Core Insights - Varonis Systems, Inc. has acquired SlashNext, an AI-native email security provider, to enhance its data breach prevention capabilities [1][4] - The acquisition aims to provide a comprehensive threat detection and response solution, addressing the rise of social engineering attacks across various communication channels [3][4] - The email security market is projected to grow significantly, from $5.2 billion in 2025 to $10.7 billion by 2032, driven by AI-driven phishing and business email compromise (BEC) attacks [5] Company Overview - Varonis is recognized as a leader in data security, focusing on protecting data across various environments, including SaaS, IaaS, and hybrid cloud [14][15] - The company utilizes a cloud-native Data Security Platform that employs AI-powered automation for threat detection and data classification [14][15] Acquisition Details - SlashNext was founded by Atif Mushtaq, a key figure in developing FireEye's malware sandbox technology, and is known for its high detection rates for phishing attacks [2][6] - The acquisition is expected to significantly expand Varonis' total addressable market and enhance the value of its Managed Detection and Response (MDDR) service [4] Financial Outlook - For Q3 2025, Varonis expects revenues between $163.0 million and $168.0 million, reflecting a year-over-year growth of 10% to 13% [7] - For the full year 2025, the company anticipates revenues of $616.0 million to $628.0 million, indicating a year-over-year growth of 12% to 14% [7] - The company also projects an Annual Recurring Revenue (ARR) of $748.0 million to $754.0 million, with a year-over-year growth of 17% [7]

Core Viewpoint - Varonis Systems reported better-than-expected Q2 2025 earnings and revenues, driven by strong performance in its SaaS offerings, despite a decline in earnings year-over-year due to the transition to a SaaS model [3][4][5]. Financial Performance - Varonis Systems achieved non-GAAP earnings per share of 3 cents, exceeding the Zacks Consensus Estimate of 1 cent, but down 50% from 6 cents in the same quarter last year [3][4]. - Q2 2025 revenues reached $152.2 million, surpassing the Zacks Consensus Estimate of $148 million, and reflecting a year-over-year increase of 16.8% [5]. - SaaS revenues accounted for 69.6% of total revenues, increasing 136.4% year-over-year to $105.9 million, while term license subscriptions and maintenance services saw significant declines [6]. Geographic Performance - The United States contributed 71.4% of total revenues, growing 18.2% year-over-year to $108.7 million, while EMEA revenues increased 9.2% to $31.8 million [7]. Margins and Losses - Non-GAAP gross margin contracted by 350 basis points to 80.6%, and the company reported a non-GAAP operating loss of $1.9 million, compared to an operating income of $2.1 million in the previous year [8]. Balance Sheet and Cash Flow - As of June 30, 2025, Varonis had $807.4 million in cash and equivalents, up from $609.2 million at the end of Q1 2025, with operating cash flow of $89.3 million and free cash flow of $82.7 million for the first half of 2025 [9]. Guidance and Projections - Varonis raised its FY25 guidance for annual recurring revenues to between $748 million and $754 million, and total revenues to between $616 million and $628 million [10]. - The company expects full-year 2025 earnings per share in the range of 16-18 cents, and projects Q3 2025 revenues between $163 million and $168 million, indicating year-over-year growth of 10% to 13% [11][12]. Market Sentiment - Recent estimates for Varonis have trended upward, with a 5.3% shift in consensus estimates, and the stock currently holds a Zacks Rank 3 (Hold), suggesting an in-line return in the coming months [13][15].

