Varonis Systems’ fourth quarter was marked by ongoing momentum in its transition from legacy on-premises software to a SaaS model, with management attributing performance to robust SaaS adoption and a record number of customer conversions following the decision to end-of-life its self-hosted platform. CEO Yakov Faitelson described the SaaS platform as delivering “automation and centralized visibility” that legacy solutions could not match. However, the market responded negatively, reflecting concerns around declining operating margins and the near-term headwinds from transitioning customers and lower renewal rates among remaining on-prem accounts.
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Varonis Systems (VRNS) Q4 CY2025 Highlights:
- Revenue: $173.4 million vs analyst estimates of $168.2 million (9.4% year-on-year growth, 3.1% beat)
- Adjusted EPS: $0.08 vs analyst estimates of $0.03 (significant beat)
- Adjusted Operating Income: $4.55 million vs analyst estimates of $1.54 million (2.6% margin, significant beat)
- Revenue Guidance for Q1 CY2026 is $165 million at the midpoint, above analyst estimates of $163.5 million
- Adjusted EPS guidance for the upcoming financial year 2026 is $0.08 at the midpoint, missing analyst estimates by 76.6%
- Operating Margin: -17.5%, down from -11.1% in the same quarter last year
- Annual Recurring Revenue: $745.4 million (16.1% year-on-year growth, beat)
- Billings: $274.1 million at quarter end, up 18.3% year on year
- Market Capitalization: $3.01 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Varonis Systems’s Q4 Earnings Call
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Matthew Hedberg (RBC Capital Markets) asked about reconciling SaaS ARR growth expectations with the lower overall ARR guide. CFO Guy Melamed explained the importance of focusing on SaaS ARR excluding conversions as the primary growth driver going forward.
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Saket Kalia (Barclays) inquired about the split between new and existing customers driving SaaS ARR growth and whether any on-premises ARR would remain at the end of 2026. Melamed confirmed the goal is for all ARR to be SaaS by year-end, with renewed focus on both new and existing SaaS customers.
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Brian Essex (JPMorgan) questioned the role of AI-driven solutions like CoPilot in SaaS customer adoption. Melamed and Faitelson emphasized that automation and AI features are driving demand, particularly for new cloud security and database monitoring products.
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Joshua Tilton (Wolfe Research) asked about the financial uplift from converting on-premises customers to SaaS. Melamed reiterated that future growth should be measured by SaaS ARR excluding conversions, as conversions will be completed by the end of 2026.
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Fatima Boolani (Citi) requested clarity on operating expense and free cash flow headwinds from the SaaS transition and recent acquisitions. Melamed stated that lower renewal rates for non-SaaS customers are the main factor, while expenses from acquisitions are included in guidance without assuming significant top-line contribution yet.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will closely watch (1) the pace and success of upselling new AI-driven security products to the expanding SaaS customer base, (2) execution on integrating the Altu acquisition into the Varonis Systems platform, and (3) improvement in ARR contribution margin and free cash flow as the company completes its SaaS transition. Ongoing adoption of cloud and database security solutions will also be important indicators of sustained demand.
Varonis Systems currently trades at $25.53, down from $26.53 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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