Varonis Systems Q4 2025 Varonis Systems Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Varonis Systems Inc Earnings Call
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Greetings and welcome to the Verona systems. Fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, that the conference is being recorded. It is not my pleasure to introduce Tim per investor relations. Please go ahead.
Thank you, operator. Good afternoon, thank you for joining us today to review Verona's fourth quarter and full year 2025 Financial results with me on the call today, our Yaki, flayton chief executive officer and Guy, malama Chief Financial Officer and Chief Operating Officer of veronus. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business, that would be considered forward-looking statements under Federal Securities laws, including projections of future, operating results for our first quarter and full year ending December 31st, 2026.
Due to a number of factors actual results, May differ materially from those set forth in such statements. These factors are set forth in the earnings. Press release that we issued today under the section captioned forward-looking statements and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission.
We encourage all investors to read our SEC filings. These statements, reflect our views, only as of today and should not be relied upon as representing our views as of any subsequent date veronus, expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made here in additionally, non-gaap Financial measures will be discussed on this conference. Call the reconciliation for the most directly comparable. Gaap Financial measures is also
Also available in our fourth quarter, 2025 earnings press release, and our investor presentation, which can be found at verizon.com in the investor relations section. Lastly, please note that a webcast of today's call is available on our website in the investor relations section. With that. I'd like to turn the call over to our chief executive officer jockey fidelen Yaki.
Thanks team and good afternoon everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results.
Over the past year, we have talked about voni is the story of 2 companies. The first is our strong sat business, which reflects the present and future of our company. And the second is our Legacy on-prem business, which is serving as a headwind to our top company. Our growth in Q3, the headwind was especially pronounced as the result. We are now. Disclosing additional metrics.
The purpose of this to allow investors to understand all the driver of our business guy will expand upon this later.
in the fourth quarter, our SAS business continued, its momentum, and our decision to end of life are self-hosted platforms, combined,
Who is the lesson we learned in Q3 led to a record number of conversions, in Q4, start with 638.5 million or 86% of total. Our Q4 sat increased 32% year-over-year, excluding the impact of conversion and total are increased 16% year-over-year to 745.4 million. Now, I would like to give you some additional color on last quarter decision to announce the end of life.
For our self-hosted deployment model and the decision to transition our business to be 100% staffed by the end of 2026.
Introduction of Bona. We believe a self-hosted software was the best way to secure data.
But the downside of this software was that it requires significantly more resource to do. So, a SAS product is fully automated. It is a different to our self-hosted solution.
A self-driving car to a bicycle.
You can get to the same destination in either method.
but with 1 you do the majority of work yourself and with the other it get you there automatically and and with minimal effort,
We can do this because we build our SAS platform using world-class architecture the new technologies and the lesson we learned was securing data. In large complex, Dynamic environments for thousands of customers. This allow us to protect our staff customers in ways that were not possible. We are self-hosted solution. For instance, we can only provide mddr
to our SAS customers because of the Automation and centralized visibility within our platform, it is important to understand that for most other companies that underwent s transition, the technological gap, between those self-hosted and SAS products was not as large as it is.
Without platform.
this provides our staff customers with much higher satisfaction, which leads to higher renewal rate when compared to our remaining self-hosted customers, many of which
are what we call single threaded customers. This means they only use the only self-hosted platform for a single use case on 1 data store and because they don't use the full data security platform.
They began to show a greater resistance toward paying a premium to move to Veronica in Q3 in order to move quickly and maximize customer retention. We are focusing Less on uplift for conversions of our remaining on-prem customers. We believe we can show even more value to SAS to these customers and then have
opportunities to upsell them in the future.
In the fourth quarter, our decision to end of life or self-hosted platform for the Catalyst that caused many of our remaining self-hosted customers to convert to SAS.
We converted approximately 65 million dollars or 1/3 of our remaining non-stars are in the quarter and believe that between 50 to 75 million dollars of the remaining self-hosted customer, we will convert by the end of the year.
At the same time, we continue to see strong demand from both new and existing customers because they can secure data with minimal effort because of our automation.
Out of the SPM tools, may be able to identify a portion of sensitive data. But no other tool can find sensitive data in a complete way. Fixed misconfiguration at scale automatically, and alert and respond to threats, delivering, automated outcomes, like Veronica does.
Within our SAS portfolio, MDR and co-pilot continue to show strong adoption Trends and Varane is for cloud environments continued. Its momentum which was driven by the investment. We have made in our platform to expand our use cases and protect many more data platforms.
We are seeing this demand because customer realizing that visibility alone is not enough and classification without protection is liability.
Automation is necessary to achieve real outcomes.
Telecom conversation with customers on our database activity monitoring and email security products underscore our belief that these are strong fit.
So our portfolio in 2026, we expect our reps to put significantly more focus on new business and uplifting South customers over time. We believe this Focus will help us unlock the potential of this Market.
