Varonis Systems Q2 Earnings Call Highlights

Key Points

• Varonis exceeded its Q2 2026 guidance, with revenue rising 18% year over year to $180 million and SaaS ARR excluding conversions increasing 25% to $598.1 million. Net income grew to $5.3 million, while the SaaS renewal rate exceeded 90%.
• Demand is growing for Varonis’ data- and AI-security offerings, particularly Atlas, Interceptor and Database Activity Monitoring. Management said AI adoption is increasing customer requirements for controls over sensitive data, models and agents.
• The company raised its full-year outlook, targeting 20%–21% growth in SaaS ARR excluding conversions, revenue of $735 million–$739 million and free cash flow of $105 million–$110 million.

Varonis Systems NASDAQ: VRNS reported second-quarter 2026 results that exceeded the company’s guidance range, as management cited continued demand for data security and AI security capabilities, growth in new-customer activity, and rising adoption of newer products.

SaaS annual recurring revenue, excluding conversions from the company’s self-hosted platform, rose 25% year over year to $598.1 million. Total SaaS ARR, including conversions, was $726 million. Chief Executive Officer Yaki Faitelson said SaaS ARR from new logos grew more than 20% during the quarter.

Management said several large deals slipped late in the quarter amid media rumors regarding a potential transaction involving the company. Varonis declined to discuss the speculation further, but said it had closed some of the delayed transactions in July, including a seven-figure deal. Chief Financial Officer and Chief Operating Officer Guy Melamed said the third quarter had begun strongly and the company retained a healthy pipeline for the second half of the year.

Second-Quarter Financial Results

Total revenue increased 18% year over year to $180 million in the second quarter. SaaS revenue was $171.7 million, while term license subscription revenue totaled $4.2 million and maintenance and services revenue was $4.1 million. The company’s SaaS renewal rate exceeded 90%.

On a non-GAAP basis, gross profit was $139.9 million, representing a 77.7% gross margin, compared with 80.6% in the prior-year quarter. Operating income was $3.7 million, or a 2.1% operating margin, compared with an operating loss of $1.9 million a year earlier.

Net income was $5.3 million, or $0.04 per diluted share, compared with $3.8 million, or $0.03 per diluted share, in the second quarter of 2025. Financial income was approximately $7 million, primarily driven by interest income on cash, deposits and marketable securities.

For the first six months of 2026, Varonis generated $69.1 million in free cash flow, compared with $82.7 million a year earlier. Melamed said the decline reflected the previously disclosed headwind associated with the end-of-life announcement for the company’s on-premise platform, as well as approximately $11.9 million in acquisition-related costs. Excluding those acquisition-related costs, year-to-date free cash flow would have been about $81 million, he said.

As of June 30, Varonis had $911.5 million in cash equivalents, short-term deposits and marketable securities.

AI Security Demand and Product Adoption

Faitelson said the growing adoption of AI is increasing the value and risk associated with enterprise data. He argued that organizations need to understand where sensitive data resides, who or what can access it, and whether access is appropriate as AI models and agents are connected to data environments.

“AI security and data security cannot be treated as separate problems,” Faitelson said, describing automation as central to managing AI-driven risk. He said customers are seeking controls around AI models, agents and pipelines, including insight into the data they can access, the permissions they inherit and whether their activity is normal.

The company highlighted growing momentum for Atlas, Interceptor and Database Activity Monitoring, or DAM. Management said Atlas had been sold for roughly three and a half months and was appearing frequently in customer conversations. Melamed said the company was “pleasantly surprised” by Atlas’ contribution in the second quarter, though it expects a more meaningful contribution in the second half.

Varonis said customers are increasingly buying more of its platform upfront and connecting it to more AI systems. Management said the primary buyer remains the chief information security officer, though chief AI officers are increasingly involved in conversations.

• A healthcare organization with more than 40,000 employees became a customer after seeking guardrails for more than 100 AI projects and automated remediation of overexposed HIPAA and personally identifiable information data.
• A financial services customer expanded its Varonis deployment following a vendor-consolidation review, adding Atlas Complete, Interceptor DAM, and coverage for infrastructure-as-a-service environments, Salesforce and Microsoft 365.

Management said DAM is aimed at both new and existing customers, including opportunities to replace incumbent products from Imperva and IBM Guardium. Interceptor has primarily been sold into Varonis’ existing customer base alongside the company’s MDDR offering, according to Melamed.

Raised Full-Year Outlook

For the third quarter, Varonis forecast SaaS ARR growth of 22% to 23%, excluding conversions; revenue of $185 million to $188 million; non-GAAP operating income of $2.5 million to $3.5 million; and non-GAAP earnings of $0.02 to $0.03 per diluted share.

For full-year 2026, the company raised its outlook for SaaS ARR excluding conversions to growth of 20% to 21%. It expects total SaaS ARR of $819 million to $850 million, representing growth of 28% to 33%, and said its implied SaaS ARR excluding conversions outlook is $769 million to $775 million, a $5 million increase from its prior forecast.

Varonis also lifted its full-year free-cash-flow forecast by $5 million to $105 million to $110 million. The company projected full-year revenue of $735 million to $739 million, up 18% to 19%; non-GAAP operating income of $11 million to $13 million; and non-GAAP earnings per diluted share of $0.14 to $0.15.

Melamed said the company expects sales productivity to continue improving as it moves upmarket and sells a broader platform. He also said Varonis did not assume a positive contribution from the federal vertical in its third-quarter outlook, describing that part of the business as de-risked in the guidance.

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.

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