UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-Q ____________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36324 ____________________ VARONIS SYSTEMS, INC. (Exact name of registrant as specifi ...

Company Overview - Varonis' Annual Recurring Revenue (ARR) reached $664.3 million, representing a 19% year-over-year growth[8,44] - SaaS ARR constitutes approximately 61% of the total ARR[8,44] - The company's Year-To-Date (YTD) Operating Cash Flow is $68.0 million, and YTD Free Cash Flow is $65.3 million[8,44] Market Trends - The amount of data created globally is projected to grow at a compound annual growth rate of 24% by 2028, with unstructured data accounting for over 90% of the total data generated[18] - It is expected that 90% of organizations will adopt a hybrid cloud approach by 2027, and over 80% of enterprises are expected to use Generative AI by 2026[18] - The global average cost of a data breach in 2024 was $4.9 million, with 40% of breaches involving data stores across multiple environments[18] Financial Performance & Guidance - The company anticipates Annual Recurring Revenues (ARR) between $742.0 million and $750.0 million for the full year 2025, indicating a year-over-year growth of 16% to 17%[53] - The company projects total revenues between $610.0 million and $625.0 million for the full year 2025, representing a year-over-year growth of 11% to 13%[53] - The company expects Free Cash Flow between $120.0 million and $125.0 million for the full year 2025[53]

Financial Performance - Varonis Systems reported $136.42 million in revenue for the quarter ended March 2025, representing a year-over-year increase of 19.7% [1] - The EPS for the same period was $0.00, compared to -$0.03 a year ago, indicating a significant improvement [1] - The reported revenue exceeded the Zacks Consensus Estimate of $133.22 million by +2.41% [1] - The EPS surprise was +100.00%, as the consensus EPS estimate was -$0.05 [1] Key Metrics - Annual Recurring Revenues reached $664.30 million, surpassing the $657.21 million average estimate based on six analysts [4] - Maintenance and Services revenues were $16.38 million, which is -31.9% year-over-year and below the $20.06 million average estimate [4] - Term license subscriptions generated $31.49 million, compared to the $35.14 million estimated by three analysts [4] - SaaS revenues were $88.56 million, exceeding the three-analyst average estimate of $78.28 million [4] Stock Performance - Varonis shares have returned +15.3% over the past month, outperforming the Zacks S&P 500 composite's +11.5% change [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3]

Varonis Systems (VRNS) reported break-even quarterly earnings per share versus the Zacks Consensus Estimate of a loss of $0.05. This compares to loss of $0.03 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 100%. A quarter ago, it was expected that this data-management software company would post earnings of $0.14 per share when it actually produced earnings of $0.18, delivering a surprise of 28.57%.Over the last four quarters ...