Resident in rate.
The scale of data growth is much only by the AI ability to increase the sophistication of modern cyber threats.
Operator: Greetings, and welcome to the Varonis Systems Q4 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Perz, Investor Relations. Please go ahead.
Operator: Greetings, and welcome to the Varonis Systems Q4 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tim Perz, Investor Relations. Please go ahead.
Cyber criminals are leveraging AI agents to infiltrate organization with minimal. Human involvement. Recent incidents such as Chinese State actors, using clogged code to breach, major cooperations
Highlight the sensitivity and ease of these attacks.
Tim Perz: Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' fourth quarter and full year 2025 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws, including projections of future operating results for our first quarter and full year ending December 31, 2026. Due to a number of factors, actual results may differ materially from those set forth in such statements.
Tim Perz: Thank you, operator. Good afternoon. Thank you for joining us today to review Varonis' fourth quarter and full year 2025 financial results. With me on the call today are Yaki Faitelson, Chief Executive Officer, and Guy Melamed, Chief Financial Officer and Chief Operating Officer of Varonis. After preliminary remarks, we will open the call to a question and answer session. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws, including projections of future operating results for our Q1 and full year ending December 31, 2026. Due to a number of factors, actual results may differ materially from those set forth in such statements.
Most of these AI powered attacks, start with social engineering, attackers aren't hacking computer. They are hacking trust and users cannot tell what real or fake anymore. Cyber criminals are using AI without garbage companies want to adapt the eye as quickly but struggle to due to concerns over data security.
The deployment of AI agent raises critical compliance questions. What data does the agent has access to is that data is sensitive, is the agent behaving as expected. Most organizations struggle to answer these questions for human users and the challenge is Amplified. As they must now secure exponentially more. AI agents.
Agents are nothing without data. The more data agents can access the more useful and more risky, they become
Tim Perz: These factors are set forth in the earnings press release that we issued today under the section captioned Forward-Looking Statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. The reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2025 earnings press release and our investor presentation, which can be found at varonis.com in the Investor Relations section.
Tim Perz: These factors are set forth in the earnings press release that we issued today under the section captioned Forward-Looking Statements, and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. Varonis expressly disclaims any application or undertaking to release publicly any updates or revisions to any forward-looking statements made herein. Additionally, non-GAAP financial measures will be discussed on this conference call. The reconciliation for the most directly comparable GAAP financial measures is also available in our fourth quarter 2025 earnings press release and our investor presentation, which can be found at varonis.com in the Investor Relations section.
They operate faster than humans. Collaborate autonomously and maximize their privilege by Design.
AI security. Depends on data, security. In addition companies will need guardrails
and controls around their AI agents and tool sets.
To accelerate our ability to help companies safely, adapt AI. But honestly announced today that it has acquired all 2 and AI security company. Acquisition strengths Verizon's, ability to protect Enterprise for emerging AI Risk. By combining all tools, end to end visibility and guard rails for AI tools, with Veronica's ability to protect the underlying data and identities. Using by I agents,
Or to ads end to end visibility and control across AI life cycle.
Tim Perz: Lastly, please note that a webcast of today's call is available on our website in the Investor Relations section. With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Yaki?
Tim Perz: Lastly, please note that a webcast of today's call is available on our website in the Investor Relations section. With that, I'd like to turn the call over to our Chief Executive Officer, Yaki Faitelson. Yaki?
It inventory is the I components and infrastructure. Lock it down. Monitoring it tools.
Yaki Faitelson: Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our Q4 and full year 2025 results. Over the past year, we have talked about Varonis as a story of two companies. The first is our strong SaaS business, which reflects the present and future of our company. And the second is our legacy on-prem business, which is serving as a headwind to our total company ARR growth. In Q3, the headwind was especially pronounced. As a result, we are now disclosing additional metrics. The purpose of this, to allow investors to understand all the drivers of our business. Guy will expand upon this later. In the fourth quarter, our SaaS business continued its momentum, and our decision to end of life, our self-hosted platform, combined with the lesson we learned in Q3, led to a record number of conversions.
Yaki Faitelson: Thanks, Tim, and good afternoon, everyone. We appreciate you joining us to discuss our Q4 and full year 2025 results. Over the past year, we have talked about Varonis as a story of two companies. The first is our strong SaaS business, which reflects the present and future of our company. And the second is our legacy on-prem business, which is serving as a headwind to our total company ARR growth. In Q3, the headwind was especially pronounced. As a result, we are now disclosing additional metrics. The purpose of this, to allow investors to understand all the drivers of our business. Guy will expand upon this later. In the fourth quarter, our SaaS business continued its momentum, and our decision to end of life, our self-hosted platform, combined with the lesson we learned in Q3, led to a record number of conversions.
And automate compliance, the acquisition reinforce our data, first strategy, and extended our platform to secure all AI systems and the data powering them.
