Data protection and security software company Varonis (NASDAQ:VRNS) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 16.7% year on year to $152.2 million. Guidance for next quarter’s revenue was optimistic at $165.5 million at the midpoint, 2.5% above analysts’ estimates. Its non-GAAP profit of $0.03 per share was $0.02 above analysts’ consensus estimates.
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Varonis (VRNS) Q2 CY2025 Highlights:
- Revenue: $152.2 million vs analyst estimates of $148 million (16.7% year-on-year growth, 2.8% beat)
- Adjusted EPS: $0.03 vs analyst estimates of $0.01 ($0.02 beat)
- Adjusted Operating Income: -$1.90 million vs analyst estimates of -$3.13 million (-1.2% margin, 39.3% beat)
- The company slightly lifted its revenue guidance for the full year to $622 million at the midpoint from $617.5 million
- Management raised its full-year Adjusted EPS guidance to $0.17 at the midpoint, a 9.7% increase
- Operating Margin: -24%, down from -22.1% in the same quarter last year
- Annual Recurring Revenue: $693.2 million at quarter end, up 18.7% year on year
- Billings: $178.8 million at quarter end, up 16.3% year on year
- Market Capitalization: $6.09 billion
StockStory’s Take
Varonis delivered a second quarter that exceeded Wall Street’s revenue and non-GAAP profit expectations, with the market responding positively. Management attributed the outperformance to robust demand for its SaaS platform and managed data detection and response (MDDR) offerings, which together drove annual recurring revenue (ARR) growth and continued customer expansion. CEO Yakov Faitelson emphasized the company’s data-first approach, stating, “Our Q2 performance reflects our continued strong ARR growth and cash flow generation as we accelerate towards the completion of our SaaS transition and make investments to capture our growing market opportunity.”
Looking ahead, management raised full-year guidance on both revenue and non-GAAP EPS, underpinned by continued momentum in SaaS conversions and new customer acquisitions. The company is focused on upselling additional cloud security solutions, expanding into new markets such as the federal sector following its FedRAMP authorization, and deepening partnerships—particularly with Microsoft—to address emerging AI-driven security challenges. CFO Guy Melamed noted, “We remain confident in our outlook because of the underlying drivers of our business and are well positioned to execute on the growing need to secure data everywhere.”
Key Insights from Management’s Remarks
Management credited strong SaaS adoption, entry into federal markets, and strategic product expansion as key drivers of this quarter’s performance.
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SaaS transition accelerates growth: The company continued its shift toward a SaaS delivery model, with SaaS now representing 69% of total ARR. This transition has supported higher net revenue retention (NRR) and improved upsell opportunities, as customers expand protection across multiple cloud platforms.
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Federal sector entry via FedRAMP: Varonis achieved FedRAMP Authorization, allowing it to offer its SaaS platform to U.S. federal agencies. Management views this as a significant opportunity for long-term ARR growth, though near-term revenue contributions are expected to remain modest.
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Expanded Microsoft partnership: The company deepened its integration with Microsoft, particularly to secure AI tools like Copilot. Management expects this collaboration to accelerate adoption among enterprise clients concerned about AI-related data exposure.
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Cloud security product adoption: Varonis reported increasing customer demand for cloud data protection across platforms such as AWS, Azure, and Google Cloud. This is driven by heightened awareness of data-centric security risks—especially as organizations adopt more AI and cloud services.
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Competitive landscape and consolidation: Management noted that while point-solution competitors in data security posture management (DSPM) are raising industry awareness, Varonis’ broader platform and automated outcomes are winning in competitive evaluations. Customers are consolidating data security budgets with Varonis to address compliance and insider threat concerns holistically.
Drivers of Future Performance
Varonis expects continued SaaS adoption, cloud security expansion, and deeper partner integrations to drive high-teens ARR growth, but notes ongoing macroeconomic scrutiny and evolving customer needs as important factors.
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SaaS-driven upsell and expansion: Management believes that once the SaaS transition is complete, the focus will shift to upselling additional cloud security modules to existing customers. This strategy is expected to drive ARR growth toward and potentially above 20%.
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New market opportunities: The FedRAMP authorization is expected to open doors to U.S. federal agencies, expanding Varonis' addressable market. Management also highlighted new verticals and international markets as sources of future growth.
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Macro and competitive risks: The company continues to see deal scrutiny and longer sales cycles due to the broader economic environment. Management acknowledged that competitive dynamics in the DSPM and cloud security markets could influence growth rates, with risks from both established backup vendors and new entrants.
Catalysts in Upcoming Quarters
In the coming quarters, StockStory analysts will closely monitor (1) the pace of SaaS customer conversions and expansion, (2) early signs of revenue traction from federal sector initiatives following FedRAMP authorization, and (3) the impact of the Microsoft partnership on large enterprise deals—particularly those involving AI security. Continued adoption of Varonis’ multi-cloud protection modules and successful execution on cross-sell opportunities will also be key to tracking the company’s strategic progress.
Varonis currently trades at $54.39, in line with $54.28 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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