VRNS

• Core Business and Demand Trends
  • Q2 2026 results showed strong underlying momentum, with new logo SaaS ARR growing more than 20% YoY, and growing adoption of newer products: Atlas, Interceptor, and Database Activity Monitoring (DAM).
  • A few large deals slipped into Q3 due to market speculation about a potential transaction, but several of these deals (including a seven-figure deal) have already closed in July, and Q3 is off to a strong start.
• AI and Data Security Strategic Tailwind
  • The rise of enterprise AI has created urgent new demand for data security, as AI increases accessibility to overexposed sensitive data, expands the attack surface, and requires automated guardrails that legacy manual security processes cannot deliver.
  • Varonis' value proposition addresses three key customer needs: locating and securing sensitive data, implementing guardrails for AI systems accessing enterprise data, and defending against AI-powered cyberattacks. Varonis positions data security and AI security as inseparable problems requiring an integrated, automated solution that leverages Varonis' core data security capabilities.
  • Customers are increasingly consolidating multiple point security products onto Varonis' platform as part of vendor rationalization initiatives led by CISOs.
• Key Customer Wins
  • A 40,000+ employee healthcare organization purchased Varonis Atlas Complete to secure AI deployments (including copilots, cloud LLMs, and internal models) across multiple cloud platforms, and remediate overexposed HIPAA and PII patient data.
  • An existing financial services customer expanded its Varonis deployment to consolidate multiple standalone security products, prepare for AI adoption, and leverage automated threat prevention, after Varonis detected and stopped a significant security incident during the evaluation process.
• New Product Momentum
  • New products are increasingly driving pipeline growth, with Atlas already contributing unexpectedly strong new deal volume in Q2 2026, and management expects more meaningful contribution from all new products in H2 2026. DAM is already displacing incumbents like Imperva and IBM Guardian in the large database security market.

• Third Quarter 2026 Guidance:
  • SaaS ARR growth (excluding conversions): 22% to 23% YoY
  • Total revenues: $185 million to $188 million, representing 14% to 16% YoY growth
  • Non-GAAP operating income: $2.5 million to $3.5 million
  • Non-GAAP diluted net income per share: $0.02 to $0.03
• Full Year 2026 Guidance (raised from prior guidance):
  • Total SaaS ARR: $819 million to $850 million, representing 28% to 33% YoY growth
  • SaaS ARR (excluding conversions) growth: 20% to 21% YoY, with the midpoint raised $5 million from prior guidance to $769 million to $775 million
  • Free cash flow: $105 million to $110 billion, representing a $5 million increase from prior guidance
  • Total revenues: $735 million to $739 million, representing 18% to 19% YoY growth
  • Non-GAAP operating income: $11 million to $13 million
  • Non-GAAP diluted net income per share: $0.14 to $0.15
• Conversion Guidance: The prior full-year range of $50 million to $75 million for on-prem to SaaS conversions remains unchanged. Through H1 2026, ~50% of the expected total has been converted, with most remaining conversions expected to close in H2 2026, putting full-year results on track to land near the midpoint of the range.

Varonis reports only consolidated financial results in this call, with no breakdown of performance by individual product segment. The aggregate consolidated results for Q2 2026 are: SaaS ARR (excluding conversions) increased 25% YoY to $598.1 million; total SaaS ARR including conversions was $726 million, with $11.4 million of conversion ARR in the quarter. Total revenues were $180 million, up 18% YoY, consisting of $171.7 million in SaaS revenues, $4.2 million in term license subscription revenues, and $4.1 million in maintenance and services revenues. Non-GAAP gross profit was $139.9 million, with a gross margin of 77.7% (compared to 80.6% in Q2 2025, in line with long-term targets after the on-prem platform end-of-life transition). Non-GAAP operating income was $3.7 million, with an operating margin of 2.1%, up from a $1.9 million operating loss (negative 1.2% margin) in Q2 2025. Net income was $5.3 million, or $0.04 per diluted share, up from $3.8 million (or $0.03 per diluted share) in Q2 2025. Year-to-date (H1 2026) free cash flow was $69.1 million; adjusting for $11.9 million in acquisition-related accounting costs, adjusted year-to-date free cash flow was ~$81 million. As of June 30, 2026, Varonis held $911.5 million in cash, cash equivalents, short-term deposits, and marketable securities. The SaaS renewal rate was over 90%.

• End-of-life transition of the legacy on-prem self-hosted platform is impacting 2026 gross margin and ARR contribution margin, as expected
• Market speculation regarding a potential potential transaction caused several large late-quarter deals to slip from Q2 2026 into Q3 2026
• The federal/government customer segment has historically underperformed, and no upside from this vertical is baked into current guidance, with unconvertible on-prem subscriptions from state and federal customers already accounted for in current assumptions
• AI adoption is still in a maturation phase, with most organizations still in the process of moving experimental AI projects to production, so full demand realization from the AI security tailwind is expected to occur over time rather than immediately
• New product lines (Atlas, Interceptor, DAM) are still ramping adoption and have not yet reached their full revenue contribution potential

Q: Several large deals slipped at the end of Q2 due to market rumors. What was the business cadence before the rumors, how large was the impact, and what gives management confidence these deals will close later? / A: Overall business trends in Q2 were overwhelmingly positive, with new logo ACV growth over 20%, increasing adoption of new products, and a healthy full-year pipeline driven by AI security demand. Several large deals were delayed by the end-of-quarter speculation, but a seven-figure delayed deal has already closed in July, and most remaining delayed deals are expected to close in Q3. Management cites these positive factors as the reason it raised full-year guidance, and notes it maintains its prior responsible guidance framework. Varonis does not comment on the transaction rumors themselves, beyond confirming it is focused on continuing to deliver customer value and innovate as usual.

Q: AI adoption is creating growing demand for data security. Why hasn't this demand yet translated to a more dramatic inflection in core product growth, and what is the timing of this tailwind? / A: Varonis has only been selling its AI-focused Atlas product for 3.5 months, and most enterprises are still in the maturation phase of AI adoption: they have invested heavily in experimental AI projects, and are now just starting to move these projects to production, which requires connecting AI systems to enterprise data securely. Varonis notes that AI security and core data security offerings almost always sell together, and demand will continue to build steadily as more enterprises bring AI into production.

Q: Are new customers purchasing larger, broader platform deals up front because of AI security needs? / A: AI fundamentally changes customer purchasing behavior, because AI agents operate continuously, can produce non-deterministic output, and automatically seek out accessible data, making unaddressed data exposure much riskier than it was with only human data access. As a result, new customers are increasingly purchasing broader platform access up front to cover more data stores and AI systems from the start of their deployment.

Q: How does Varonis compete with new competing AI security products that overlap with Atlas, and what is Varonis' competitive advantage? / A: Atlas is the most comprehensive solution for the full AI security lifecycle, covering posture management, compliance, penetration testing, and runtime monitoring. The key unique advantage is that Atlas is deeply integrated with Varonis' core data security platform, giving it unique context about where sensitive data lives, who can access it, and what normal access patterns look like. This integrated, data-centric AI security value proposition is currently unmatched by competitors.

Q: How are deals for AI security funded: are these new AI budgets or reallocated security budgets? / A: It is a mix: Varonis often captures reallocated budget from incumbent point product vendors, displacing offerings like legacy database security tools and existing email security layers as customers consolidate onto Varonis' platform. Increasingly, organizations are also funding Varonis AI security deployments from new digital transformation and AI initiative budgets, as security is a required component of bringing AI into production.