Of SAS platform. Allow for much faster organic Innovation integration of tacking acquisition.
Which enhance our customer ability to stay ahead of Bad. Actors since launching SAS, we have gone wider and deeper to help our customers stop breaches everywhere. And we can now tap into more budgets than ever including data and AI security database, activity monitoring and email security. We have unified unstructured, semi-structured and structured data security into a single platform which is essential in an age of AI, because AI uses all data types,
When you combine Interceptor, which is our email security offering, who is a SAT platform and mddr it becomes a force multiplier.
Yaki Faitelson: In Q4, SaaS ARR was $638.5 million, or 86% of total ARR. Q4 SaaS ARR increased 32% year-over-year, excluding the impact of conversion, and total ARR increased 16% year-over-year to $745.4 million. Now, I would like to give you some additional color on last quarter's decision to announce the end of life for our self-hosted deployment model, and the decision to transition our business to be 100% SaaS by the end of 2026. Prior to the introduction of Varonis SaaS, we believe our self-hosted software was the best way to secure data, but the downside of this software was that it required significantly more resource to do so. Our SaaS product is fully automated. It is a different to our self-hosted solution, a self-driving car to a bicycle.
Yaki Faitelson: In Q4, SaaS ARR was $638.5 million, or 86% of total ARR. Q4 SaaS ARR increased 32% year-over-year, excluding the impact of conversion, and total ARR increased 16% year-over-year to $745.4 million. Now, I would like to give you some additional color on last quarter's decision to announce the end of life for our self-hosted deployment model, and the decision to transition our business to be 100% SaaS by the end of 2026. Prior to the introduction of Varonis SaaS, we believe our self-hosted software was the best way to secure data, but the downside of this software was that it required significantly more resource to do so. Our SaaS product is fully automated. It is a different to our self-hosted solution, a self-driving car to a bicycle.
Top spreads, even faster, and keeps spread actors even farther from data with that. I would like to briefly discuss a couple of key customer wins from Q4.
We continue to see strong demand from new customers and 1 example of this was a healthcare service organization.
That was performing a risk assessment during a multi Cloud, migration and realized that native tools were insufficient to lock down their data as a result, they launched dspm RFP process. And ultimately those bironas, after we immediately uncovered several hundreds critical misconfiguration, many of which automatically fix also identify over 900,000 exposed pii records and executive strategy materials.
Yaki Faitelson: You can get to the same destination in either method, but with one, you do the majority of work yourself, and with the other, it gets you there automatically and with minimal effort. We can do this because we build our SaaS platform using world-class architecture, the newest technologies, and the lesson we learned was securing data in large, complex, dynamic environments for thousands of customers. This allows us to protect our SaaS customers in ways that were not possible with our self-hosted solution. For instance, we can only provide MDR to our SaaS customers because of the automation and centralized visibility within our platform. It is important to understand that for most other companies that underwent SaaS transition, the technological gap between their self-hosted and SaaS product was not as large as it is with our platform.
Yaki Faitelson: You can get to the same destination in either method, but with one, you do the majority of work yourself, and with the other, it gets you there automatically and with minimal effort. We can do this because we build our SaaS platform using world-class architecture, the newest technologies, and the lesson we learned was securing data in large, complex, dynamic environments for thousands of customers. This allows us to protect our SaaS customers in ways that were not possible with our self-hosted solution. For instance, we can only provide MDR to our SaaS customers because of the automation and centralized visibility within our platform. It is important to understand that for most other companies that underwent SaaS transition, the technological gap between their self-hosted and SaaS product was not as large as it is with our platform.
But only Simplicity Advanced threat detection and unified interface, automatic remediation of decisive, against competitors, and the ultimate purchase, volume starts with mddr, for hybrid environments, co-pilot, AWS, Azure, and Google Cloud platform.
Database connector.
In addition to strong, new customer momentum, we continue to see existing customer realizing the benefits of SAS 1 example, was the hospital system of 45,000 employees that originally bought Verizon to remediate overexposure of on-prem HIPPA data, as they began a cloud, migration process, they noticed gaps in the ability of native tools to remediate over exposure and label data at scale.
During a cloud risk assessment, we discovered over half a million instances of pipa and pii data, open to everyone. In the organization, our ability to identify and remediate this exposure. Let this customer to convert to Veronica starts with MDD. How for hybrid environments.
Yaki Faitelson: This provides our SaaS customers with much higher satisfaction, which leads to higher renewal rates when compared to our remaining self-hosted customers, many of which are what we call single-threaded customers. This means they only use Varonis self-hosted platform for a single use case on one data store, and because they don't use the full data security platform, they began to show a greater resistance towards paying a premium to move to Varonis SaaS in Q3. In order to move quickly and maximize customer retention, we are focusing less on uplift for conversions of our remaining on-prem customers. We believe we can show even more value to SaaS, to these customers, and then have opportunities to upsell them in the future. In Q4, our decision to end-of-life our self-hosted platform was a catalyst that caused many of our remaining self-hosted customers to convert to SaaS.
