Varonis(VRNS) - 2025 Q2 - Quarterly Results

Executive Summary & Business Highlights Q2 2025 Financial Highlights Varonis reported strong Q2 2025 financial performance, with Annual Recurring Revenue (ARR) growing 19% year-over-year, SaaS ARR reaching approximately 69% of total, and significant increases in year-to-date cash from operations and free cash flow | Metric | Q2 2025 | Q2 2024 | YoY Change | YTD 2025 | YTD 2024 | YTD Change | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | :--------- | :--------- | | Total Revenues | $152.2M | $130.3M | +16.8% | $288.6M | $244.4M | +18.1% | | SaaS Revenues | $105.9M | $44.8M | +136.4% | $194.5M | $78.8M | +146.8% | | Term License Subscription Revenues | $32.4M | $62.7M | -48.4% | $63.9M | $118.7M | -46.1% | | Maintenance and Services Revenues | $13.9M | $22.8M | -39.0% | $30.3M | $46.9M | -35.4% | | GAAP Operating Loss | ($36.6M) | ($28.8M) | -27.1% | ($80.3M) | ($76.5M) | -5.0% | | Non-GAAP Operating Loss (Income) | ($1.9M) | $2.1M | -190.5% | ($8.4M) | ($8.5M) | +1.2% | | Annual Recurring Revenues (ARR) | $693.2M | N/A | +19% | N/A | N/A | N/A | | SaaS ARR as % of Total ARR | ~69% | N/A | N/A | N/A | N/A | N/A | | YTD Cash from Operations | N/A | N/A | N/A | $89.3M | $68.4M | +30.6% | | YTD Free Cash Flow | N/A | N/A | N/A | $82.7M | $67.3M | +22.9% | Management Commentary Management highlighted strong tailwinds from SaaS, MDDR, and AI adoption, emphasizing a successful SaaS transition with 69% of ARR from SaaS and raised full-year ARR guidance - CEO Yaki Faitelson noted tailwinds from SaaS platform, MDDR, AI adoption, and data-centric cloud/SaaS security driving business momentum[2] - CFO Guy Melamed highlighted that 69% of ARR now comes from SaaS, reflecting growing demand and accelerating the SaaS transition towards an 82% mix expectation for the full year[2] - The company is confident in raising its full-year ARR guidance due to strong demand and underlying business drivers[2] Key Business Achievements Varonis achieved several strategic milestones, including completing a share repurchase authorization, forming a key partnership with Microsoft for AI security, and securing important certifications and recognitions in data security - Repurchased 1.0 million shares for $38.7 million, completing the share repurchase authorization[6] - Announced a strategic partnership with Microsoft to enhance AI workplace security through deeper engineering integration between Varonis Data Security Platform and Microsoft's security portfolio[6] - Achieved FedRAMP Authorization, confirming Varonis' unified SaaS platform meets U.S. federal agencies' rigorous cloud security requirements[13] - Announced protection for OpenAI's ChatGPT Enterprise to help customers identify sensitive data uploads, monitor prompts/responses, and prevent breaches[13] - Named a Gartner Peer Insights Customers' Choice for Data Security Posture Management (DSPM)[13] - Secured health data hosting certification Hébergeur de Données de Santé (HDS), reinforcing commitment to health data protection in France[13] Financial Results (GAAP) Condensed Consolidated Statements of Operations Varonis reported a Q2 2025 net loss of ($35.8) million, an increase from Q2 2024, primarily due to higher operating expenses despite rising total revenues | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | SaaS Revenues | $105,895 | $44,785 | $194,455 | $78,770 | | Term license subscriptions | $32,374 | $62,729 | $63,862 | $118,709 | | Maintenance and services | $13,894 | $22,832 | $30,269 | $46,889 | | Total revenues | $152,163 | $130,346 | $288,586 | $244,368 | | Cost of revenues | $31,249 | $22,436 | $60,267 | $43,785 | | Gross profit | $120,914 | $107,910 | $228,319 | $200,583 | | Research and development | $56,247 | $44,933 | $110,457 | $92,760 | | Sales and marketing | $76,578 | $70,041 | $149,341 | $141,268 | | General and administrative | $24,641 | $21,762 | $48,839 | $43,014 | | Total operating expenses | $157,466 | $136,736 | $308,637 | $277,042 | | Operating loss | ($36,552) | ($28,826) | ($80,318) | ($76,459) | | Financial income, net | $4,967 | $8,249 | $16,918 | $16,794 | | Loss before income taxes | ($31,585) | ($20,577) | ($63,400) | ($59,665) | | Income taxes | ($4,239) | ($3,371) | ($8,207) | ($4,773) | | Net loss | ($35,824) | ($23,948) | ($71,607) | ($64,438) | | Net loss per share, basic and diluted | ($0.32) | ($0.21) | ($0.64) | ($0.58) | Condensed Consolidated Balance Sheets Varonis' total assets slightly decreased to $1.615 billion as of June 30, 2025, mainly due to reduced long-term marketable securities, partially offset by increased current marketable securities and cash | Metric (in thousands) | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Assets | | | | Cash and cash equivalents | $199,231 | $185,585 | | Marketable securities | $571,630 | $343,383 | | Short-term deposits | $36,587 | $39,450 | | Trade receivables, net | $149,703 | $192,832 | | Prepaid expenses and other short-term assets | $111,212 | $116,824 | | Total current assets | $1,068,363 | $878,074 | | Long-term marketable securities | $364,203 | $658,896 | | Operating lease right-of-use assets | $41,743 | $45,593 | | Property and equipment, net | $33,088 | $30,795 | | Intangible assets, net | $5,844 | — | | Goodwill | $39,750 | $23,135 | | Other assets | $62,021 | $27,782 | | Total long-term assets | $546,649 | $786,201 | | Total assets | $1,615,012 | $1,664,275 | | Liabilities and stockholders' equity | | | | Trade payables | $7,115 | $4,313 | | Accrued expenses and other short-term liabilities | $190,344 | $164,930 | | Convertible senior notes, net (current) | $251,148 | $250,529 | | Deferred revenues (current) | $322,791 | $290,113 | | Total current liabilities | $771,398 | $709,885 | | Convertible senior notes, net (long-term) | $451,247 | $450,243 | | Operating lease liabilities (long-term) | $39,865 | $42,789 | | Deferred revenues (long-term) | $108 | $2,211 | | Other liabilities (long-term) | $10,895 | $3,491 | | Total long-term liabilities | $502,115 | $498,734 | | Total stockholders' equity | $341,499 | $455,656 | | Total liabilities and stockholders' equity | $1,615,012 | $1,664,275 | Condensed Consolidated Statements of Cash Flows Varonis generated $89.3 million in net cash from operating activities for the six months ended June 30, 2025, with investing activities shifting to a net inflow and financing activities showing a larger net outflow | Metric (in thousands) | Six Months Ended June 30, 2025 (Unaudited) | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------------------- | :----------------------------- | | Net cash provided by operating activities | $89,349 | $68,447 | | Net cash provided by (used in) investing activities | $44,933 | ($116,968) | | Net cash used in financing activities | ($120,636) | ($26,816) | | Increase (decrease) in cash and cash equivalents | $13,646 | ($75,337) | | Cash and cash equivalents at end of period | $199,231 | $155,403 | Non-GAAP Financial Measures & Key Performance Indicators Explanation of Non-GAAP Measures Varonis uses non-GAAP measures like operating income (loss) and net income (loss) to provide a clearer view of operational performance by excluding non-cash or non-recurring expenses, enhancing comparability and business trend visibility - Non-GAAP operating income (loss) excludes stock-based compensation, related payroll tax expense, amortization of acquired intangible assets, and acquisition-related expenses[11] - Non-GAAP net income (loss) further excludes foreign exchange gains (losses), amortization of debt issuance costs, and acquisition-related taxes from GAAP net income (loss)[12] - Free cash flow is defined as net cash provided by or used in operating activities less purchases of property and equipment and capitalized internal-use software, serving as a liquidity indicator for strategic initiatives[15] - The company believes these non-GAAP measures offer a more meaningful comparison of operational performance and greater visibility into underlying business trends, despite not being prepared in accordance with GAAP[13][16] Reconciliation of GAAP to Non-GAAP Operating Income (Loss) The reconciliation adjusts Q2 2025 GAAP operating loss of ($36.6) million to a non-GAAP operating loss of ($1.9) million, primarily by adding back stock-based compensation expense | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP operating loss | ($36,552) | ($28,826) | ($80,318) | ($76,459) | | Add back: | | | | | | Stock-based compensation expense | 33,859 | 30,089 | 66,114 | 62,182 | | Payroll tax expenses related to stock-based compensation | 259 | 424 | 3,326 | 5,011 | | Amortization of acquired intangible assets and acquisition-related expenses | 532 | 381 | 2,518 | 762 | | Non-GAAP operating income (loss) | ($1,902) | $2,068 | ($8,360) | ($8,504) | Reconciliation of GAAP to Non-GAAP Net Income (Loss) Varonis' Q2 2025 GAAP net loss of ($35.8) million was reconciled to a non-GAAP net income of $3.8 million through adjustments including stock-based compensation and foreign exchange differences | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP net loss | ($35,824) | ($23,948) | ($71,607) | ($64,438) | | Add back: | | | | | | Stock-based compensation expense | 33,859 | 30,089 | 66,114 | 62,182 | | Payroll tax expenses related to stock-based compensation | 259 | 424 | 3,326 | 5,011 | | Amortization of acquired intangible assets and acquisition-related expenses | 532 | 381 | 2,518 | 762 | | Foreign exchange rate differences, net | 4,116 | (569) | 1,981 | (1,250) | | Amortization of debt issuance costs | 887 | 385 | 1,774 | 768 | | Acquisition-related taxes | — | — | 391 | — | | Non-GAAP net income | $3,829 | $6,762 | $4,497 | $3,035 | | Non-GAAP net income per share - diluted | $0.03 | $0.05 | $0.03 | $0.02 | Reconciliation of GAAP to Non-GAAP Free Cash Flow For the six months ended June 30, 2025, Varonis' net cash provided by operating activities of $89.3 million was adjusted to a free cash flow of $82.7 million after deducting