Core Viewpoint - Varonis Systems (NASDAQ: VRNS) has been previously rated as a buy due to sound fundamentals despite market focus on near-term weaknesses [1] Group 1: Company Analysis - The reported growth and margins of Varonis Systems appear messy, indicating potential challenges in financial performance [1] - The company is positioned within a spectrum of investment strategies, including fundamental, technical, and momentum investing, suggesting a multifaceted approach to its market evaluation [1] Group 2: Investor Perspective - The individual investor managing their own capital emphasizes the importance of connecting with like-minded investors and tracking investment ideas through platforms like Seeking Alpha [1]

Core Insights - This earnings season, several companies are showcasing resilience by achieving solid performance despite macroeconomic challenges and tariff uncertainties [1] Group 1: MongoDB - MongoDB (MDB) reported strong first-quarter results for fiscal 2026, with BMO Capital initiating coverage with a buy rating and a price target of $280 [3][6] - The database market exceeds $100 billion annually, with MongoDB being a leader in the non-relational database segment, which is growing at approximately 20% year over year [4] - Analyst expectations indicate that MongoDB's cloud-based offering, Atlas, will sustain low- to mid-20% growth through fiscal 2027, with overall growth projected in the mid- to high-teens for fiscal 2027 [6] Group 2: ServiceNow - ServiceNow (NOW) exceeded second-quarter expectations and raised its full-year outlook, driven by increasing AI adoption, prompting TD Cowen to reaffirm a buy rating and raise the price target to $1,200 [8][12] - The company achieved a 21.5% growth in current remaining performing obligations, attributed to early renewals and AI strength in the enterprise business [9] - ServiceNow's generative AI suite, NOW Assist, has shown better-than-expected performance, indicating strong demand and deal sizes [11] Group 3: Varonis Systems - Varonis Systems (VRNS) reported solid second-quarter results for 2025, leading Baird to raise the price target to $63 while maintaining a buy rating [14] - The company achieved a "clean beat/raise" across key metrics, including annual recurring revenue (ARR) and subscription revenue, with improved full-year ARR guidance [15][16] - SaaS ARR represented approximately 69% of overall Q2 ARR, up from 61% in Q1, with expectations to reach an 82% SaaS ARR mix by the end of 2025 [17]

PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section covers Varonis's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Varonis Systems, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instruments, leases, business combinations, equity, and geographic data [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents Varonis Systems, Inc.'s condensed consolidated balance sheet data | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | **Assets** | | | | | Cash and cash equivalents | $199,231 | $185,585 | +$13,646 | | Marketable securities (current) | $571,630 | $343,383 | +$228,247 | | Total current assets | $1,068,363 | $878,074 | +$190,289 | | Long-term marketable securities | $364,203 | $658,896 | -$294,693 | | Total assets | $1,615,012 | $1,664,275 | -$49,263 | | **Liabilities** | | | | | Accrued expenses and other short-term liabilities | $190,344 | $164,930 | +$25,414 | | Deferred revenues (current) | $322,791 | $290,113 | +$32,678 | | Total current liabilities | $771,398 | $709,885 | +$61,513 | | Total liabilities | $1,273,513 | $1,208,619 | +$64,894 | | **Stockholders' Equity** | | | | | Total stockholders' equity | $341,499 | $455,656 | -$114,157 | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of operations | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | SaaS Revenues | $105,895 | $44,785 | 136.5% | $194,455 | $78,770 | 146.9% | | Term License Subscriptions | $32,374 | $62,729 | (48.4)% | $63,862 | $118,709 | (46.2)% | | Maintenance and Services | $13,894 | $22,832 | (39.1)% | $30,269 | $46,889 | (35.4)% | | Total Revenues | $152,163 | $130,346 | 16.7% | $288,586 | $244,368 | 18.1% | | Cost of Revenues | $31,249 | $22,436 | 39.3% | $60,267 | $43,785 | 37.6% | | Gross Profit | $120,914 | $107,910 | 12.1% | $228,319 | $200,583 | 13.8% | | Operating Loss | $(36,552) | $(28,826) | 26.8% | $(80,318) | $(76,459) | 5.0% | | Net Loss | $(35,824) | $(23,948) | 49.6% | $(71,607) | $(64,438) | 11.1% | | Net Loss Per Share (Basic & Diluted) | $(0.32) | $(0.21) | 52.4% | $(0.64) | $(0.58) | 10.3% | [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of comprehensive loss | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(35,824) | $(23,948) | $(71,607) | $(64,438) | | Total other comprehensive income (loss) | $15,659 | $(1,520) | $11,821 | $(1,976) | | Comprehensive loss | $(20,165) | $(25,468) | $(59,786) | $(66,414) | [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of changes in stockholders' equity | Metric (in thousands) | Balance as of Dec 31, 2024 | Balance as of June 30, 2025 | Change | | :-------------------- | :------------------------- | :-------------------------- | :----- | | Common stock | $113 | $112 | $(1) | | Accumulated other comprehensive income | $2,676 | $14,497 | $11,821 | | Additional paid-in capital | $1,193,022 | $1,138,652 | $(54,370) | | Accumulated deficit | $(740,155) | $(811,762) | $(71,607) | | Total stockholders' equity | $455,656 | $341,499 | $(114,157) | - Key factors impacting equity during the six months ended June 30, 2025, include **$66,114 thousand** in stock-based compensation expense, **$27,799 thousand** in taxes paid related to net share settlement of equity awards, and **$100,000 thousand** in common stock repurchases[15](index=15&type=chunk)[16](index=16&type=chunk)[18](index=18&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table presents Varonis Systems, Inc.'s unaudited condensed consolidated statements of cash flows | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net cash provided by operating activities | $89,349 | $68,447 | +$20,902 | | Net cash provided by (used in) investing activities | $44,933 | $(116,968) | +$161,901 | | Net cash used in financing activities | $(120,636) | $(26,816) | -$93,820 | | Increase (decrease) in cash and cash equivalents | $13,646 | $(75,337) | +$88,983 | | Cash and cash equivalents at end of period | $199,231 | $155,403 | +$43,828 | - Investing activities in H1 2025 were positively impacted by **$68.3 million** in net proceeds from marketable securities and **$3.4 million** from deposits, partially offset by **$18.6 million** for an acquisition and **$5.7 million** in capital expenditures[176](index=176&type=chunk) - Financing activities in H1 2025 included **$100.0 million** in common stock repurchases and **$27.8 million** in taxes paid for equity awards, partially offset by **$7.2 million** from employee stock plans[177](index=177&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering Varonis's business description, accounting policies for revenue, taxes, financial instruments, business combinations, and equity, as well as information on fair value measurements, leases, and geographic data [NOTE 1: GENERAL](index=12&type=section&id=NOTE%201:%20GENERAL) This note provides an overview of Varonis's business, accounting policies, and recent accounting pronouncements [a. Description of Business](index=12&type=section&id=a.%20Description%20of%20Business) Varonis provides an integrated platform for data security, threat detection, and compliance across cloud and on-premises data - Varonis provides an integrated platform for data security, threat detection and response, and data privacy and compliance, covering cloud and on-premises data stores and SaaS applications[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - The Varonis Data Security Platform, available as a SaaS solution since 2022, offers simpler deployment, faster time-to-value, and automation capabilities to prevent data breaches[22](index=22&type=chunk)[23](index=23&type=chunk) [b. Basis of Presentation](index=12&type=section&id=b.%20Basis%20of%20Presentation) Interim financial statements are prepared in accordance with SEC regulations for Form 10-Q - The unaudited condensed consolidated interim financial statements are prepared in accordance with SEC regulations for Form 10-Q, condensing certain information and footnotes, and should be read in conjunction with the 2024 Form 10-K[25](index=25&type=chunk)[26](index=26&type=chunk) [c. Revenue Recognition](index=13&type=section&id=c.%20Revenue%20Recognition) SaaS revenues are recognized ratably, while on-premises term license subscriptions are recognized at delivery - SaaS revenues, including MDDR, are recognized ratably over the contract period, while on-premises term license subscriptions are recognized at the point of delivery[27](index=27&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Maintenance and services revenues are recognized ratably over the contract term, with professional services recognized upon delivery or service term expiration[27](index=27&type=chunk)[31](index=31&type=chunk) | Metric | June 30, 2025 | | :---------------------------- | :------------ | | Remaining Performance Obligations | $870,891 thousand | | Expected Revenue Recognition (next 12 months) | ~53% | [d. Contract Costs](index=14&type=section&id=d.