Yaki Faitelson: This provides our SaaS customers with much higher satisfaction, which leads to higher renewal rates when compared to our remaining self-hosted customers, many of which are what we call single-threaded customers. This means they only use Varonis self-hosted platform for a single use case on one data store, and because they don't use the full data security platform, they began to show a greater resistance towards paying a premium to move to Varonis SaaS in Q3. In order to move quickly and maximize customer retention, we are focusing less on uplift for conversions of our remaining on-prem customers. We believe we can show even more value to SaaS, to these customers, and then have opportunities to upsell them in the future. In Q4, our decision to end-of-life our self-hosted platform was a catalyst that caused many of our remaining self-hosted customers to convert to SaaS.
Propilot and data life, cycle automation for Windows SAS.
In summary.
We are excited by the performance of our SAS business which is being driven by the automated value. Proposition that we delivered to our customers on top of our scalable architecture.
We look forward to continuing our momentum and ending the year as a fully SAS company, which will unlock many more benefits as we capture our growing Market opportunity. And we believe in the past to achieving our 2027 Financial targets is that let me turn the call over to guy guy.
Thanks Yaki. Good afternoon, everyone thank you for joining us today we are excited by the momentum. We are seeing in our SAS business which now accounts for the vast majority of our ARR.
Yaki Faitelson: We converted approximately $65 million, or 1/3 of our remaining non-SaaS ARR in the quarter, and believe that between $50 to 75 million of the remaining self-hosted customers will convert by the end of the year. At the same time, we continue to see strong demand from both new and existing customers because they can secure data with minimal effort because of our automation. Other DSPM tools may be able to identify a portion of sensitive data, but no other tool can find sensitive data in a complete way, fix misconfiguration at scale automatically, and alert and respond to threats, delivering automated outcomes like Varonis does.
Yaki Faitelson: We converted approximately $65 million, or 1/3 of our remaining non-SaaS ARR in the quarter, and believe that between $50 to 75 million of the remaining self-hosted customers will convert by the end of the year. At the same time, we continue to see strong demand from both new and existing customers because they can secure data with minimal effort because of our automation. Other DSPM tools may be able to identify a portion of sensitive data, but no other tool can find sensitive data in a complete way, fix misconfiguration at scale automatically, and alert and respond to threats, delivering automated outcomes like Varonis does.
SAS is both the present and the future of our business. And the new disclosures we are making today are intended to enable investors to evaluate the progress of both our SAS business, and the end of life of our self-hosted business.
We plan to disclose these additional metrics for the duration of 2026 after which, we will be 100% staffed and we will revert to more traditional metrics.
You can find more on this in our investor deck.
In 2026, we will provide guidance for SAS are. Excluding conversions on a quarterly basis.
Specifically, we will report The Following on a quarterly basis 1 Sasse are 2. Sassar excluding conversion, 3, conversions ARR and 4, Non sass ARR to help you understand how much conversion opportunity remains available.
On an annual basis, we will disclose and also provide guidance for 1 SAS ARR and 2 sasr. Excluding conversion.
Yaki Faitelson: Within our SaaS portfolio, MDR and Copilot continue to show strong adoption trends, and Varonis for cloud environments continued its momentum, which was driven by the investment we have made in our platform to expand our use cases and protect many more data platforms. We are seeing this demand because customers are realizing that visibility alone is not enough, and classification without protection is liability. Automation is necessary to achieve real outcomes. Every conversation with customers on our database activity monitoring and email security products underscore our belief that these are strong fit for our portfolio in 2026. We expect our reps to put significantly more focus on new business and uplifting SaaS customers. Over time, we believe this focus will help us unlock the potential of this market.
Yaki Faitelson: Within our SaaS portfolio, MDR and Copilot continue to show strong adoption trends, and Varonis for cloud environments continued its momentum, which was driven by the investment we have made in our platform to expand our use cases and protect many more data platforms. We are seeing this demand because customers are realizing that visibility alone is not enough, and classification without protection is liability. Automation is necessary to achieve real outcomes. Every conversation with customers on our database activity monitoring and email security products underscore our belief that these are strong fit for our portfolio in 2026. We expect our reps to put significantly more focus on new business and uplifting SaaS customers. Over time, we believe this focus will help us unlock the potential of this market.
We will also continue to report subscription customer account and SAS dollar-based, net retention on an annual basis.
Our intention is to provide you with the tools to understand the various drivers to our business and to illustrate how we believe, our SAS business can continue to grow at very healthy levels in 2026 and Beyond.
