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Date
Feb. 3, 2026 at 4:30 p.m. ET
Call participants
- Chief Executive Officer — Yakov Faitelson
- Chief Financial Officer and Chief Operating Officer — Guy Melamed
- VP of Investor Relations — Tim Perz
Takeaways
- SaaS ARR — $638.5 million, comprising 86% of total ARR, up 32% year over year when excluding the impact of conversions.
- Total ARR — $745.4 million, representing 16% year-over-year growth.
- ARR conversions — Approximately $65 million in ARR was converted from self-hosted to SaaS in the quarter, including uplift.
- Remaining non-SaaS ARR — $105 million at period end, following significant conversion activity.
- Guidance for non-SaaS conversions — Management expects $50 million to $75 million of remaining self-hosted ARR to convert by year-end.
- Subscription customer growth — 6,400 customers at year-end, reflecting 14% year-over-year growth.
- SaaS dollar-based net retention rate — 110% for the period, reflecting only SaaS customers in both the prior and current year.
- Renewal rate — Over 90% for the year, with non-SaaS renewal activity described as “slightly below…historical level,” but improved over Q3 results.
- Free cash flow — $131.9 million, an increase from $108.5 million in the prior year period.
- Total revenue — $173.4 million in the quarter, up 9% year over year; SaaS revenue was $142.3 million, term license subscription revenue was $21 million, and maintenance and services revenue was $10.1 million (component figures do not sum to total due to other offsets).
- Gross margin — 80% on $138.7 million gross profit, compared to 84.4% in the prior year, aligning with stated long-term targets.
- Operating margin — 2.6% in the quarter ($4.6 million operating income), down from 9.7% ($15.3 million operating income) in the prior year quarter.
- ARR contribution margin — 15.9%, down from 16.6% in the prior year.
- Net income — $11.1 million for the full year, or $0.08 per diluted share; prior year was $23.9 million or $0.18 per share.
- Cash and short-term investments — $1.1 billion at year-end, covering cash, cash equivalents, short-term deposits, and marketable securities.
- Share repurchases — 448,439 shares were repurchased at an average price of $33.45 for a total of $15 million in the quarter.
- Full-year revenues — $623.5 million, a 13% year-over-year increase.
- Full-year operating margin — Negative 0.6%, compared to 2.9% in the previous year.
- 2026 ARR contribution margin and free cash flow guidance — Management projects a $30 million to $50 million headwind on both metrics stemming from the end-of-life transition for the self-hosted platform.
- 2026 SaaS ARR growth guidance — 27%-28% growth excluding conversions; total SaaS ARR guidance of $805 million to $840 million (26%-32% growth), with 18%-20% growth excluding conversions for the year.
- 2026 revenue guidance — $722 million to $730 million, representing 16%-17% year-over-year growth.
- 2026 operating income guidance — Non-GAAP operating income of breakeven to $4 million and net income per diluted share in the range of $0.06 to $0.10, based on 134.2 million diluted shares outstanding.
- SaaS transition milestone — Company expects to be 100% SaaS by end of 2026, with no remaining non-SaaS ARR.
- AI security acquisition — Announced the acquisition of Altu, an AI security company, to provide end-to-end visibility and control of AI tools, which management described as reinforcing the data-first strategy.
- Product portfolio highlights — Noted strong adoption of MDDR and CoPilot, ongoing momentum for Varonis for cloud environments, and signs of early customer interest in database activity monitoring and email security products.
- Go-to-market focus in 2026 — Sales incentives now require reps to achieve targets through new business and SaaS customer expansion, as reps cannot retire quota on conversions alone.
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Risks
- Guy Melamed stated, “we expect a lower ARR contribution margin and lower free cash flow due to the impact of the end-of-life announcement,” with a quantified negative impact of $30 million to $50 million in 2026 for both metrics.
- Renewal rate for non-SaaS customers remained below historical levels, with management acknowledging, “our renewal activity from our non-SaaS customers was slightly below our historical level.”
- Operating margin decreased to negative 0.6% for the year, down from 2.9% in the prior year, as explicitly referenced in results.