Financial Data and Key Metrics Changes - In Q1, Annual Recurring Revenue (ARR) grew 19% year-over-year to $664.3 million, with free cash flow increasing to $65.3 million from $56.4 million in the same period last year [9][22][24] - Total revenues for Q1 were $136.4 million, reflecting a 20% year-over-year increase, despite a 1% headwind due to the increased SaaS sales mix [23][24] - Gross profit was $109.4 million, resulting in a gross margin of 80.2%, down from 83.3% in Q1 2024 [24][25] - The company reported a net income of $700,000, compared to a net loss of $3.7 million in Q1 2024 [25] Business Line Data and Key Metrics Changes - SaaS revenues reached $88.6 million, while term license subscription revenues were $31.5 million, and maintenance and services revenues were $16.4 million, with renewal rates exceeding 90% [23][24] - Maintenance and services revenues declined by 32% year-over-year, primarily due to perpetual maintenance customers converting to the SaaS platform [24] Market Data and Key Metrics Changes - SaaS ARR now represents approximately 61% of total ARR, an increase from 53% in Q4 [21][22] - The company is experiencing strong demand for its SaaS solutions, particularly in securing data across cloud platforms [12][13] Company Strategy and Development Direction - The company is accelerating its SaaS transition, aiming to complete it by the end of the year, driven by strong demand for its SaaS solutions [9][10] - The acquisition of Firal enhances the company's data security platform, allowing for next-generation database activity monitoring and expanding its total addressable market [16][17] - The company is focusing on automating data security and integrating AI tools to enhance customer protection and satisfaction [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving over 20% ARR growth, citing strong customer demand and healthy new customer momentum [21][32] - The macroeconomic environment remains uncertain, but the company is focused on factors within its control and is optimistic about long-term opportunities [50][51] Other Important Information - The company repurchased 1,476,456 shares at an average price of $41.49, totaling $61.3 million [26] - The acquisition of Cyril is expected to add approximately $4 million in operating expenses in 2025, with no immediate impact on ARR or revenue [27][81] Q&A Session Summary Question: Confidence in ARR growth exceeding 20% - Management highlighted strong SaaS NRR trends and customer demand as key factors supporting confidence in achieving over 20% ARR growth [31][32] Question: MDDR adoption and competitive environment - Management noted that MDDR has been the fastest adopted platform, with strong customer interest in data-centric security solutions [36][40] Question: Operating margins and transition dynamics - Management indicated that the trough in operating margins is expected this year, with improvements anticipated as the transition progresses [43][44] Question: Macro impacts on performance - Despite macro uncertainty, management reported strong demand from both new and existing customers, contributing to ARR acceleration [48][51] Question: New logo momentum and customer adoption - Management observed that the MDDR offering and AI tools have simplified the value proposition for new customers, leading to increased adoption [84][85] Question: Gross margin outlook and operating income range - Management explained that gross margin volatility is expected during the transition, with a long-term target of around 80% by 2027 [90][91]

Financial Data and Key Metrics Changes - In Q1 2025, Annual Recurring Revenue (ARR) grew 19% year-over-year to $664.3 million, with SaaS ARR now representing approximately 61% of total ARR, an increase from 53% in Q4 2024 [7][19][20] - Free cash flow for the quarter was $65.3 million, up from $56.4 million in the same period last year [7][20] - Total revenues for Q1 were $136.4 million, reflecting a 20% year-over-year increase [20] - Gross profit was $109.4 million, resulting in a gross margin of 80.2%, down from 83.3% in Q1 2024 [21] - The company reported a net income of $700,000, compared to a net loss of $3.7 million in Q1 2024 [22] Business Line Data and Key Metrics Changes - SaaS revenues reached $88.6 million, while term license subscription revenues were $31.5 million, and maintenance and services revenues were $16.4 million, with renewal rates exceeding 90% [20] - Maintenance and services revenues declined by 32% year-over-year, primarily due to perpetual maintenance customers converting to the SaaS platform [21] Market Data and Key Metrics Changes - The company noted strong customer interest in deploying generative AI tools, which has driven new customer engagement and existing customer conversions to the SaaS platform [8][10] - The acquisition of Firal is expected to enhance the company's data security platform and expand its total addressable market [13][14] Company Strategy and Development Direction - The company is accelerating its SaaS transition, aiming to complete it by the end of 2025, driven by strong demand for its SaaS solutions [6][7] - Varonis is focusing on providing automated data security across various platforms, including cloud data stores, which is seen as a competitive advantage [10][11] - The acquisition of Firal is part of a strategy to unify structured and unstructured data security monitoring, addressing more auditing and compliance use cases [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve over 20% ARR growth, citing strong SaaS net revenue retention and new customer momentum [19][29] - The management acknowledged macroeconomic uncertainties but emphasized strong demand from both new and existing customers, which contributed to ARR acceleration [48] Other Important Information - The company repurchased 1,476,456 shares at an average price of $41.49, totaling $61.3 million [23] - The updated guidance for 2025 includes an ARR expectation of $742 million to $750 million, representing growth of 16% to 17% [24] Q&A Session Summary Question: What gives confidence that ARR can grow north of 20%? - Management highlighted strong SaaS net revenue retention and customer demand as key factors supporting this confidence [28][29] Question: Can you provide more color around MDDR adoption and the competitive environment? - Management noted that MDDR has been the fastest adopted platform and emphasized the need for a data-centric approach to prevent data breaches [34][37] Question: How far are we from the trough in operating margins? - Management indicated that the trough is expected to occur this year, with improvements anticipated as the transition progresses [41][42] Question: What impacts did the macro environment have in the quarter? - Despite macro uncertainties, management reported strong demand and confidence in the long-term opportunity, leading to raised ARR guidance [48] Question: Can you discuss the recent acquisition in the database activity monitoring space? - Management described the acquisition as a natural extension of their offerings, addressing customer dissatisfaction with incumbents and enhancing their data security capabilities [56][58] Question: How is the company addressing new customer adoption behavior? - Management noted that the simplicity and automation of their offerings have improved their ability to attract new customers [81]

