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    VRNS
    Earnings call· Mar 2026(Q1 FY26)

    VARONIS SYSTEMS Q1 FY26 earnings call VRNS

    Apr 28, 2026 Source

    Executive summary

    Varonis Q1 FY26 — Strong SaaS ARR Growth Driven by AI Security Demand

    Varonis delivered a strong Q1 FY26, driven by robust SaaS ARR growth and accelerated new customer acquisition, fueled by increasing demand for AI and data security solutions. The company is successfully navigating its transition to a fully SaaS model, with management expressing confidence in sustaining over 20% growth post-conversion. While free cash flow was impacted by acquisition costs, the underlying business momentum and strategic focus on AI security position Varonis for continued expansion.

    Highlights

    5

    • SaaS ARR, excluding conversions, increased 29% year-over-year to $522.6 million.

    • Total revenues were $173.1 million, up 27% year-over-year.

    • Generated $49 million of free cash flow, or $61.6 million adjusted for $12.6 million acquisition-related costs.

    • Non-GAAP net income was $7.5 million or $0.06 per diluted share, up from $0.7 million in Q1 2025.

    • Accelerated new customer wins and expansion within the installed base.

    Concerns

    3

    • Free cash flow of $49 million was down from $65.3 million in Q1 2025, impacted by acquisition-related costs and on-prem end-of-life.

    • Non-GAAP gross margin was 77.9%, down from 80.2% in Q1 2025.

    • ARR contribution margin was 14.1%, down from 16.7% last year, impacted by the end-of-life for the self-hosted platform.

    Guidance & targets

    11
    CategoryTargetConfidence
    SaaS ARR growth, excluding conversions
    24% to 25%
    high materiality
    High
    Total revenues
    $175 million to $178 million
    medium materiality
    High
    Non-GAAP operating loss
    negative $1 million to breakeven
    medium materiality
    High
    Non-GAAP net income per diluted share
    $0.00 to $0.01
    medium materiality
    High
    Total SaaS ARR
    $814 million to $845 million
    high materiality
    High
    SaaS ARR growth, excluding conversions
    20% to 21%
    high materiality
    High
    Free cash flow
    $100 million to $105 million
    high materiality
    High
    Total revenues
    $731 million to $737 million
    medium materiality
    High
    Non-GAAP operating income
    $7 million to $9 million
    medium materiality
    High
    Non-GAAP net income per diluted share
    $0.11 to $0.12
    medium materiality
    High
    On-prem to SaaS conversions
    $50 million to $75 million
    medium materiality
    High

    Operational metrics

    25
    SaaS ARR, excluding conversions
    $522.6 millionup 29% year-over-year
    Q1 FY26

    Primary growth driver of the business.

    Total SaaS ARR, including conversions
    $683.2 million
    Q1 FY26

    Includes ARR from on-prem to SaaS conversions.

    Conversion ARR
    $11.3 million
    Q1 FY26

    ARR converted from on-prem to SaaS in the quarter.

    Non-SaaS ARR remaining
    $83.7 million
    Q1 FY26

    Remaining on-prem subscription base yet to convert to SaaS.

    Total revenues
    $173.1 millionup 27% year-over-year
    Q1 FY26

    Overall company revenue.

    SaaS revenues
    $161.1 million
    Q1 FY26

    Revenue from SaaS offerings.

    Term license subscription revenues
    $6.9 million
    Q1 FY26

    Revenue from term license subscriptions.

    Maintenance and services revenues
    $5.2 million
    Q1 FY26

    Revenue from maintenance and services.

    SaaS renewal rate
    over 90%
    Q1 FY26

    Renewal rate for SaaS customers.

    Non-GAAP gross profit
    $134.9 million
    Q1 FY26

    Gross profit on a non-GAAP basis.

    Non-GAAP gross margin
    77.9%compared to 80.2% in Q1 2025
    Q1 FY26

    Gross margin on a non-GAAP basis, in line with long-term target.

