Varonis Systems VRNS reported second-quarter 2026 non-GAAP earnings of 4 cents per share, which beat the Zacks Consensus Estimate of 1 cent.
VRNS generated revenues of $180 million in the second quarter of 2026, surpassing the Zacks Consensus Estimate by 1.7%. Revenues increased from $152.2 million reported in the year-ago quarter.
Varonis beat the Zacks Consensus Estimates in three of the previous four quarters, while missing the same on one occasion, with an average surprise of 146.7%.
The quarter's performance was driven by continued SaaS momentum, robust demand for AI and data security offerings, healthy new customer additions and increasing adoption of newer products such as Atlas, Interceptor and Database Activity Monitoring.
Varonis Systems, Inc. Price, Consensus and EPS Surprise
Varonis Systems, Inc. price-consensus-eps-surprise-chart | Varonis Systems, Inc. Quote
VRNS SaaS Momentum Continues
Varonis' SaaS transition remained the primary growth driver during the quarter. SaaS revenues increased to $171.7 million from $105.9 million in the year-ago quarter, reflecting strong cloud adoption.
Legacy revenue streams continued to decline as customers migrated to the SaaS platform. Term license subscription revenues decreased to $4.2 million from $32.4 million a year ago, while maintenance and services revenues fell to $4.1 million from $13.9 million, with the majority of the decline attributable to SaaS conversions.
VRNS Returns to Operating Profit
Non-GAAP gross profit was $139.9 million, representing a 77.7% gross margin, compared with 80.6% in the prior-year quarter, reflecting the ongoing revenue mix shift toward SaaS.
Non-GAAP operating expenses totaled $136.1 million. The company reported non-GAAP operating income of $3.7 million against a non-GAAP operating loss of $1.9 million in the year-ago quarter. Non-GAAP operating margin improved to 2.1% from negative 1.2% a year earlier.
Strong Balance Sheet Supports Growth
As of June 30, 2026, Varonis held $911.5 million in cash, cash equivalents, short-term deposits and marketable securities.
For the first six months of 2026, the company generated $69.1 million in free cash flow compared with $82.7 million in the prior-year period. Adjusted for acquisition-related costs, adjusted free cash flow totaled $81.0 million.
AI Security Demand Drives Growth
Total SaaS ARR reached $726 million, up 52% year over year, while SaaS ARR excluding conversions grew 25% year over year to $598.1 million.
Management highlighted strong momentum from AI-driven demand, with SaaS ARR from new customers growing more than 20%. The company also cited growing adoption of newer offerings, including Atlas, Interceptor and Database Activity Monitoring, as organizations increasingly prioritize AI governance, data security and automated risk reduction.
Management noted that several large deals slipped into July due to market-related news flow late in the quarter but have since closed, contributing to a strong start to the third quarter and supporting increased confidence in full-year guidance.
VRNS Raises Full-Year Outlook
For the third quarter of 2026, Varonis expects revenues between $185 million and $188 million, suggesting 14-16% year-over-year growth. Non-GAAP operating income is expected to be in the range of $2.5 million to $3.5 million. Non-GAAP earnings per share are projected between 2 cents and 3 cents. SaaS ARR growth, excluding conversions, is expected to be in the range of 22-23% year over year.
For full-year 2026, Varonis raised its outlook and now expects revenues between $735 million and $739 million, implying 18-19% year-over-year growth. Total SaaS ARR is projected to be in the range of $819-$850 million. SaaS ARR growth, excluding conversions, is projected to be between 20% and 21% year over year. Free cash flow is expected to be in the band of $105-$110 million. Non-GAAP operating income is projected to be between $11 million and $13 million. Non-GAAP earnings per share are expected to be in the range of 14-15 cents.
Zacks Rank & Stocks to Consider
Varonis currently carries a Zacks Rank #4 (Sell).
Some better stocks in the broader Zacks Computer and Technology sector are Analog Devices ADI, Applied Materials AMAT and Cisco Systems CSCO, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Analog Devices have rallied 37.1% year to date. The Zacks Consensus Estimate for ADI’s fiscal 2026 earnings is pegged at $12.42 per share, up by 10 cents over the past 30 days, indicating an increase of 59.4% year over year.
Shares of Applied Materials have skyrocketed 101.1% year to date. The Zacks Consensus Estimate for AMAT’s fiscal 2026 earnings is pegged at $12.14 per share, up by 4 cents over the past 30 days, indicating a rise of 28.9% year over year.
Cisco Systems shares have surged 48.7% year to date. The Zacks Consensus Estimate for CSCO’s fiscal 2026 earnings is pegged at $4.28 per share, unchanged over the past 30 days, indicating an increase of 12.3% year over year.
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