It has been about a month since the last earnings report for Varonis Systems (VRNS). Shares have added about 2.4% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Varonis due for a pullback? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent drivers for Varonis Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Varonis Systems Q2 Earnings and Revenues Surpass Estimates
Varonis Systems reported better-than-expected results for the second quarter of 2025. The company delivered non-GAAP earnings per share of 3 cents, surpassing the Zacks Consensus Estimate of a penny.
However, the bottom line declined 50% from the year-ago quarter’s earnings of 6 cents per share. Decline in earnings reflects the negative impact on margins due to its ongoing transition to a SaaS model. This shift impacts revenue recognition, with revenue and operating margins temporarily depressed as the company moves from upfront payments to a ratable revenue recognition system under SaaS.
Varonis Systems’ second-quarter 2025 revenues of $152.2 million surpassed the Zacks Consensus Estimate of $148 million. Revenues climbed 16.8% year over year.
Varonis Systems’ strong performance in the second quarter of 2025 can be attributed to robust traction in its SaaS offerings, leading to strong recurring revenues and momentum in the Managed Data Detection & Response platform.
Varonis Systems’ Q2 2025 Details
Coming to Varonis’ business segments, revenues from SaaS (69.6% of total revenues) increased 136.4% year over year to $105.9 million. Term license subscriptions (21.3% of total revenues) decreased 48.3% to $32.4 million. Maintenance and services (9.1% of total revenues) declined 39% to $13.9 million.
By geography, the United States accounted for 71.4% of the total revenues, which increased 18.2% year over year to $108.7 million. The EMEA accounted for 20.9% of second-quarter revenues, which reflects an increase of 9.2% to $31.8 million. Revenues from the rest of the world accounted for 7.7% of the total revenues, which grew 26.1% year over year to $11.8 million.
Varonis’ non-GAAP gross margin contracted 350 basis points to 80.6%, reflecting the negative impact from the ongoing transition to the SaaS business model. Varonis posted a non-GAAP operating loss of $1.9 million, against the year-ago quarter’s operating income of $2.1 million. The non-GAAP operating margin for the second quarter of 2025 was negative 1.2% compared to the year-ago quarter’s positive 1.6% non-GAAP operating margin.
VRNS’ Balance Sheet & Cash Flow
As of June 30, 2025, Varonis Systems had $807.4 million in cash, cash equivalents, marketable securities and short-term deposits, up from $609.2 million as of March 31, 2025.
The company generated $89.3 million in operating cash flow and reported free cash flow of $82.7 million in the first half of 2025.
Varonis Systems Raises FY25 Guidance
For 2025, Varonis now expects annual recurring revenues (ARR) between $748 million and $754 million, up from the previously announced guidance of $742 million to $750 million. It now expects 2025 revenues between $616 million and $628 million, up from the earlier guidance range of $610-$625 million.
Varonis expects its full-year 2025 earnings per share in the range of 16-18 cents, an improvement over the previously guided range of 14-17 cents. Free cash flow is still projected in the range of $120-$125 million.
For the third quarter of 2025, Varonis projects revenues between $163 million and $168 million, suggesting year-over-year growth of 10% to 13%. Non-GAAP operating income is expected to range between $4 million and $7 million, while non-GAAP net income per diluted share is projected to be between 7 cents and 8 cents, based on 134 million diluted shares.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.3% due to these changes.
VGM Scores
Currently, Varonis has a average Growth Score of C, a score with the same score on the momentum front. However, the stock was allocated a score of F on the value side, putting it in the fifth quintile for value investors.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Varonis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Varonis Systems, Inc. (VRNS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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