In the fourth quarter, sasr was 638.5 million or 86% of total ARR and SAS ARR increased 32%. Year-over-year, when excluding the impact of conversion,
We are proud of our record number of ARR, conversions in Q4, which totaled, approximately 65 million, including the uplift.
We believe that this result was driven by our Lessons, Learned in Q3 and our decision to end of life. Our self-hosted platform.
Yaki Faitelson: Now, I would like to step back from our near-term results and discuss why we believe we are best positioned to help companies safely adapt AI and prevent data breaches. Varonis was founded on the belief that managing and protecting data would be impossible without automation. Over time, our growth has been fueled by the constant balance between productivity and security. Today, the emergence of AI is accelerating both the volume and complexity of data in an unprecedented rate. The scale of data growth is matched only by the AI ability to increase the sophistication of modern cyber threats. Cybercriminals are leveraging AI agents to infiltrate organization with minimal human involvement. Recent incidents, such as Chinese state actors using cloud code to breach major corporations, highlight the sensitivity and ease of these attacks. Most of these AI-powered attacks start with social engineering.
Yaki Faitelson: Now, I would like to step back from our near-term results and discuss why we believe we are best positioned to help companies safely adapt AI and prevent data breaches. Varonis was founded on the belief that managing and protecting data would be impossible without automation. Over time, our growth has been fueled by the constant balance between productivity and security. Today, the emergence of AI is accelerating both the volume and complexity of data in an unprecedented rate. The scale of data growth is matched only by the AI ability to increase the sophistication of modern cyber threats. Cybercriminals are leveraging AI agents to infiltrate organization with minimal human involvement. Recent incidents, such as Chinese state actors using cloud code to breach major corporations, highlight the sensitivity and ease of these attacks. Most of these AI-powered attacks start with social engineering.
At the end of Q4, we had a proximately 105 million of non SAS ARR remaining.
In 2025 ARR from new customers was approximately 80 million dollars.
We ended the year with approximately 6,400 subscription customers which grew 14% year-over-year.
For a dollar-based, net retention rate for SAS customers, was 110% at the end of 2025 to be clear this metric. Only includes customers that were SAS customers in the prior year and therefore is reflective of the organic expansion of ARR within our staff customer base.
we believe that this metric can Trend higher over time as we put more focus on the upsell motion with our SAS customers,
Our renewal rate for the year. Ending December 31st, 2025 continue to be over 90%.
Yaki Faitelson: Attackers aren't hacking computers; they are hacking trust, and users cannot tell what's real or fake anymore. Cybercriminals are using AI without guardrails. Companies want to adopt AI as quickly, but struggle to, due to concerns over data security. The deployment of AI agent raises critical compliance questions. What data does the agent has access to? Is that data is sensitive? Is the agent behaving as expected? Most organizations struggle to answer these questions for human users, and the challenge is amplified as they must now secure exponentially more AI agents. Agents are nothing without data. The more data agents can access, the more useful and more risky they become. They operate faster than humans, collaborate autonomously, and maximize their privilege by design. AI security depends on data security. In addition, companies will need guardrails and controls around their AI agents and toolsets.
Yaki Faitelson: Attackers aren't hacking computers; they are hacking trust, and users cannot tell what's real or fake anymore. Cybercriminals are using AI without guardrails. Companies want to adopt AI as quickly, but struggle to, due to concerns over data security. The deployment of AI agent raises critical compliance questions. What data does the agent has access to? Is that data is sensitive? Is the agent behaving as expected? Most organizations struggle to answer these questions for human users, and the challenge is amplified as they must now secure exponentially more AI agents. Agents are nothing without data. The more data agents can access, the more useful and more risky they become. They operate faster than humans, collaborate autonomously, and maximize their privilege by design. AI security depends on data security. In addition, companies will need guardrails and controls around their AI agents and toolsets.
Now, I'd like to recap our Q4 results in more detail.
In the fourth quarter, ARR was 745.4 Million, increasing 16% year-over-year in 2025. We generated 131.9 million of free cash flow up from 108.5 million in the same period last year. In the fourth quarter, total revenues was 173.4 Million up 9% year-over-year.
That's revenues were at 142.3 million term license subscription, revenues were 21 million, and maintenance and services revenues were 10.1 million.
Moving down to the income statement. I'll be discussing non-gaap results. Going forward, gross profit for the fourth quarter was 138.7 Million representing, a growth margin of 80% compared to 84.4% in the fourth quarter of 2024, our gross margin continues to be healthy and in line with our long-term Target set at our investor day,
Yaki Faitelson: To accelerate our ability to help companies safely adapt AI, Varonis announced today that it has acquired AllTrue.ai, an AI security company. The acquisition strengthens Varonis' ability to protect enterprises from emerging AI risks by combining AllTrue.ai's end-to-end visibility and guardrails for AI tools, with Varonis' ability to protect the underlying data and identities used by AI agents. AllTrue.ai adds end-to-end visibility and control across AI life cycles. It inventories AI components and infrastructure, locks it down, monitors AI tools, and automates compliance. The acquisition reinforced our data-first strategy and extended our platform to secure all AI systems and the data powering them. Our SaaS platform allows for much faster organic innovation and integration of the stack and acquisitions, which enhances our customers' ability to stay ahead of bad actors.