    Non-GAAP operating expenses
    $136.3 million
    Q1 FY26

    Operating expenses on a non-GAAP basis.

    Non-GAAP operating loss
    $1.4 millioncompared to $6.5 million in Q1 2025
    Q1 FY26

    Operating loss on a non-GAAP basis.

    Non-GAAP operating margin
    negative 0.8%compared to negative 4.7% in Q1 2025
    Q1 FY26

    Operating margin on a non-GAAP basis.

    ARR contribution margin
    14.1%down from 16.7% last year
    Q1 FY26

    Impacted in 2026 due to the end of life for the self-hosted platform.

    Financial income
    $5.7 million
    Q1 FY26

    Primarily driven by interest income on cash, deposits, and investments.

    Non-GAAP net income
    $7.5 millioncompared to $0.7 million in Q1 2025
    Q1 FY26

    Net income on a non-GAAP basis.

    Non-GAAP net income per diluted share
    $0.06compared to $0.00 in Q1 2025
    Q1 FY26

    Based on 132.8 million diluted shares outstanding for Q1 2026.

    Diluted shares outstanding
    132.8 millioncompared to 136.7 million in Q1 2025
    Q1 FY26

    Used for diluted EPS calculation.

    Cash and investments balance
    $900 million
    March 31, 2026

    Includes cash, cash equivalents, short-term deposits, and marketable securities.

    Capex
    $5 millioncompared to $2.3 million in Q1 2025
    Q1 FY26

    Capital expenditures.

    Acquisition-related costs (impacting FCF)
    $12.6 million
    Q1 FY26

    Costs related to accounting treatment of acquisitions, primarily AllTrue, impacting Q1 FCF.

    Shares repurchased
    5,355,445 shares
    Q1 FY26

    Number of shares repurchased during the quarter.

    Average purchase price (shares)
    $24.67
    Q1 FY26

    Average price per share for repurchases.

    Total share repurchase amount
    $132.1 million
    Q1 FY26

    Net total amount spent on share repurchases.

    Industry KPIs

    11
    MetricValueDetails
    Capacity CAPEX$5 millionUSD
    Revenue growth$173.1 millionUSD
    Arr net new arr$522.6 millionUSD
    Bookings billings$522.6 millionUSD
    Customer account countaccelerated
    Large deal new logo metricssignificant
    Gross retention renewal rateover 90%%
    Multi product platform attachexpanded its Varonis investments to cover internal AI systems and e-mail security
    Operating FCF margin rule of 40negative 0.8%%
    Ai product adoption monetizationcontinued adoption
    Net revenue net dollar retentiontrending in a positive way

    Orderbook & backlog

    2
    SaaS ARR, excluding conversions$522.6 millionQ1 FY26

    up 29% year-over-year

    Reflects ability to add new SaaS customers and expand with existing ones.

    Total SaaS ARR, including conversions$683.2 millionQ1 FY26

    Deals & partnerships

    1
    AllTrue.aiAcquisition of a company providing an AI life cycle control plan (Atlas product).

    Early feedback on the Atlas offering is positive, reinforcing its fit within the Varonis platform and potential to drive ARR growth over time. The acquisition provides the 'ultimate control plan for agents, models and pipeline'.

    Risks & headwinds

    4
    Free cash flow impact from on-prem platform end-of-lifeQ1 FY26, expected to impact throughout 2026, particularly Q3 for churn.

    FCF down from $65.3 million in Q1 2025 to $49 million in Q1 2026. ARR contribution margin down from 16.7% to 14.1%.

    Mitigation: Focus on SaaS ARR growth and new customer acquisition to offset impacts.

    Acquisition-related costsQ1 FY26, primarily from AllTrue acquisition.

    Approximately $12.6 million in Q1 FY26.

    Mitigation: Management highlighted this for visibility and expects to remain on track for full-year FCF guidance.

    AI-powered adversaries and sophisticated attacksOngoing.

    Examples include cloud code breach, lone attacker scaling across 600+ firewalls in 55 countries.