%20Contract%20Costs) Sales commissions are capitalized and amortized over an expected benefit period of approximately four years - Sales commissions are capitalized and amortized over an expected benefit period of approximately four years for initial contracts and on a straight-line basis for renewal contracts, included in sales and marketing expenses[37](index=37&type=chunk) [e. Derivative Instruments](index=14&type=section&id=e.%20Derivative%20Instruments) Varonis uses forward foreign exchange contracts to hedge against currency rate changes for revenues and expenses - Varonis uses forward foreign exchange contracts to hedge against foreign currency rate changes for forecasted revenues (Euro, Pound Sterling) and operating expenses (New Israeli Shekel, Euro, Pound Sterling)[38](index=38&type=chunk)[39](index=39&type=chunk)[191](index=191&type=chunk) | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss related to cash flow hedges | $(1,337) | $(3,145) | $(1,999) | $(6,388) | [f. Income Taxes](index=15&type=section&id=f.%20Income%20Taxes) Varonis maintains a full valuation allowance against deferred tax assets and is assessing new tax legislation - Varonis maintains a full valuation allowance against deferred tax assets due to a history of operating losses[41](index=41&type=chunk)[144](index=144&type=chunk) - The U.S. "One Big Beautiful Bill Act" (OBBBA), enacted July 4, 2025, allows immediate expensing of U.S. R&D and certain capital expenditures, and changes foreign operations taxation. Varonis is assessing its financial impact, as it was enacted after June 30, 2025[48](index=48&type=chunk)[146](index=146&type=chunk) [g. Cash, Cash Equivalents, Marketable Securities and Short-Term Investments](index=15&type=section&id=g.%20Cash,%20Cash%20Equivalents,%20Marketable%20Securities%20and%20Short-Term%20Investments) This section details Varonis's cash, marketable securities, and short-term investments, including unrealized losses | Asset Category (in thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :---------------------------- | :------------------------- | :----------------------------- | | Cash equivalents (Money market funds) | $120,316 | $133,113 | | Marketable securities (US Treasury) | $571,630 | $343,383 | | Short-term deposits (Term bank deposits) | $36,587 | $39,450 | | Long-term marketable securities (US Treasury) | $364,203 | $658,896 | - Unrealized losses on available-for-sale securities were in a continuous unrealized loss position of less than one year as of June 30, 2025, and December 31, 2024, primarily due to changes in interest rates[52](index=52&type=chunk)[53](index=53&type=chunk) [h. Business Combinations](index=17&type=section&id=h.%20Business%20Combinations) Varonis accounts for business combinations using the acquisition method, allocating purchase consideration at fair value - Varonis accounts for business combinations using the acquisition method, allocating purchase consideration to acquired assets and assumed liabilities at fair value, with any excess recorded as goodwill. Acquisition costs are expensed as incurred[54](index=54&type=chunk) [i. Goodwill and Other Long-Lived Assets, including Acquired Intangible Assets](index=17&type=section&id=i.%20Goodwill%20and%20Other%20Long-Lived%20Assets,%20including%20Acquired%20Intangible%20Assets) Goodwill is tested for impairment annually, and finite-lived intangible assets are amortized on a straight-line basis - Goodwill is not amortized but tested for impairment annually. Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, with amortization expense recorded in cost of revenues[55](index=55&type=chunk)[56](index=56&type=chunk) [j. Capitalized Internal-use Software Development Costs](index=17&type=section&id=j.%20Capitalized%20Internal-use%20Software%20Development%20Costs) Varonis capitalizes development costs for its internal-use SaaS platform software once it reaches the development stage - Varonis capitalizes certain development costs for its internal-use SaaS platform software once it reaches the development stage, recording them as property and equipment. No amortization was recorded as of June 30, 2025, as assets were in development[57](index=57&type=chunk) [k. Concentration of Credit Risks](index=17&type=section&id=k.%20Concentration%20of%20Credit%20Risks) Varonis's financial instruments are subject to credit risk, managed through limits and allowances for trade receivables - The company's financial instruments, including cash, marketable securities, and trade receivables, are subject to credit risk. Trade receivables are diversified geographically, with credit risk managed through limits, evaluation, and allowances[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) [l. Basic and Diluted Net Loss Per Share](index=18&type=section&id=l.