Yaki Faitelson: To accelerate our ability to help companies safely adapt AI, Varonis announced today that it has acquired AllTrue.ai, an AI security company. The acquisition strengthens Varonis' ability to protect enterprises from emerging AI risks by combining AllTrue.ai's end-to-end visibility and guardrails for AI tools, with Varonis' ability to protect the underlying data and identities used by AI agents. AllTrue.ai adds end-to-end visibility and control across AI life cycles. It inventories AI components and infrastructure, locks it down, monitors AI tools, and automates compliance. The acquisition reinforced our data-first strategy and extended our platform to secure all AI systems and the data powering them. Our SaaS platform allows for much faster organic innovation and integration of the stack and acquisitions, which enhances our customers' ability to stay ahead of bad actors.
Operating expenses in the fourth quarter, total 134.1 million as a result fourth quarter, operating income was 4.6 million or an operating margin of 2.6%.
This compares to an operating income of 15.3 million where an operating margin of 9.7% in the same period last year.
Fourth quarter, ARR contribution margin was 15.9% down from 16.6% last year.
If our non SAS business would have renewed at historical levels this year, our contribution margin would have shown a significant Improvement versus 2024.
Total revenues of $722 million to $730 million, representing growth of 16% to 17%.
In 2026, we expect a lower our, our contribution margin and lower free cash flow due to the impact of or the end of life announcement while this announcement negatively impacts 2026, our contribution margin and free cash flow by 30 to 50 million dollars. Based on our guidance, we believe it will allow us to show a healthier Financial profile beginning in 2027 due to the removal of our lower renewal self-hosted customer base.
Non-GAAP operating income of break-even to $4 million.
Yaki Faitelson: Since launching SaaS, we have gone wider and deeper to help our customers stop breaches everywhere, and we can now tap into more budgets than ever, including data and AI security, database activity monitoring, and email security. We have unified unstructured, semi-structured, and structured data security into a single platform, which is essential in an age of AI, because AI uses all data types. When you combine Interceptor, which is our email security offering, with our SaaS platform and MDDR, it becomes a force multiplier, stops threats even faster and keeps threat actors even farther from data. With that, I would like to briefly discuss a couple of key customer wins from Q4.
Yaki Faitelson: Since launching SaaS, we have gone wider and deeper to help our customers stop breaches everywhere, and we can now tap into more budgets than ever, including data and AI security, database activity monitoring, and email security. We have unified unstructured, semi-structured, and structured data security into a single platform, which is essential in an age of AI, because AI uses all data types. When you combine Interceptor, which is our email security offering, with our SaaS platform and MDDR, it becomes a force multiplier, stops threats even faster and keeps threat actors even farther from data. With that, I would like to briefly discuss a couple of key customer wins from Q4.
Non-GAAP net income per diluted share in the range of $0.06 to $0.10. This assumes 134.2 million diluted shares outstanding.
During the quarter, we had Financial income of approximately 9.6 million driven primarily by interesting. Come on our cash deposit and investments in marketable, security.
In summary.
We are continuing to see momentum across our samples. This demand is coming from both new customers and existing SAS customers, looking to secure more of their data footprint with Veyron.
Net income for the fourth quarter of 2025 was 11.1 million or net income of 8 cents per diluted share compared to net income of 23.9 million or net income of 18 cents per diluted. Share to the fourth quarter of 2024. This is based on 1 3 3. 3 3.
We remain focused on executing on the many tailwinds we see ahead. With that, we would be happy to take questions. Operator?
And 135.1 million diluted shares outstanding for Q4 2025, and Q4 2024 respectively.
As of December 31st 2025, we had 1.1 billion in cash, cash, equivalent short-term, deposits and marketable securities.
We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we call for questions.
Yaki Faitelson: We continue to see strong demand from new customers, and one example of this was a healthcare service organization that was performing a risk assessment during a multi-cloud migration, and realized that the native tools were insufficient to lock down their data. As a result, they launched a DSPM RFP process and ultimately chose Varonis after we immediately uncovered several hundred critical misconfigurations, many of which it automatically fixed, also identifying over 900,000 exposed PII records and executive strategy materials. Varonis simplicity, advanced threat detection and unified interface, automatic remediation, were decisive against competitors, and they ultimately purchased Varonis SaaS with MDDR for hybrid environments, Copilot, AWS, Azure, and Google Cloud Platform, also Unix and Linux, as well as Universal Database Connector. In addition to strong new customer momentum, we continue to see existing customers realizing the benefits of SaaS.