Varonis First Quarter 2025 Financial Results [Financial and Business Highlights](index=1&type=section&id=Financial%20and%20Business%20Highlights) Varonis reported strong Q1 2025 results, driven by SaaS platform transition, with ARR growing 19% to $664.3 million and SaaS ARR reaching 61% of total - The company's Q1 results reflect the momentum of its SaaS platform, with SaaS ARR reaching **61% of total company ARR**. Management attributes growth to tailwinds including MDDR and Generative AI[2](index=2&type=chunk) Q1 2025 Financial Performance vs. Q1 2024 | Metric | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | Total Revenues | $136.4 million | $114.0 million | | SaaS Revenues | $88.6 million | $34.0 million | | GAAP Operating Loss | ($43.8) million | ($47.6) million | | Non-GAAP Operating Loss | ($6.5) million | ($10.6) million | Q1 2025 Key Performance Indicators | Metric | Value ($) | Change (YoY) | | :--- | :--- | :--- | | Annual Recurring Revenues (ARR) | $664.3 million | +19% | | Cash from Operations (YTD) | $68.0 million | vs. $56.7 million | | Free Cash Flow (YTD) | $65.3 million | vs. $56.4 million | - Key business developments in the quarter include: Acquired Cyral to expand the Varonis Data Security Platform with next-gen Database Activity Monitoring; Launched Varonis for Agentforce to secure the AI layer of the Salesforce platform; Repurchased **1.5 million shares** for a total of **$61.3 million**; Opened new data centers in India to support customer expansion[6](index=6&type=chunk)[7](index=7&type=chunk) [Financial Outlook](index=2&type=section&id=Financial%20Outlook) Varonis provided Q2 and raised full-year 2025 guidance, projecting Q2 revenues of $145.0-$150.0 million and full-year ARR of $742.0-$750.0 million - Despite an uncertain macro environment, the company raised its full-year ARR guidance based on strong Q1 performance and business drivers[2](index=2&type=chunk) Q2 2025 Financial Outlook | Metric | Expected Range ($) | | :--- | :--- | | Revenues | $145.0M - $150.0M (11%-15% YoY Growth) | | Non-GAAP Operating Loss | ($5.0)M - ($2.0)M | | Non-GAAP Net Income per Diluted Share | $0.00 - $0.01 | Full Year 2025 Financial Outlook (Updated) | Metric | Expected Range ($) | | :--- | :--- | | Revenues | $610.0M - $625.0M (11%-13% YoY Growth) | | ARR | $742.0M - $750.0M (16%-17% YoY Growth) | | Non-GAAP Operating Income | $0.5M - $10.5M | | Non-GAAP Net Income per Diluted Share | $0.14 - $0.17 | | Free Cash Flow | $120.0M - $125.0M | [Non-GAAP Financial Measures and Key Performance Indicators](index=2&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) This section details the company's non-GAAP financial measures and defines key performance indicators like ARR and Free Cash Flow for clearer operational insights - Non-GAAP operating income (loss) is calculated by excluding stock-based compensation expense, related payroll tax expense, and amortization of acquired intangible assets and acquisition-related expenses[11](index=11&type=chunk) - Non-GAAP net income (loss) excludes the same items as non-GAAP operating income, plus foreign exchange gains/losses, amortization of debt issuance costs, and acquisition-related taxes[12](index=12&type=chunk) - Annual Recurring Revenue (ARR) is a key performance indicator defined as the annualized value of active SaaS, term-based subscription license, and maintenance contracts at the end of a period. It is not a forecast of future revenues[19](index=19&type=chunk) - Free cash flow is defined as net cash from operating activities less purchases of property and equipment and capitalized internal-use software. It is considered a useful indicator of liquidity[15](index=15&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the unaudited Condensed Consolidated Statements of Operations, Balance Sheets, and Cash Flows for Q1 2025, offering a GAAP-based financial overview [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenues for Q1 2025 increased to **$136.4 million**, driven by SaaS revenue growth, while GAAP operating loss narrowed to **($43.8) million** Condensed Consolidated Statements of Operations (in thousands) | Line Item | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | **Total revenues** | **$136,423** | **$114,022** | | SaaS | $88,560 | $33,985 | | Term license subscriptions | $31,488 | $55,980 | | Maintenance and services | $16,375 | $24,057 | | Gross profit | $107,405 | $92,673 | | **Operating loss** | **($43,766)** | **($47,633)** | | **Net loss** | **($35,783)** | **($40,490)** | | Net loss per share, basic and diluted | ($0.32) | ($0.37) | - The decline in term license subscription and maintenance revenues was primarily driven by customers converting to the company's SaaS platform[5](index=5&type=chunk) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets were **$1.58 billion** and total liabilities **$1.21 billion**, with **$1.2 billion** in cash and marketable securities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 ($) | December 31, 2024 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $153,107 | $185,585 | | Total marketable securities | $1,006,226 | $1,002,279 | | **Total assets** | **$1,577,094** | **$1,664,275** | | Total current liabilities | $710,108 | $709,885 | | Total long-term liabilities | $499,243 | $498,734 | | **Total liabilities** | **$1,209,351** | **$1,208,619** | | **Total stockholders' equity** | **$367,743** | **$455,656** | - As of March 31, 2025, the company had **$1.2 billion** in cash and cash equivalents, short-term deposits, and marketable securities[6](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 2025, cash from operations increased to **$68.0 million**, resulting in **$65.3 million** free cash flow, with **$75.5 million** used in financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,000 | $56,723 | | Net cash used in investing activities | ($25,017) | ($111,966) | | Net cash used in financing activities | ($75,461) | ($28,446) | | **Decrease in cash and cash equivalents** | **($32,478)** | **($83,689)** | - Cash used in financing activities included **$61.3 million** for the repurchase of common stock and **$21.4 million** for taxes paid related to net share settlement of equity awards[33](index=33&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=9&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) This section provides detailed reconciliations of GAAP to non-GAAP financial measures for Q1 2025 and Q1 2024, including operating loss, net income, and free cash flow Reconciliation of GAAP to Non-GAAP Operating Loss (in thousands) | Line Item | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | **GAAP operating loss** | **($43,766)** | **($47,633)** | | Stock-based compensation | $32,255 | $32,093 | | Payroll tax related to stock comp. | $3,067 | $4,587 | | Amortization & acquisition expenses | $1,986 | $381 | | **Non-GAAP operating loss** | **($6,458)** | **($10,572)** | Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Loss) (in thousands) | Line Item | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | **GAAP net loss** | **($35,783)** | **($40,490)** | | Total add-backs | $36,451 | $36,763 | | **Non-GAAP net income (loss)** | **$668** | **($3,727)** | Reconciliation to Free Cash Flow (in thousands) | Line Item | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,000 | $56,723 | | Purchases of property and equipment | ($2,339) | ($297) | | Capitalized internal-use software | ($325) | — | | **Free cash flow** | **$65,336** | **$56,426** |