Summary
Varonis Systems (VRNS 9.30%) emphasized a decisive acceleration in its SaaS transition, with 86% of ARR now SaaS-driven and no remaining non-SaaS ARR expected by year-end. Management confirmed a record $65 million ARR conversion in the quarter, catalyzed by the announced end-of-life for the self-hosted platform and tailored incentives, while providing clear guidance for an 18%-20% growth in SaaS ARR excluding conversions for 2026. The acquisition of Altu expands the company’s platform to address emergent AI security challenges, supporting management’s “data-first strategy” and providing new product synergies. Sales operations are now oriented entirely toward new business and SaaS customer expansion, eliminating quota credit for conversions and embedding future growth incentives. Operationally, the company forecast significant headwinds for ARR contribution margin and free cash flow in 2026 resulting from the SaaS transition’s final phase and non-SaaS renewal attrition, but asserts these actions will strengthen the long-term financial profile as the transition is completed in advance of the 2027 model targets.
- Management reported robust demand for cloud security, with automated value delivery cited as a key catalyst for both new customer wins and existing customer expansions.
- Quarterly investor disclosures will highlight SaaS ARR growth excluding conversions to isolate organic SaaS performance and facilitate transparency during the transition year.
- Recent share repurchases indicate active capital management concurrent with the operational transition.
- No revenue or ARR from recent tuck-in acquisitions was included in 2026 top-line guidance, indicating a conservative approach to integration and forecasting.
Industry glossary
- ARR: Annual Recurring Revenue, a metric indicating the revenue run-rate generated from active subscriptions over a 12-month period.
- MDDR: Managed Data Detection and Response, an AI-driven security solution providing automated detection and remediation of data threats, available exclusively on the Varonis SaaS platform.
- DSPM: Data Security Posture Management, tools and processes for identifying, monitoring, and remediating security risks in enterprise data across cloud and on-premises environments.
- CoPilot: Varonis’s automated SaaS-based service for ongoing, user-specific data access remediation and risk reduction.
- Net retention rate (NRR): A metric quantifying the percentage of recurring revenue retained from existing customers, including upsells and downgrades, but excluding new customer additions in the period.
Conference Call Transcript
Tim Perz: Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis Systems, Inc.’s fourth quarter and full year 2025 financial results. With me on the call today are Yakov Faitelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis Systems, Inc. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws, including projections of future operating results for our first quarter and full year ending December 31, 2026. Due to a number of factors, actual results may differ materially from those set forth in such statements.
These factors are set forth in the earnings press release that we issued today under the section captioned Forward-Looking Statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis Systems, Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call.
The reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2025 earnings press release and our investor presentation, which can be found at varonis.com in the Investor Relations section. Lastly, please note that a webcast of today’s call is available on our website in the Investor Relations section. With that, I’d like to turn the call over to our Chief Executive Officer, Yakov Faitelson. Yakov?
Yakov Faitelson: Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Over the past year, we have talked about Varonis Systems, Inc. as a story of two companies. The first is our strong SaaS business, which reflects the present and future of our company, and the second is a legacy on-prem business, which is serving as a headwind to our total company ARR growth. In Q3, the headwind was especially pronounced. As a result, we are now disclosing additional metrics. The purpose of this is to allow investors to understand all the drivers of our business. Guy will expand upon this later.
In the fourth quarter, our SaaS business continued its momentum, and our decision to end-of-life our self-hosted platform, combined with the lessons we learned in Q3, led to a record number of conversions. In Q4, SaaS ARR was $638.5 million or 86% of total ARR. Q4 SaaS ARR increased 32% year over year, excluding the impact of conversion, and total ARR increased 16% year over year to $745.4 million. Now I would like to give you some additional color on last quarter’s decision to announce the end-of-life for our self-hosted deployment model and the decision to transition our business to be 100% SaaS by the end of 2026.
Prior to the introduction of Varonis SaaS, we believed self-hosted software was the best way to secure data, but the downside of this software was that it required significantly more resources to do so. Our SaaS product is fully automated. It is different from our self-hosted solution, like a self-driving car to a bicycle. You can get to the same destination in either method, but with one, you do the majority of the work yourself, and with the other, it gets you there automatically and with minimal effort.
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