%20Basic%20and%20Diluted%20Net%20Loss%20Per%20Share) Basic and diluted net loss per share were identical due to the anti-dilutive effect of potential common stock shares - Basic and diluted net loss per share were identical for the periods presented because the inclusion of all potential common stock shares would have been anti-dilutive[62](index=62&type=chunk) | Potentially Dilutive Shares | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Stock options, RSUs, PSUs | 8,102,463 | 7,807,411 | | Convertible Notes | 14,966,942 | 8,239,049 | [m. Contractual Purchase Obligations](index=18&type=section&id=m.%20Contractual%20Purchase%20Obligations) This table outlines Varonis's contractual minimum purchase commitments with service providers | Commitment Type | Due in next 12 months (in thousands) | Due thereafter (in thousands) | Total (in thousands) | | :-------------- | :----------------------------------- | :---------------------------- | :------------------- | | Service Provider 1 | $2,043 | $21,000 | $23,043 | | Service Provider 2 | $46,700 | $377,620 | $424,320 | [n. Recently Issued Accounting Pronouncements Not Yet Adopted](index=18&type=section&id=n.%20Recently%20Issued%20Accounting%20Pronouncements%20Not%20Yet%20Adopted) Varonis is evaluating new accounting pronouncements related to income taxes and expense disaggregation disclosures - Varonis is evaluating ASU 2023-09 (Income Taxes), effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2026[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) [NOTE 2: FAIR VALUE MEASUREMENTS](index=19&type=section&id=NOTE%202:%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value measurements of Varonis's financial assets and liabilities by hierarchy levels | Financial Asset/Liability (in thousands) | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | Fair Value

Core Insights - Varonis Systems reported a revenue of $152.16 million for the quarter ended June 2025, reflecting a year-over-year increase of 16.7% [1] - The company's EPS was $0.03, down from $0.05 in the same quarter last year, but it exceeded the consensus estimate of $0.01, resulting in a surprise of +200% [1] - The reported revenue surpassed the Zacks Consensus Estimate of $147.79 million, indicating a positive surprise of +2.96% [1] Key Metrics - Annual Recurring Revenues reached $693.2 million, slightly above the estimated $687.37 million by six analysts [4] - Maintenance and Services revenues were reported at $13.89 million, significantly below the average estimate of $17.68 million, marking a year-over-year decline of -39.2% [4] - Term license subscriptions generated $32.37 million, exceeding the average estimate of $27.13 million based on two analysts [4] - SaaS revenues amounted to $105.9 million, slightly above the two-analyst average estimate of $105.03 million [4] Stock Performance - Varonis shares have returned +7.2% over the past month, outperforming the Zacks S&P 500 composite's +3.6% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Company Performance - Varonis Systems reported quarterly earnings of $0.03 per share, exceeding the Zacks Consensus Estimate of $0.01 per share, and compared to earnings of $0.05 per share a year ago, representing an earnings surprise of +200.00% [1] - The company posted revenues of $152.16 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.96%, and compared to year-ago revenues of $130.35 million [2] - Over the last four quarters, Varonis has surpassed consensus EPS estimates four times and topped consensus revenue estimates three times [2] Stock Performance - Varonis shares have increased approximately 22.5% since the beginning of the year, outperforming the S&P 500's gain of 8.6% [3] - The current consensus EPS estimate for the coming quarter is $0.05 on revenues of $161.9 million, and for the current fiscal year, it is $0.16 on revenues of $620.07 million [7] Industry Outlook - The Zacks Security industry, to which Varonis belongs, is currently ranked in the top 13% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Varonis' stock performance [5][6]

