pressure, higher interest rates, tariffs implemented around the world in 2025, and government shutdown or debt ceiling risks that can cause budgetary tightening and longer sales cycles. MD&A also notes customer budgetary tightening and additional scrutiny on enterprise spending due to higher inflation and interest rates.
The data security market is attracting established and emerging players due to increasing AI usage, and Varonis expects more direct competition in DSPM, data discovery and classification, privacy, data migration, data subject access requests, and Active Directory security. Expansion into AI security, insider threat detection, and user behavior analytics may increase perceived and real competition.
The principal research and development facility is in Israel, which is currently in a war and has experienced social unrest, and some employees have been called to active reserve duty. Insurance may not cover related losses, and expanded conflict or regional instability could disrupt operations.
The risk factors highlight difficulty hiring and onboarding consultative sales personnel and R&D talent, particularly in Israel, with sales ramp times up to 12 months, high attrition, and equity compensation sensitivity to stock price. Failure could hinder growth targets and product innovation.
The company has substantial 2029 Notes outstanding as of September 30, 2025, which may limit financial flexibility and require significant debt service. Conversion could dilute stockholders, and the capped call counterparties carry credit risk.
Revenue depends partly on public sector contracts, which face budgetary cycles, potential government shutdowns, and uncertainty from the January 20, 2025 Department of Government Efficiency executive order and federal budget pressures. These factors could delay or reduce public sector purchases.
The August 28, 2025 SlashNext acquisition and related acquisition costs increase integration risk, potential management distraction, and possible impairment or dilution. MD&A shows acquisition-related costs in research and development and general and administrative expenses.
Substantially all sales are fulfilled through channel partners, agreements are generally non-exclusive and terminable on 30 days' notice, and the loss or underperformance of channel partners could materially reduce revenues. This concentration remains central to the sales model.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Annual Recurring Revenue
Non-GAAP Operating Income
Renewal Rate
SaaS ARR as a Percentage of Total ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q3 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.