Varonis Systems NASDAQ: VRNS reported first-quarter 2026 results that management said reflected strong demand for its data security platform as customers look to secure enterprise data and support AI adoption. Executives also raised full-year guidance following what they described as an accelerating pace of new customer wins and continued expansion opportunities within the installed base.
First-quarter results and key operating metrics
Chief Executive Officer Yaki Faitelson said the quarter showed “strong performance as we execute on the growing need to secure data and safely enable the usage of AI.” The company’s SaaS annual recurring revenue (ARR) excluding conversions grew 29% year over year to $522.6 million. Total SaaS ARR, including conversions, was $683.2 million.
Chief Financial Officer and Chief Operating Officer Guy Melamed said Varonis is emphasizing SaaS ARR growth excluding conversions as its primary growth driver post-transition. In the quarter, the company recorded $11.3 million of conversion ARR and ended the period with approximately $83.7 million of remaining non-SaaS ARR.
On the financials, Melamed reported total revenue of $173.1 million, up 27% year over year. He broke out revenue as follows:
- SaaS revenue: $161.1 million
- Term license subscription revenue: $6.9 million
- Maintenance and services revenue: $5.2 million
Varonis said its SaaS renewal rate was over 90%.
On a non-GAAP basis, gross profit was $134.9 million for a gross margin of 77.9%, compared with 80.2% in the first quarter of 2025. Operating expenses totaled $136.3 million, resulting in a non-GAAP operating loss of $1.4 million, or an operating margin of negative 0.8%. Net income was $7.5 million, or $0.06 per diluted share, compared with $0.7 million, or $0.00 per diluted share, in the prior-year quarter.
Free cash flow was $49.0 million, down from $65.3 million in the year-ago period. Melamed attributed the decline to a previously discussed headwind related to the end-of-life announcement for the on-prem platform, as well as about $12.6 million of acquisition-related costs “related to the accounting treatment of our acquisitions.” Excluding those acquisition-related costs, he said free cash flow would have been approximately $61.6 million.
Varonis ended the quarter with $900 million in cash, cash equivalents, short-term deposits, and marketable securities. Cash from operations was $55 million, and capital expenditures were $5 million.
Capital returns and share repurchases
During the first quarter, Melamed said the company repurchased 5,355,445 shares at an average price of $24.67, for a total of $132.1 million.
AI security narrative and product focus
Faitelson spent much of his prepared remarks discussing why Varonis believes it is positioned to help customers adopt AI securely, framing three barriers to broader AI deployment: “securing the data itself,” “securing the AI systems and agents that touch that data,” and “fighting AI-powered adversaries.” He argued AI changes the risk profile because agents can access data quickly and at scale, increasing the consequences of over-permissioned environments.
Faitelson also highlighted a vulnerability the company said it found during the quarter: “In Q1, Varonis found a vulnerability called Reprompt, which allowed attackers to bypass safety controls in Microsoft Copilot Personal,” he said, adding that exploitation could enable access to prompts, conversation history, and data accessible to the Copilot session.
In discussing Varonis’ approach, Faitelson described an automated “find, fix, and alert” model: inventory and classification of enterprise data, automated remediation such as rightsizing permissions and masking data, and alerting based on abnormal access behavior. He tied the approach to AI detection and response, arguing that “AI security and data security are intertwined.”
Management said the quarter saw “continued adoption of MDDR and AI-related products” along with traction in securing cloud environments. Faitelson cited early customer feedback on newer products driven by acquisitions over the last year, including database activity monitoring, Interceptor, and Atlas.
Customer wins and expansion activity
Faitelson highlighted a new customer win involving “a global technology company with over 50,000 employees.” He said the customer wanted to roll out AI tools safely and protect intellectual property while meeting compliance and supporting forensics. During a risk assessment, he said Varonis’ MDDR team detected “multiple active threats,” identified risks in Salesforce and Microsoft 365, and provided an operational plan to fix issues using automation. Faitelson said the customer selected Varonis over several DSPM point solutions and ultimately purchased Varonis for AWS, Salesforce, Google Cloud Platform, and Google Drive, as well as Varonis SaaS for hybrid with MDDR and Varonis for Copilot.
He also said ServiceNow expanded its Varonis investment to cover internal AI systems and email security, including protections against advanced phishing and social engineering attacks.
Guidance raised; conversion framing and sales focus
Melamed said the company raised its full-year guidance after the “strong start to the year.” For the second quarter of 2026, Varonis expects SaaS ARR growth excluding conversions of 24% to 25%, revenue of $175 million to $178 million (15% to 17% growth), non-GAAP operating loss of negative $1 million to break even, and non-GAAP EPS of $0.00 to $0.01, assuming 131.1 million diluted shares.
For full-year 2026, Varonis now expects total SaaS ARR of $814 million to $845 million (27% to 32% growth) and SaaS ARR growth excluding conversions of 20% to 21%. The company also guided to free cash flow of $100 million to $105 million, revenue of $731 million to $737 million (17% to 18% growth), non-GAAP operating income of $7 million to $9 million, and non-GAAP EPS of $0.11 to $0.12, assuming 132.1 million diluted shares.
During Q&A, Melamed said restructuring sales compensation and reducing the conversion burden has allowed reps to focus more on selling to new customers and upselling additional products. He said the company saw “an acceleration in the new customer contribution,” calling it “pretty significant.” He also said early Atlas contribution was “nothing too material” but encouraging, and that the company has not baked in upside assumptions from AllTrue.ai into guidance.
On conversions and free cash flow, Melamed clarified that free cash flow guidance did not assume zero conversions. He said full-year planning includes a conversions range of $50 million to $75 million and that Q1 conversions were tracking to expectations. Regarding the remaining non-SaaS ARR, he reiterated prior commentary that federal, state, and government customers are the cohort most impacted by the move to SaaS.
On competition, Faitelson said Varonis continues to encounter DSPM-style discovery tools, which he characterized as partial classification, and said Interceptor can compete with vendors such as Abnormal and Proofpoint. In database activity monitoring, he said Varonis is replacing incumbents including Imperva and Guardium. He also said the company is increasingly seeing “AI budgets starting to move slowly towards our platform.”
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.
Featured Stories
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Varonis Systems, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Varonis Systems wasn't on the list.
While Varonis Systems currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
Wondering what the next stocks will be that hit it big, with solid fundamentals? Click the link to see which stocks MarketBeat analysts could become the next blockbuster growth stocks.
Get This Free Report
