Summary
Varonis ended fiscal 2025 with a fourth quarter that showed the SaaS transition nearly complete and a GAAP income statement still carrying the cost of that shift. Fourth quarter revenue was $173.4 million, up 9.4% from the prior-year quarter, and full-year revenue was $623.5 million, up 13.2%. ARR closed the year at $745.4 million, up 16%, and SaaS ARR reached $638.5 million, up 88% or up 32% excluding conversions. SaaS was about 86% of total ARR. Management converted roughly one-third of the remaining self-hosted customers during the quarter and expects the company to end 2026 as a fully SaaS business. The self-hosted line is scheduled to reach end-of-life on December 31, 2026.
Margins absorbed the mix change. Fourth quarter gross margin was 78.9%, down 4.6 percentage points from the prior-year quarter, and full-year gross margin was 78.8%, down 4.1 percentage points. Gross profit was $136.8 million for the quarter, up 3.3%. The GAAP operating loss was $30.3 million, wider than the prior-year quarter, and the full-year operating loss widened to $146.5 million. Net loss was $27.8 million for the quarter and $129.3 million for the year, again wider on both comparisons. Diluted loss per share was $1.13 for the full year, a wider loss than the prior year. Non-GAAP operating income was $4.6 million in the quarter, down from $15.3 million a year earlier, and the full year flipped to a non-GAAP operating loss of $3.6 million from $15.9 million of non-GAAP operating income.
Cash generation held up better than earnings. Operating cash flow was $24.7 million in the quarter, up 1.7%, and $147.4 million for the year, up 28.0%. Free cash flow for the year was $131.9 million, compared with $108.5 million in 2024. Capital expenditures were $3.9 million in the quarter, down 9.4%, and $12.6 million for the year, up 88.6%. Current deferred revenue was $427.8 million, up 47.5% from the prior-year quarter, and remaining performance obligations were $1.10 billion, up 50.3%. Cash and cash equivalents, short-term deposits and short-term and long-term marketable securities totaled $1.1 billion at December 31, 2025. The October 2025 share repurchase authorization had $135.0 million of capacity left.
Guidance points to slower reported growth with the conversion drag still in place. For the first quarter of 2026, revenue is guided to $164.0 million to $166.0 million, growth of 20% to 22%, with a non-GAAP operating loss of $11.0 million to $10.0 million and a non-GAAP net loss per basic and diluted share of $0.06 to $0.05 on 118.0 million shares. For the full year 2026, revenue is guided to $722.0 million to $730.0 million, growth of 16% to 17%, with SaaS ARR of $805.0 million to $840.0 million, growth of 26% to 32% or 18% to 20% excluding conversions. Full-year free cash flow is guided to $100.0 million to $105.0 million, non-GAAP operating income to $0.0 to $4.0 million, and non-GAAP net income per diluted share to $0.06 to $0.10 on 134.2 million diluted shares.
Conversion accounting remains the loudest source of noise. SaaS revenue is recognized ratably, while term licenses were recognized on delivery, so comparisons between periods swing with the mix, and management expects the variability to continue through the end-of-life. Other named risks include foreign currency movements, competition and pricing pressure, longer sales cycles, difficulty closing large transactions consistently each quarter, information technology and cybersecurity breaches, hiring and retention of sales personnel and engineers, channel expansion, and the convertible notes with their capped call transactions. The renewal rate stayed above 90% for 2025. The company also agreed to acquire AllTrue.ai, an AI security provider, adding to the 2025 acquisitions of Cyral and SlashNext.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2025 | Q3 FY2025 | QoQ | Q4 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $173.4M | $161.6M | +7.3% | $158.5M | +9.4% |
| Gross profit | $136.8M | $126.4M | +8.2% | $132.5M | +3.3% |
| Gross margin | 78.9% | 78.3% | +0.7 pp | 83.6% | -4.7 pp |
| Research & development | $64.6M | $62.7M | +3.0% | $50.5M | +27.8% |
| Sales & marketing | $78.0M | $74.0M | +5.3% | $76.1M | +2.4% |
| General & administrative | $24.5M | $25.6M | -4.4% | $23.3M | +4.9% |
| Total operating expenses | $167.1M | $162.4M | +2.9% | $150.0M | +11.4% |
| Operating income (loss) | -$30.3M | -$35.9M | +15.8% | -$17.6M | -72.4% |
| Operating margin | -17.5% | -22.2% | +4.8 pp | -11.1% | -6.4 pp |
| Net income (loss) | -$27.8M | -$29.9M | +7.2% | -$13.0M | -113.8% |
| Net margin | -16.0% | -18.5% | +2.5 pp | -8.2% | -7.8 pp |
| Diluted EPS | -$0.24 | -$0.26 | +$0.02 | -$0.12 | -$0.12 |
Risks
MD&A cites budgetary tightening and additional scrutiny on enterprise spending due to higher inflation and interest rates, and the risk factors say 2025 tariffs and economic uncertainty could lengthen sales cycles and reduce IT spending. This could pressure revenue growth and renewal rates.
