Varonis delivered first quarter results that exceeded Wall Street’s expectations, with management attributing the performance to accelerating adoption of its SaaS-based data security platform and continued expansion among both new and existing customers. CEO Yaki Faitelson noted that the company’s SaaS transition was “well on track to complete by the end of the year,” and highlighted strong demand for automated data protection solutions as a key growth driver. Management also credited ongoing success in converting legacy customers to SaaS and the launch of offerings tailored for new use cases in cloud and hybrid environments.

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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 Varonis’s Q1 Earnings Call

• Matt Hedberg (RBC) asked about confidence in achieving over 20% ARR growth. CFO Guy Melamed pointed to strong SaaS net retention rates, emphasizing that SaaS customers are “coming back and buying more,” driving renewed growth.

• Joel Fishbein (Truist Securities) inquired about MDDR adoption and competitive positioning. CEO Yaki Faitelson described MDDR as essential for automated data breach prevention, highlighting rapid customer adoption and its role in expanding upsell opportunities.

• Saket Kalia (Barclays) questioned when margins would normalize as the SaaS transition progresses. Melamed explained that operating margin trough is expected this year, with gradual normalization as revenue recognition stabilizes post-transition.

• Roger Boyd (UBS) asked about new customer adoption of cloud and AI-focused products. Faitelson noted increasing demand for data security in SaaS and cloud repositories, especially as customers deploy AI tools that amplify data exposure risks.

• Jason Ader (William Blair) sought details on gross margin outlook and the wide non-GAAP operating income range. Melamed explained that the SaaS transition creates short-term volatility, but cost structure improvements are ahead of expectations, with margin normalization expected after transition completion.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will monitor (1) the pace of SaaS transition and mix progression toward 80% of recurring revenue, (2) adoption and upsell of new solutions like database activity monitoring and Agentic AI protection, and (3) improvement in operating margins as the revenue base stabilizes post-transition. Continued customer expansion into cloud and AI use cases will also be an important indicator of execution.

Varonis currently trades at $50.94, up from $44.27 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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