    Mitigation: Varonis' automated find, fix, and alert approach; securing data and AI systems; continuous investment in supply chain security capabilities (Interceptor, phishing sandbox).

    Overexposed data and unsecured AI systemsImmediate and ongoing with AI adoption.

    AI pushes existing access controls to their limits, with systems and agents inheriting overly broad user access. Agents can move fast, behave unpredictably, and maximize privileges by design.

    Mitigation: Varonis' platform for automated remediation, abnormal behavior detection, and access posture management, ensuring foundational controls operate at the speed and scale of AI.

    What to watch in Q2 FY26

    4

    SaaS ARR growth, excluding conversions

    Q2 FY26
    Current29% YoY in Q1 FY26
    Target24% to 25% YoY in Q2 FY26

    Why it matters

    This is the primary growth driver for the business post-transition, and management is confident in sustaining 20%+ growth.

    For the second quarter of 2026, we expect SaaS ARR growth of 24% to 25%, excluding conversions

    Q&A highlights

    6

    How is the sales team's shift to new business (away from conversions) impacting performance, and where is new business success concentrated?

    Guy confirmed sales teams are now focused on upselling SaaS customers and selling to new customers, leading to accelerated new customer contribution. Yaki emphasized AI security driving demand, especially MDDR and automated remediation of excessive permissions, as AI agents necessitate foundational, automated security.

    “Our sales force is able to go and with the simplicity of the SaaS offering, sell to customers that we wouldn't be able to sell before, and that's worked really well in Q1, and we expect that to continue in the year ahead.”

    asked by Saket Kalia · answered by Guy Melamed

    2 min read6 chapters

    Detailed Narrative

    01

    AI Security as a Core Driver

    Varonis is experiencing strong demand due to the critical need for data and AI security, addressing three main barriers to broader AI adoption: securing the data itself, securing AI systems, and fighting AI-powered adversaries. The company's platform provides automated solutions for finding, fixing, and alerting on data access issues, which is crucial as AI agents can access vast amounts of data rapidly and unpredictably, pushing existing access controls to their limits.

    02

    New Product Traction and Acquisitions

    Early feedback on newer products like database activity monitoring, Interceptor, and Atlas (acquired) is positive, reinforcing their fit within the platform and potential to drive ARR growth. The Atlas acquisition, in particular, is highlighted as providing the 'ultimate control plan for agents, models, and pipelines,' with encouraging early signs of contribution and pipeline development, though not yet materially impacting Q1 ARR.

    03

    Successful SaaS Transition and New Customer Acquisition

    The company reported a 'pretty significant' acceleration in new logo acquisition in Q1, attributing it to sales teams focusing on new business rather than conversions. The simplicity of the SaaS offering allows Varonis to reach new customer segments, and this focus on new customer acquisition is expected to continue driving growth throughout the year.

    04

    Customer Wins and Expansion

    Varonis secured a global technology company with over 50,000 employees as a new customer, purchasing solutions for AWS, Salesforce, GCP, Google Drive, and Varonis SaaS for hybrid environments, including MDDR and Copilot protection. Existing customers like ServiceNow also expanded their investments to cover internal AI systems and email security, demonstrating the platform's breadth and ability to consolidate point tools.

    05

    Financial Performance and Guidance Raise

    The strong Q1 performance led to a raise in full-year guidance for total SaaS ARR growth to 27% to 32% and SaaS ARR growth excluding conversions to 20% to 21%. Management expressed confidence in sustaining this growth rate as a fully SaaS company, citing healthy demand and momentum from both new customer wins and expansion within the installed base.

    06

    Free Cash Flow and Conversion Dynamics

    Q1 free cash flow was $49 million, impacted by $12.6 million in acquisition-related costs, primarily from the AllTrue acquisition. The company reiterated its full-year free cash flow guidance of $100 million to $105 million, which assumes a base case of $50 million to $75 million in on-prem to SaaS conversions for the year, with Q1 conversions being on track with expectations.

    AI-generated summary of the company’s earnings call. Not investment advice.