Yaki Faitelson: We continue to see strong demand from new customers, and one example of this was a healthcare service organization that was performing a risk assessment during a multi-cloud migration, and realized that the native tools were insufficient to lock down their data. As a result, they launched a DSPM RFP process and ultimately chose Varonis after we immediately uncovered several hundred critical misconfigurations, many of which it automatically fixed, also identifying over 900,000 exposed PII records and executive strategy materials. Varonis simplicity, advanced threat detection and unified interface, automatic remediation, were decisive against competitors, and they ultimately purchased Varonis SaaS with MDDR for hybrid environments, Copilot, AWS, Azure, and Google Cloud Platform, also Unix and Linux, as well as Universal Database Connector. In addition to strong new customer momentum, we continue to see existing customers realizing the benefits of SaaS.
Our first question is from Matthew Hedberg with RBC Capital Markets.
For the 12 months. Ended December 31st 2025, we generated 147.4 million of cash from operations. Compared to 115.2% and capex was 15.5 million compared to 6.7 million in the same period last year.
During the fourth quarter, we repurchased 448,439 shares at an average purchase price of 3345 for a total of 15 million.
I will now briefly recap our full year 2025 results.
Hey guys, thanks for taking my question. Um, you know, thanks for all the additional disclosures. I think it'll be really helpful when we think about the Standalone SAS business uh, on a go forward basis. You know, I think, you know, we're getting some inbound from some investors. And I think some of the confusion is, you know, around kind of the growth rate, assumptions from this year, you're guiding for 18 to 20% SAS Arrow growth, X conversions. Um, yet, you know, if you look at sort of just like your, your exit rate, uh, SAS ARR uh for for 26 relative to kind of like the 745 million that you got that you added ended 25 with. It looks like closer to 10% growth.
Total revenues increased 13% to 623.5 million, our full year, operating margin was negative 0.6% compared to 2.9% for 2024.
turning now to our initial 2026 guidance,
So, you know, I know there's some headwinds to conversions here and some churn assumptions, but maybe you could just help sort of, again, sort of square off the 10% kind of total error in our guide with, you know, how optimistic you are on the SaaS side of the house.
Apart from conversions which we included a wide range to account for a pessimistic and optimistic scenario. Our guidance was set using the same philosophy that we have used historically.
Thanks, Matt, for the question. I think what we had—many conversations with investors throughout the last
As a reminder, our new kpi for this year is SAS ARR growth. Excluding conversions which reflects our ability to add new SAS customers and also expand with existing ones. As this will be the primary growth driver of our business in the years ahead.
Yaki Faitelson: One example was a hospital system of 45,000 employees that originally bought Varonis to remediate overexposure of on-prem HIPAA data. As they began the cloud migration process, they noticed gaps in the ability of native tools to remediate overexposure and label data at scale. During our cloud risk assessment, we discovered over 500,000 instances of HIPAA and PII data open to everyone in the organization. Our ability to identify and remediate this exposure led this customer to convert to Varonis SaaS with MDDR for hybrid environments, Copilot and data lifecycle automation for Windows SaaS.... In summary, we are excited by the performance of our SaaS business, which is being driven by the automated value proposition that we deliver to our customers on top of our scalable architecture.
Yaki Faitelson: One example was a hospital system of 45,000 employees that originally bought Varonis to remediate overexposure of on-prem HIPAA data. As they began the cloud migration process, they noticed gaps in the ability of native tools to remediate overexposure and label data at scale. During our cloud risk assessment, we discovered over 500,000 instances of HIPAA and PII data open to everyone in the organization. Our ability to identify and remediate this exposure led this customer to convert to Varonis SaaS with MDDR for hybrid environments, Copilot and data lifecycle automation for Windows SaaS.... In summary, we are excited by the performance of our SaaS business, which is being driven by the automated value proposition that we deliver to our customers on top of our scalable architecture.
In 2026. We will provide quarterly SAS arriving conversion, guidance. For this year, only we are doing this because of the difficulty, in modeling, the year-over-year growth rates due to the impact of conversions in 2025 and 2026.
Several months. And they've all asked for the SaaS growth ex-conversion to really understand the true growth of the business and really what we want to try and help everyone understand all of this better. So, we're providing today more disclosures around our business to help you understand what drives our business in the present and in the future. Now, the SaaS ARR excluding conversions is really the most important KPI, which we're going to focus on—really on the ability to sign new customers and...
Assumes zero conversions for the upcoming quarter.
Expand existing SAS customers and that's what's going to drive the business in 2026 2027 and Beyond.
For the full year 2026, we will provide annual guidance for both SAS arriving, conversions and total SAS ARR. We have provided a wide range of outcomes for the conversions of our non SAS arrive to staff ARR. Within our guidance framework in order to bridge sass are excluding conversions. The SAS ARR for modeling purposes.