Core Insights - Varonis Systems, Inc. reported a 19% year-over-year growth in annual recurring revenues (ARR), reaching $664.3 million as of March 31, 2025 [6][5][2] - The company's SaaS ARR constituted approximately 61% of total ARR, indicating strong adoption of its SaaS platform [2][5] - Year-to-date cash from operations was $68.0 million, up from $56.7 million in the previous year, while free cash flow increased to $65.3 million from $56.4 million [6][5] Financial Performance - Total revenues for the first quarter were $136.4 million, compared to $114.0 million in the same quarter of 2024, reflecting a significant increase [5][24] - SaaS revenues surged to $88.6 million from $34.0 million year-over-year, while term license subscription revenues decreased to $31.5 million from $56.0 million, primarily due to customer transitions to the SaaS model [5][24] - Maintenance and services revenues also declined to $16.4 million from $24.1 million, again attributed to the shift towards SaaS [5][24] Operational Highlights - The company repurchased 1.5 million shares at an average price of $41.49, totaling $61.3 million [6] - Varonis acquired Cyral, enhancing its Data Security Platform with next-generation Database Activity Monitoring capabilities [6] - The launch of Varonis for Agentforce provides critical visibility into the AI layer of the Salesforce platform, facilitating safe AI rollouts [6] Cash Flow and Liquidity - As of March 31, 2025, Varonis had $1.2 billion in cash and cash equivalents, short-term deposits, and marketable securities [6] - The company generated $68.0 million in cash from operations during the first quarter, marking an increase from the previous year's $56.7 million [6][30] - Free cash flow for the quarter was $65.3 million, up from $56.4 million in the prior year [6][30] Future Outlook - Varonis anticipates raising its full-year ARR guidance due to strong SaaS adoption and underlying business drivers, despite a challenging macroeconomic environment [2][5] - The company expects revenues for the full year 2025 to be between $610.0 million and $625.0 million, reflecting year-over-year growth of 11% to 13% [12]

