Varonis Systems (NASDAQ:VRNS) executives used the company’s fourth-quarter 2025 earnings call to emphasize what CEO Yaki Faitelson described as “two companies” inside Varonis: a fast-growing SaaS business and a shrinking legacy self-hosted business that has been pressuring overall ARR growth.
Management said the company is adding new disclosures to help investors separate organic SaaS momentum from the impact of on-premise churn and customer conversions. CFO and COO Guy Melamed said Varonis plans to report quarterly metrics through 2026 that include SaaS ARR, SaaS ARR excluding conversions, conversion ARR, and remaining non-SaaS ARR. The company expects to be “100% SaaS” by the end of 2026 and said it will then revert to more traditional reporting.
SaaS momentum and conversion acceleration in Q4
A key driver in the quarter was an acceleration in migrations from the self-hosted platform. Faitelson said the company’s end-of-life decision for the self-hosted deployment model, along with “lessons learned” from the third quarter, contributed to a record conversion quarter. Varonis converted about $65 million of ARR in Q4, which management said was roughly one-third of the remaining non-SaaS ARR at the time.
At the end of Q4, the company said it had about $105 million of non-SaaS ARR remaining. Management expects $50 million to $75 million of the remaining self-hosted customers will convert by the end of 2026, noting that federal and state government customers are the largest cohort the company does not expect to convert.
Faitelson said Varonis is prioritizing customer retention over conversion uplift, arguing that the company can “show even more value through SaaS” after migration and pursue upsells later. He described the gap between Varonis’ SaaS platform and self-hosted solution as significant, with SaaS enabling automation and services like MDR that the self-hosted offering cannot provide.
Q4 financial results and cash flow
For the fourth quarter, Varonis reported total revenue of $173.4 million, up 9% year-over-year. Revenue components were:
- $142.3 million of SaaS revenue
- $21.0 million of term license subscription revenue
- $10.1 million of maintenance and services revenue
On a non-GAAP basis, gross profit was $138.7 million, translating to an 80% gross margin, down from 84.4% a year earlier. Operating expenses totaled $134.1 million, producing non-GAAP operating income of $4.6 million (a 2.6% margin), compared with $15.3 million (a 9.7% margin) in the prior-year quarter.
Fourth-quarter ARR contribution margin was 15.9%, down from 16.6% last year. Melamed said the company would have shown “significant improvement” versus 2024 if non-SaaS renewals had held at historical levels. He also said the company expects a lower ARR contribution margin and lower free cash flow in 2026 due to the end-of-life announcement, estimating a $30 million to $50 million impact based on guidance, largely from lower expected renewals in the remaining non-SaaS base.
Varonis posted fourth-quarter net income of $11.1 million, or $0.08 per diluted share, compared with $23.9 million, or $0.18 per diluted share, in Q4 2024. The company also reported financial income of about $9.6 million, driven primarily by interest income on its cash and investments.
For full-year 2025, Varonis reported:
- Total revenue up 13% to $623.5 million
- Free cash flow of $131.9 million, up from $108.5 million in the prior year
- Cash from operations of $147.4 million, versus $115.2 million a year earlier
- CapEx of $15.5 million, versus $6.7 million in the prior year
As of Dec. 31, 2025, the company had $1.1 billion in cash, cash equivalents, short-term deposits, and marketable securities. During the quarter, Varonis repurchased 448,439 shares for $15 million at an average price of $33.45.
Customer metrics and go-to-market focus
Varonis ended 2025 with about 6,400 subscription customers, up 14% year-over-year. ARR from new customers was approximately $80 million in 2025. SaaS dollar-based net retention was 110% at year-end, which Melamed said reflects organic expansion among customers that were already on SaaS in the prior year.
Melamed said renewal rates for 2025 remained over 90%, though non-SaaS renewals were “slightly below” historical levels, but improved versus the third quarter. Going forward, Varonis plans to disclose the SaaS renewal rate to align with its business model.
On go-to-market priorities, management said reps spent significant time on conversions in 2025—Melamed cited roughly $190 million of conversions during the year—and expects more focus in 2026 on new business and upselling existing SaaS customers. He added that in 2026, conversions will not count toward sales quota retirement, which he said is intended to drive seller focus back to new logos and expansion.
AI security narrative and the Altru acquisition
Faitelson framed data security as foundational to AI adoption, arguing that AI agents increase both data complexity and cyber risk, and that many AI-driven attacks begin with social engineering. He said companies need to understand what data agents can access, whether that data is sensitive, and whether agents are behaving as intended.
To expand its AI security capabilities, Varonis announced the acquisition of Altru, which Faitelson described as an AI security company. He said Altru adds visibility and “guardrails” for AI tools and the AI lifecycle, including inventorying AI components, locking them down, monitoring tools, and automating compliance. Management said the combination is intended to pair Altru’s AI control layer with Varonis’ data and identity protections.
Executives also reiterated broader platform expansion themes, including cloud environment momentum and adoption trends for products such as MDDR and Copilot, while stating that database activity monitoring and email security are expected to be areas of increased focus in 2026.
2026 outlook: SaaS ARR growth becomes the key KPI
For 2026, management said the primary KPI is SaaS ARR growth excluding conversions, which it views as the best indicator of the company’s ability to add new SaaS customers and expand existing ones as the business completes its transition.
For the first quarter of 2026, Varonis guided for:
- SaaS ARR growth excluding conversions of 27% to 28%
- Revenue of $164 million to $166 million (up 20% to 22%)
- Non-GAAP operating loss of -$11 million to -$10 million
- Non-GAAP net loss per share of -$0.06 to -$0.05 (assuming 118 million shares)
For the full year 2026, the company guided for:
- Total SaaS ARR of $805 million to $840 million (up 26% to 32%)
- SaaS ARR growth excluding conversions of 18% to 20%
- Free cash flow of $100 million to $105 million
- Total revenue of $722 million to $730 million (up 16% to 17%)
- Non-GAAP operating income of break-even to $4 million
- Non-GAAP net income per diluted share of $0.06 to $0.10 (assuming 134.2 million diluted shares)
Melamed said the company’s conversion guidance assumes no uplift for modeling purposes and includes a “wide range” to capture optimistic and pessimistic outcomes. Management repeatedly emphasized that conversions are becoming less central to how it wants investors to evaluate the business as Varonis pushes to complete the SaaS transition.
About Varonis Systems (NASDAQ:VRNS)
Varonis Systems is a cybersecurity firm specializing in the protection and management of unstructured data. The company’s flagship Data Security Platform provides advanced analytics for monitoring file systems, email servers, collaboration platforms and cloud storage. By continuously mapping and analyzing data permissions and user behavior, Varonis enables organizations to detect insider threats, verify compliance and remediate exposed data in real time.
Founded in 2005 and headquartered in New York City, Varonis serves a diverse global customer base across financial services, healthcare, media, manufacturing and government.
