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01/10 17:10
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. While there is strong SaaS growth and optimistic guidance, challenges in on-prem renewals and unclear management responses create uncertainties. The transition to SaaS and strategic acquisitions are positive, but the conservatism in guidance and potential customer alienation weigh on sentiment. Overall, the neutral rating reflects balanced positive and negative factors.
ARR (Annual Recurring Revenue) Increased 18% year-over-year to $718.6 million. However, weaker-than-expected renewals in federal and non-federal on-prem subscription business during the final weeks of the quarter impacted results. The SaaS business, which now represents 76% of total ARR, drove growth.
SaaS Revenue $125.8 million for the quarter. Growth driven by strong demand for SaaS platform and automated outcomes it provides.
Term License Subscription Revenue $24.8 million for the quarter. No specific year-over-year change or reasons mentioned.
Maintenance and Services Revenue $10.9 million for the quarter. Renewal rates remained over 90%.
Gross Margin 79.4% for the quarter, compared to 85% in the same period last year. Decline attributed to the ongoing SaaS transition.
Operating Income $0.2 million for the quarter, compared to $9.1 million in the same period last year. Decline due to weaker on-prem business performance and increased expenses.
Net Income $8.4 million for the quarter, compared to $13.8 million in the same period last year. Decline attributed to weaker on-prem business and increased expenses.
Free Cash Flow $111.6 million year-to-date, up from $88.6 million in the same period last year. Growth driven by strong SaaS performance.
Cash, Cash Equivalents, and Marketable Securities $1.1 billion as of September 30, 2025. Reflects strong liquidity position.
SaaS Transition Completion: Varonis completed its SaaS transition in less than 3 years, over 2 years ahead of schedule. SaaS now represents 76% of total ARR, amounting to approximately $545 million.
New Product Launches: Introduced Varonis Interceptor, an AI-native email security solution, and Next-Gen Database Activity Monitoring (DAM) for enhanced database security and compliance.
Microsoft Partnership: Deepened integration with Microsoft to support secure adoption of Copilot and capitalize on AI-driven opportunities.
Cloud Data Protection: Varonis expanded its SaaS platform to protect additional cloud environments, representing a significant growth opportunity.
Total Addressable Market Expansion: The launch of Varonis Interceptor and Next-Gen DAM significantly expanded the company's addressable market.
Headcount Reduction: Implemented a 5% reduction in headcount to reallocate resources for higher ROI areas.
Cost Management: Taking steps to manage expenses prudently, including adjustments in guidance and operational focus.
End of Life for Self-Hosted Solutions: Announced the end of life for self-hosted solutions by December 31, 2026, to focus on SaaS.
AI and Data Security Focus: Positioning to address AI-related data security challenges and opportunities, including securing data for AI initiatives like Copilot.
Weaker-than-expected renewals in federal and non-federal on-prem subscription business: The company experienced weaker-than-expected renewals in its federal and non-federal on-prem subscription business during the final weeks of Q3, which negatively impacted quarterly results. This underperformance introduces uncertainty in future renewal rates and overall revenue stability.
End of life for self-hosted solution: The decision to end the self-hosted solution by December 31, 2026, is expected to create increased uncertainty in the remaining on-prem subscription business, potentially leading to lower renewal rates and customer attrition.
Reduction in federal vertical team size: Due to continued underperformance in the federal vertical, the company is reducing the size of its team in this area, which may impact its ability to capture future opportunities in the federal market.
5% reduction in headcount: The company is implementing a 5% reduction in headcount to manage expenses, which could impact employee morale and operational efficiency in the short term.
Uncertainty in on-prem subscription renewal rates: The unexpected reduction in renewal rates for on-prem subscriptions in Q3 has led to a more conservative outlook for Q4, with continued variability expected in renewal rates going forward.
Dependence on SaaS transition for growth: While the SaaS transition is complete, the company’s growth is heavily reliant on the success of its SaaS platform. Any challenges in SaaS adoption or competition in this space could adversely impact growth.
Economic uncertainties and customer budget constraints: Economic uncertainties and potential customer budget constraints, particularly in the federal sector, could further impact renewals and new business opportunities.
End of life for self-hosted solution: Varonis announced the end of life for its self-hosted solution as of December 31, 2026, which is expected to create increased uncertainty in the on-prem subscription (OPS) business.
Fourth Quarter 2025 Guidance: Total revenues are expected to range between $165 million and $171 million, representing growth of 4% to 8%. Non-GAAP operating income is projected to be between breakeven and $3 million, with non-GAAP net income per diluted share in the range of $0.02 to $0.04.
Full Year 2025 Guidance: ARR is expected to range between $730 million and $738 million, representing growth of 14% to 15%. Free cash flow is projected to be between $120 million and $125 million. Total revenues are expected to range between $615.2 million and $621.2 million, representing growth of 12% to 13%. Non-GAAP operating loss is projected to be between negative $8.2 million and negative $5.2 million, with non-GAAP net income per diluted share in the range of $0.12 to $0.13.
SaaS Business Growth: The SaaS business, which now represents 76% of total ARR, is expected to continue driving growth. The company plans to focus on new business and upselling existing SaaS customers, leveraging the completion of the SaaS transition.
Investments in Microsoft Partnership and Acquisitions: Varonis is making significant investments in its partnership with Microsoft and in the acquisitions of Cyral and SlashNext. These investments are expected to generate returns and better position the company to capitalize on opportunities in data security and AI-driven solutions.
Market Trends and AI Integration: The company sees a significant growth opportunity in protecting cloud data and enabling safe use of AI. It plans to capitalize on demand from companies looking to secure data for AI initiatives and productivity tools like Copilot.
Share Repurchase Program: The Board has authorized a $150 million share repurchase program. This decision was made due to the company's strong balance sheet, which includes over $1 billion in liquidity, and its healthy free cash flow generation.
The earnings call presents a mixed outlook. While there is strong SaaS growth and optimistic guidance, challenges in on-prem renewals and unclear management responses create uncertainties. The transition to SaaS and strategic acquisitions are positive, but the conservatism in guidance and potential customer alienation weigh on sentiment. Overall, the neutral rating reflects balanced positive and negative factors.
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