Data protection and security software company Varonis (NASDAQ: VRNS) beat Wall Street’s revenue expectations in Q2 CY2025, 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: $1.9 million vs analyst estimates of -$3.13 million (1.2% margin, significant 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
- Free Cash Flow Margin: 11.4%, down from 47.9% in the previous quarter
- Annual Recurring Revenue: $693.2 million at quarter end, up 18.7% year on year
- Market Capitalization: $6.09 billion
Yaki Faitelson, Varonis CEO, said, "We are excited by the many tailwinds we are seeing in our business. The simplicity and automated outcomes of our SaaS platform and MDDR, the adoption of AI and the growing awareness for data-centric cloud and SaaS security are continuing to drive momentum in our business, and we look forward to executing on this massive and growing market opportunity.”
Company Overview
Founded by a duo of former Israeli Defense Forces cyber warfare engineers, Varonis (NASDAQ: VRNS) offers software-as-service that helps customers protect data from cyber threats and gain visibility into how enterprise data is being used.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Varonis grew its sales at a 11% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.
This quarter, Varonis reported year-on-year revenue growth of 16.7%, and its $152.2 million of revenue exceeded Wall Street’s estimates by 2.8%. Company management is currently guiding for a 11.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 12.8% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and implies its newer products and services will fuel better top-line performance.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Varonis’s ARR punched in at $693.2 million in Q2, and over the last four quarters, its growth was impressive as it averaged 18.3% year-on-year increases. This alternate topline metric grew faster than total sales, which likely means that the recurring portions of the business are growing faster than less predictable, choppier ones such as implementation fees. That could be a good sign for future revenue growth. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Varonis is extremely efficient at acquiring new customers, and its CAC payback period checked in at 10.8 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Varonis more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Key Takeaways from Varonis’s Q2 Results
We were impressed by how Varonis raised its full-year revenue and EPS guidance. We were also glad its revenue, EPS, and adjusted operating income trumped Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The market seemed to be hoping for more, and the stock traded down 2.3% to $53 immediately following the results.
Big picture, is Varonis a buy here and now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