Financial Data and Key Metrics Changes - In Q2 2025, the company reported an ARR growth of 19% to $693.2 million, with SaaS ARR now representing about 69% of total ARR [9][26] - Free cash flow for the year to date reached $82.7 million, up from $67.3 million in the same period last year [9][28] - Revenue for Q2 was $152.2 million, reflecting a 17% year-over-year increase, despite a 7% headwind due to increased SaaS sales recognized ratably [28] Business Line Data and Key Metrics Changes - SaaS revenues were $105.9 million, term license subscription revenues were $32.4 million, and maintenance and services revenues were $13.9 million, with renewal rates over 90% [28] - The second quarter ARR contribution margin improved to 16.5%, up from 14.9% year-over-year, indicating strong incremental margins while transitioning to SaaS [30] Market Data and Key Metrics Changes - The demand for the SaaS platform from both new and existing customers is strong, particularly for cloud environment protection [10][21] - The data security market is rapidly expanding due to factors such as AI usage and increasing compliance needs, creating more budgeted line items and opportunities [10] Company Strategy and Development Direction - The company is focused on completing its SaaS transition and capturing a growing market opportunity, with a strategic emphasis on automated data security solutions [9][25] - The partnership with Microsoft is being deepened to enhance security for AI tools and drive secure AI adoption [21][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook despite a challenging macro environment, citing strong underlying business drivers [26][58] - The company anticipates continued strong demand for its solutions, particularly as customers recognize the need for comprehensive data security [34][60] Other Important Information - The company achieved federal authorization to offer its entire SaaS platform to the federal sector, marking a significant milestone [9][76] - The company repurchased 1 million shares at an average price of $38.59 during the quarter, totaling $38.7 million [32] Q&A Session Summary Question: How does the company compete against Cyera? - Management noted that competitors like Cyera expand the total available market and raise awareness about the need for data protection, but they do not provide comprehensive outcomes like Varonis does [37][39] Question: Can you size the opportunity from the Microsoft partnership? - Management highlighted that AI security is fundamentally a data security issue, and the partnership is focused on addressing security challenges associated with AI tools [44][46] Question: What metrics instill confidence in achieving over 20% ARR growth? - Management indicated that strong new customer acquisition and healthy NRR trends support the confidence in achieving this growth target [50][52] Question: How is the macro environment trending compared to last quarter? - Management stated that the macro environment remains similar to the previous quarter, with ongoing deal scrutiny but strong demand for data security solutions [58][59] Question: How does the company view competition from backup vendors entering the DSPM market? - Management emphasized that traditional backup vendors rarely compete in POCs and that Varonis remains focused on deploying solutions at scale [62][64] Question: Can you elaborate on the trend of customers consolidating their data security budgets? - Management noted that customers are increasingly consolidating their budgets around Varonis due to the comprehensive nature of its solutions [67][70] Question: What is the significance of the FedRAMP authorization? - Management expressed excitement about the FedRAMP authorization, which allows the company to offer its SaaS platform to federal customers, representing a significant growth opportunity [76][78] Question: How many subscription services would a large healthcare customer utilize? - Management indicated that large customers often utilize multiple services, including databases and compliance tools, reflecting a comprehensive approach to data security [82][84] Question: What is the outlook for new logo acquisition? - Management reported an acceleration in new logo acquisition, with larger initial land sizes and a strong value proposition driving customer interest [85][87]

Financial Data and Key Metrics Changes - In Q2 2025, the company reported an ARR growth of 19% to $693.2 million, with SaaS ARR now representing about 69% of total ARR [7][26] - Free cash flow for the year to date reached $82.7 million, up from $67.3 million in the same period last year [7][28] - Revenues for Q2 were $152.2 million, reflecting a 17% year-over-year increase, despite a 7% headwind due to increased SaaS sales recognized ratably [28] - Gross profit was $122.6 million, with a gross margin of 80.6%, down from 84.1% in the previous year [29] - The operating loss for Q2 was $1.9 million, compared to an operating income of $2.1 million in the same period last year [29][30] Business Line Data and Key Metrics Changes - SaaS revenues were $105.9 million, while term