Core Insights - Varonis Systems, Inc. has been recognized with four Global Infosec Awards at the RSA Conference 2025 for its excellence in data security and innovative solutions [1][2][3] Group 1: Awards and Recognition - Varonis won the Innovative Service award for its Managed Data Detection and Response [2] - The Varonis Data Security Platform received the Editor's Choice for Cloud Security, the Market Innovator award for Data-Centric Security, and the Market Innovator award for Data Security Posture Management [2][3] Group 2: Technology and Solutions - The Varonis Data Security Platform is noted for its ability to find, fix, and alert to threats across IaaS, SaaS, and hybrid environments using advanced automation [3] - Varonis emphasizes its role in helping organizations protect data and reduce risk, particularly in the context of AI advancements [3][4] Group 3: Company Philosophy and Approach - Varonis aims to go beyond merely identifying issues by providing automated solutions that help customers avoid breaches and fines, thereby alleviating the workload of security teams [4] - The company focuses on understanding future threats and innovating in ways that mitigate cyber risks [4]

Core Insights - Varonis Systems, Inc. is leading the data security sector and will feature Matt Radolec at the RSA Conference 2025 to discuss leveraging gaming talent to address the cybersecurity skills gap [1][2][3] Company Overview - Varonis is recognized as a leader in data security, focusing on a different approach compared to traditional cybersecurity firms [5] - The company offers a cloud-native Data Security Platform that continuously discovers and classifies critical data, removes exposures, and detects advanced threats using AI-powered automation [5][6] Event Participation - Matt Radolec will present on "Addressing the Cybersecurity Skills Gap with Gamer Talent" at the RSA Conference, highlighting the application of gaming principles to enhance cybersecurity talent [1][3] - Varonis will have a presence at the RSA Conference, inviting attendees to visit their booth to learn about their solutions for reducing data risk in the AI era [4] Product and Services - Varonis provides a range of automated security outcomes, including data security posture management, data classification, data access governance, data detection and response, data loss prevention, AI security, and insider risk management [6]