purchases of property and equipment and capitalized internal-use software | Metric (in thousands) | Six Months Ended June 30, 2025 (Unaudited) | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------------------- | :----------------------------- | | Net cash provided by operating activities | $89,349 | $68,447 | | Purchases of property and equipment | ($5,716) | ($1,116) | | Capitalized internal-use software | ($975) | — | | Free cash flow | $82,658 | $67,331 | Definition of Key Performance Indicators (KPIs) Annual Recurring Revenue (ARR) is defined as the annualized value of active SaaS, term-based subscription, and maintenance contracts, calculated by annualizing total contract value, and is not a future revenue forecast - ARR is defined as the annualized value of active SaaS contracts, term-based subscription license contracts, and maintenance contracts in effect at the end of a period[19] - The annualized value of contracts is determined by dividing the total contract value by the number of days in the term and multiplying by 365[19] - ARR is not a forecast of future revenues, which can be influenced by contract start/end dates and renewal rates[21] Financial Outlook Third Quarter 2025 Guidance Varonis projects Q3 2025 revenues between $163.0 million and $168.0 million (10-13% YoY growth), with non-GAAP operating income of $4.0 million to $7.0 million and non-GAAP net income per diluted share of $0.07 to $0.08 | Metric | Q3 2025 Guidance | | :-------------------------------- | :------------------- | | Revenues | $163.0M to $168.0M | | YoY Growth | 10% to 13% | | Non-GAAP Operating Income | $4.0M to $7.0M | | Non-GAAP Net Income per Diluted Share | $0.07 to $0.08 | | Diluted Shares Outstanding | 134.0M | Full Year 2025 Guidance Varonis raised full-year 2025 guidance, expecting ARR between $748.0 million and $754.0 million (17% YoY growth), revenues of $616.0 million to $628.0 million, and free cash flow of $120.0 million to $125.0 million | Metric | Full Year 2025 Guidance | | :-------------------------------- | :---------------------- | | ARR | $748.0M to $754.0M | | ARR YoY Growth | 17% | | Free Cash Flow | $120.0M to $125.0M | | Revenues | $616.0M to $628.0M | | Revenues YoY Growth | 12% to 14% | | Non-GAAP Operating Income | $0.0M to $6.0M | | Non-GAAP Net Income per Diluted Share | $0.16 to $0.18 | | Diluted Shares Outstanding | 134.7M | Additional Information Conference Call and Webcast Varonis hosted a conference call on July 29, 2025, to discuss Q2 2025 financial results, with a replay available through August 6, 2025, via dial-in and the investor relations website - Conference call held on Tuesday, July 29, 2025, at 4:30 p.m. Eastern Time[9] - Replay available through August 6, 2025, via domestic (844-512-2921) or international (412-317-6671) dial-in, passcode 13754774[9] - Live webcast and archived replay available on the 'Investors' page of www.varonis.com[9](index=9&type=chunk) Forward-Looking Statements This press release contains forward-looking statements, subject to safe harbor provisions, based on management's expectations and assumptions that are inherently subject to risks and uncertainties which could cause actual results to differ materially - Statements regarding future performance, revenues, operating income/loss, or earnings/loss per share are forward-looking[22] - Important factors that could cause actual results to differ include cybersecurity breaches, market growth risks, economic conditions, subscription renewal rates, international operations, global conflicts, competitive factors, employee retention, sales efforts, large transaction closures, new product introductions, service quality, cloud expansion, and risks associated with convertible notes[22] - Varonis undertakes no duty to update or revise this information, except as required by law[22] About Varonis Varonis Systems, Inc. (Nasdaq: VRNS) is a leader in data security, offering a cloud-native Data Security Platform that continuously discovers, classifies, and protects critical data, removes exposures, and detects advanced threats using AI-powered automation across SaaS, IaaS, and hybrid cloud environments - Varonis is a leader in data security, focusing on protecting data rather than conventional cybersecurity[23][25] - Its cloud-native Data Security Platform discovers and classifies critical data, removes exposures, and detects threats with AI-powered automation[23] - Customers use Varonis for data security posture management (DSPM), data classification, data access governance (DAG), data detection and response (DDR), data loss prevention (DLP), database activity monitoring (DAM), identity protection, and AI security across various cloud environments[24] Investor and Media Contacts Contact information for Varonis' Investor Relations and News Media departments is provided for inquiries - Investor Relations Contact: Tim Perz, 646-640-2112, investors@varonis.com[26] - News Media Contact: Rachel Hunt, 877-292-8767 (ext. 1598), pr@varonis.com[26]