license subscription revenues were $32.4 million, and maintenance and services revenues were $13.9 million, with renewal rates over 90% [28] - The contribution margin for ARR in Q2 was 16.5%, up from 14.9% year-over-year, indicating improved leverage [30] Market Data and Key Metrics Changes - The company noted strong demand for its SaaS platform, particularly in protecting cloud environments, which is becoming a material contributor to business growth [8][9] - The data security market is rapidly expanding due to factors such as AI usage and increasing compliance needs, creating more budgeted line items for data security solutions [9] Company Strategy and Development Direction - The company is focused on completing its SaaS transition and capturing a growing market opportunity, particularly in the data security sector [5][24] - Investments are being made to expand use cases and enter new markets, including DSPM (Data Security Posture Management) [9][20] - The strategic partnership with Microsoft is being deepened to enhance security for AI tools and improve integration [20][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook despite a challenging macro environment, citing strong underlying drivers for the business [25][58] - The company anticipates continued strong demand for its solutions, driven by the simplicity and automated outcomes of its SaaS platform [33][34] Other Important Information - The company achieved federal authorization to offer its entire SaaS platform to the federal sector, which is expected to open new opportunities [7][78] - The company repurchased 1 million shares at an average price of $38.59 during the quarter, totaling $38.7 million [31] Q&A Session Summary Question: How does the company compete against Cyera? - Management noted that competitors like Cyera expand the total available market and raise awareness about the need for data protection, but they do not provide comprehensive outcomes like Varonis does [38][39] Question: What is the revenue contribution from the Microsoft partnership? - The partnership is expected to drive significant synergies, particularly in securing AI tools like Copilot, and efforts are underway to develop a pipeline with Microsoft [44][47] Question: What metrics support the confidence in over 20% ARR growth? - Management highlighted strong new customer acquisition and healthy NRR for SaaS, indicating that the difference between current ARR growth and 20% is not substantial [50][52] Question: How is the macro environment trending? - The macro environment remains similar to the previous quarter, with increased deal scrutiny, but the company is well-positioned to capitalize on the growing awareness of data security [56][58] Question: How is the company positioned for federal spending? - The recent FedRAMP authorization is a significant milestone, providing access to the federal sector, although it currently represents about 5% of total ARR [78][79] Question: Can you elaborate on the healthcare-related win? - The healthcare organization utilized multiple services, including AWS and Azure, indicating a trend of customers seeking comprehensive data security solutions [83] Question: What is the outlook for the new database activity monitoring offering? - The new offering is positioned to replace legacy vendors and is expected to drive significant revenue opportunities as customers seek integrated data security solutions [105][109]

Company Overview - Varonis is a leader in data security, differentiating itself from conventional cybersecurity companies[7] - The company's Annual Recurring Revenue (ARR) reached $6932 million, demonstrating a year-over-year growth of 19%[8] - SaaS ARR constitutes approximately 69% of the total ARR[8] Financial Performance - The company's YTD Free Cash Flow is $827 million[8] - The company experienced a ~7% headwind to year-over-year revenue growth due to increased SaaS sales[49, 51] - The company experienced a ~6% headwind to operating margin due to increased SaaS sales[54] Market Trends and Opportunities - The amount of data created is expected 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] - The company's Total Addressable Market (TAM) has more than tripled due to expansion into new markets like IaaS, SaaS, PaaS, AI, and Databases, exceeding $32 billion[28] Future Outlook - The company projects ARR between $748 million and $754 million for the full year 2025, representing a 17% year-over-year growth[55] - The company anticipates Free Cash Flow between $120 million and $125 million for the full year 2025[55] - The company's long-term goal is to build a billion-dollar business with expanding profit and cash flow[56]