The self-hosted business end-of-life is set for December 31, 2026, and converting remaining term license customers to SaaS creates revenue variability; MD&A says revenue fluctuations will persist and term license and maintenance revenues are expected to decline. SaaS was about 86% of total ARR as of December 31, 2025.
Cost of revenues rose 40.6% in FY2025 on higher third-party hosting and customer success headcount, and total gross margin fell to 78.8% in FY2025 from 83.0% in FY2024, a decline of 4.1 percentage points YTD. SaaS hosting and infrastructure costs may exceed forecasts and further pressure margins.
A majority of sales are made in the last three weeks of each quarter, large transactions have longer and less predictable sales cycles, and the sales cycle for converting OPS customers to SaaS can take longer than acquiring new customers. Missing quarter-end closings could disproportionately and adversely affect quarterly results.
Channel partners fulfilled substantially all of sales in 2024 and 2025, agreements are generally non-exclusive and can be terminated on 30 days' notice, and the loss of a substantial number of partners or failure to recruit additional partners could materially harm results. This concentration increases revenue risk.
A purported securities class action was filed against the company and certain executive officers in January 2026, as described in Note 2N. This litigation could subject Varonis to substantial costs, divert management attention and increase D&O insurance premiums.
The principal research and development facility is in Israel, which is currently in a war and has had employees called to active reserve duty; operations could be disrupted if the situation deteriorates. Insurance does not cover Middle East security losses, and Israeli tax benefits terminated as of December 31, 2025, with a possible increase to a 23% corporate tax rate.
The data security market is attracting established and emerging competitors as AI usage rises, and Varonis faces direct competition in DSPM, data discovery and classification, privacy, data migration and Active Directory security. Increased competition could lead to price cuts, reduced gross margins, longer sales cycles and lower renewal rates.
The shift to a more consultative SaaS sales model makes hiring and onboarding qualified personnel difficult, especially in Israel R&D, and sales personnel can take up to 12 months to ramp. Equity compensation attractiveness depends on the stock price, and failure to retain talent could hinder growth.
New comprehensive privacy laws took effect in 2025 in Delaware, Iowa, Nebraska, New Hampshire, New Jersey, Tennessee, Minnesota and Maryland, with more scheduled in 2026, and the UK enacted the Data (Use and Access) Act 2025. Compliance may require significant operational changes and costs and could restrict product features.
Public sector sales face budget uncertainty, including the January 2025 Department of Government Efficiency executive order and potential government shutdowns or funding delays, which could delay purchasing decisions and adversely affect revenue.
The 2025 acquisitions of Cyral and SlashNext require integration and added acquisition-related costs, and acquisitions may disrupt the business, divert resources, result in impairment charges or dilute stockholders. Failure to integrate could harm results.
The $460.0 million 2029 Notes may dilute existing stockholders if converted and require cash for interest, repurchase or maturity; capped call counterparty risk remains if financial institutions default. This could burden future cash resources and the stock price.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Renewal Rate
Annual Recurring Revenue (ARR)
SaaS ARR as a Percentage of Total ARR
SaaS ARR
Summary, forecast, risks and KPIs are extracted from VARONIS SYSTEMS INC's SEC filings for Q4 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.