Release Date: May 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Varonis Systems Inc (VRNS, Financial) reported a 19% year-over-year growth in Annual Recurring Revenue (ARR), reaching $664.3 million.
- The company successfully accelerated its transition to a SaaS model, with SaaS ARR now representing approximately 61% of total ARR.
- Varonis Systems Inc (VRNS) generated $65.3 million in free cash flow during the first quarter, up from $56.4 million in the same period last year.
- The company reported strong contributions from both new and existing customers, driving overall business momentum.
- Varonis Systems Inc (VRNS) raised its full-year ARR guidance, reflecting confidence in its business outlook and growing customer demand.
Negative Points
- The transition to a SaaS model has introduced volatility in revenue recognition, impacting the income statement and creating a messy financial outlook for 2025.
- Operating expenses increased, resulting in a first-quarter operating loss of $6.5 million, with an operating margin of negative 4.7%.
- The company experienced a 32% year-over-year decline in maintenance and services revenues, primarily due to perpetual maintenance customers converting to SaaS.
- Gross margin decreased to 80.2% from 83.3% in the first quarter of 2024, reflecting the impact of the SaaS transition.
- Despite the positive momentum, the macroeconomic environment remains uncertain, which could impact future performance.
Q & A Highlights
Q: What gives Varonis confidence that ARR can grow over 20% as illustrated?
A: Guy Melamed, CFO and COO, explained that the SaaS Net Revenue Retention Rate (NRR) is significantly above the total company NRR, indicating that SaaS customers see value and are purchasing more. This, combined with healthy new customer momentum, gives confidence in achieving over 20% ARR growth. Yaki Faitelson, CEO, added that Varonis' data-centric approach is the best way to avoid data breaches, further driving customer adoption.
Q: Can you provide more color on MDDR adoption and its competitive environment?
A: Yaki Faitelson highlighted that MDDR is crucial for protecting data by automatically managing excessive access control and understanding abnormal behavior. Guy Melamed noted that MDDR, introduced five quarters ago, is the fastest-adopted offering in Varonis' history, and they believe every customer should have it for better protection.
Q: How is the macroeconomic environment impacting Varonis, and how is it incorporated into guidance?
A: Guy Melamed stated that despite macroeconomic uncertainty, Varonis had a strong quarter with robust demand from new and existing customers. The company remains focused on factors within its control and is confident in its ability to capitalize on growing customer demand, leading to an increase in ARR guidance.
Q: What is the outlook for operating margins during the SaaS transition?
A: Guy Melamed mentioned that the transition creates volatility in the P&L, but they expect the trough in operating margins to occur this year. As the transition completes, the income statement will start to normalize, with ARR, free cash flow, and ARR contribution margins being key indicators of health.
Q: How are new logos adopting Varonis' newer offerings, and what is the traction with AI tools?
A: Yaki Faitelson noted that new customers are increasingly adopting Varonis for SaaS applications, cloud storages, and databases. The rise of AI tools like copilot highlights data security issues, driving demand for Varonis' automated data security solutions. The company sees success with its cloud offerings and investments in data repositories.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
