Varonis Systems Inc. 10-Q Summary: Q2 2026
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. Varonis Systems, Inc. is a data and AI security company providing a platform for data discovery, classification, and protection across cloud, on-premises, and AI-driven environments. The company is in an advanced stage of transitioning its business model from self-hosted term licenses to a SaaS delivery model, with the self-hosted business scheduled for end-of-life on December 31, 2026.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | YTD 2026 (6 Months) | Q2 2025 (3 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenues | $180.0 million | $353.1 million | $152.2 million | $288.6 million |
| SaaS Revenues | $171.7 million | $332.8 million | $105.9 million | $194.5 million |
| Gross Profit | $135.5 million | $267.1 million | $120.9 million | $228.3 million |
| Gross Margin | 75.3% | 75.6% | 79.5% | 79.1% |
| Operating Loss | $(40.6) million | $(85.1) million | $(36.6) million | $(80.3) million |
| Net Loss | $(46.8) million | $(83.7) million | $(35.8) million | $(71.6) million |
| Net Loss Per Share | $(0.41) | $(0.73) | $(0.32) | $(0.64) |
| Cash & Equivalents | $233.6 million (as of June 30, 2026) | |||
| Marketable Securities | ||||
| Convertible Debt (2029 Notes) | $453.3 million (net carrying value) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 18.3% in Q2 and 22.4% YTD compared to the prior year periods. This growth was driven by a 62.2% increase in SaaS revenue for Q2, offset by significant declines in term license subscriptions (-87.1%) and maintenance services (-70.2%) as customers convert to the SaaS model.
- Margin Compression: Gross margin decreased from 79.5% to 75.3% in Q2. Management attributes this to increased third-party hosting costs ($6.4 million increase) and higher personnel costs for customer success teams required to support the SaaS transition.
- Operating Expenses: Operating expenses rose 11.9% in Q2. Research and Development (R&D) increased 30.4% due to headcount growth and conditional consideration from recent acquisitions. Sales and Marketing increased 3.1%.
- Acquisitions: The company completed the acquisition of AllTrue.ai in February 2026 for approximately $180.3 million (including contingent consideration) to enhance AI system security capabilities. This contributed to increased goodwill and intangible assets.
- Share Repurchases: The company completed a $150 million share repurchase program in March 2026, retiring 5.4 million shares during the period.
Guidance, Outlook, and Risks
- SaaS ARR: SaaS Annual Recurring Revenue (ARR) reached $726.0 million as of June 30, 2026, a 52% increase year-over-year. SaaS ARR excluding conversions was $598.1 million, up 25%.
- Remaining Performance Obligations (RPO): RPO stood at $1.08 billion, with approximately 57% expected to be recognized over the next 12 months.
- Strategic Transition: Management expects continued variability in revenue recognition as the company completes the end-of-life for self-hosted products by December 31, 2026. The focus remains on converting remaining term license customers to SaaS.
- Liquidity: The company holds $698.3 million in cash, cash equivalents, and short-term marketable securities. Management believes this is sufficient to fund operations for at least the next 12 months.
- Legal Proceedings: The company is a defendant in a putative securities class action lawsuit (Molchanov v. Varonis Systems, Inc.) alleging misrepresentations regarding 2025 ARR and SaaS conversion capabilities. A motion to dismiss is due in September 2026.
- Geopolitical Risks: Significant operations are located in Israel. The company notes risks related to ongoing regional conflicts, including potential disruptions to operations and employee availability due to military reserve duty.
Investor Verification Checklist
- SaaS Conversion Rate: Verify the pace of converting remaining self-hosted customers to SaaS, as this drives future revenue stability and margin expansion.
- Hosting Cost Trajectory: Monitor the ratio of third-party hosting costs to SaaS revenue to ensure gross margins stabilize as the transition completes.
- Acquisition Integration: Assess the financial impact and integration progress of the AllTrue.ai acquisition on R&D expenses and product roadmap.
- Legal Exposure: Track the status of the Molchanov securities class action and the shareholder derivative suit for potential financial impact.
- Geopolitical Continuity: Evaluate the operational resilience of the Israeli R&D center amidst regional instability.