When we sit here today, we feel very good about guiding. This growth rate of 18 to 20%, Which really calls for 120 million dollars of net, new organic SAS ARR versus the 109.5 million that we had in 2025, and that's our starting point. So we're still keeping the same philosophy of guidance. This is our starting point.
We believe this range of conversions. Captures a pessimistic and optimistic scenario.
With a midpoint representing, our base case for 2026.
From a modeling perspective, we have assumed know uplift for these conversions.
Yaki Faitelson: We look forward to continuing our momentum and ending the year as a fully SaaS company, which will unlock many more benefits as we capture our growing market opportunity, and we believe in the path to achieving our 2027 financial targets. With that, let me turn the call over to Guy. Guy?
Yaki Faitelson: We look forward to continuing our momentum and ending the year as a fully SaaS company, which will unlock many more benefits as we capture our growing market opportunity, and we believe in the path to achieving our 2027 financial targets. With that, let me turn the call over to Guy. Guy?
The largest cohort of customers that we don't expect to convert to staff are federal and state government customers.
As a reminder, we expect this to have a 30 to 50 million headwind. The free cash flow and ARR contribution margin in 2026.
South arriving conversion and is a starting point with this um with the same guidance philosophy, we're at 120 million dollars versus 109.5 in 2025.
Guy Melamed: Thanks, Yaki. Good afternoon, everyone. Thank you for joining us today. We are excited by the momentum we are seeing in our SaaS business, which now accounts for the vast majority of our ARR. SaaS is both the present and the future of our business, and the new disclosures we are making today are intended to enable investors to evaluate the progress of both our SaaS business and the end of life of our self-hosted business. We plan to disclose these additional metrics for the duration of 2026, after which we will be 100% SaaS, and we will revert to more traditional metrics. You can find more on this in our investor deck. In 2026, we will provide guidance for SaaS ARR, excluding conversions on a quarterly basis. Specifically, we will report the following on a quarterly basis: 1, SaaS ARR. 2, SaaS ARR, excluding conversion.
Guy Melamed: Thanks, Yaki. Good afternoon, everyone. Thank you for joining us today. We are excited by the momentum we are seeing in our SaaS business, which now accounts for the vast majority of our ARR. SaaS is both the present and the future of our business, and the new disclosures we are making today are intended to enable investors to evaluate the progress of both our SaaS business and the end of life of our self-hosted business. We plan to disclose these additional metrics for the duration of 2026, after which we will be 100% SaaS, and we will revert to more traditional metrics. You can find more on this in our investor deck. In 2026, we will provide guidance for SaaS ARR, excluding conversions on a quarterly basis. Specifically, we will report the following on a quarterly basis: 1, SaaS ARR. 2, SaaS ARR, excluding conversion.
For more information, please see our earnings deck on our investor relation website, which includes a more detailed breakdown of our financial guidance.
In Matthew also believe.
I'm moving to the next one. Thank you.
For the first quarter of 2026, we expect staff ARR growth as 27% to 28%. Excluding conversions.
Alan, next question is from Second Kalia with Barclays.
Total revenues of 164 million to 166 million representing growth of 20 to 22%.
Non-gaap operating loss of -11 million to -10 million and non-gaap net loss per basic and diluted share in the range of 6 cents to 5 cents. This assumes 118 million basic and diluted shares outstanding.
So, the full year 2026. We expect total staff ARR of 85 million to 840 million representing growth of 26 to 32%.
Great. Hey guys, thanks for taking my questions here and, uh, echo echo. The point of earlier, just on, appreciate the additional disclosure, I think it's um, I think it's really helpful and and to your point really focuses on kind of what the future of the business will look like right? That's SAS part. And so for that reason, I just want to dig into that 18 to 20% growth, excluding, conversions guy, maybe the question is for you can we just talk about how much of that you think comes from new customers versus existing? And again SAS is the future but just to make sure we're all squared away. Can you touch on whether there's going to be any remnants of on-prem are at the end of 26 as well?
Guy Melamed: 3, conversions ARR. And 4, non-SaaS ARR to help you understand how much conversion opportunity remains available. On an annual basis, we will disclose and also provide guidance for, 1, SaaS ARR, and 2, SaaS ARR, excluding conversion. We will also continue to report subscription customer accounts and SaaS dollar-based net retention on an annual basis. Our intention is to provide you with the tools to understand the various drivers to our business and to illustrate how we believe our SaaS business can continue to grow at very healthy levels in 2026 and beyond. In Q4, SaaS ARR was $638.5 million, or 86% of total ARR, and SaaS ARR increased 32% year-over-year when excluding the impact of conversion.
Guy Melamed: 3, conversions ARR. And 4, non-SaaS ARR to help you understand how much conversion opportunity remains available. On an annual basis, we will disclose and also provide guidance for, 1, SaaS ARR, and 2, SaaS ARR, excluding conversion. We will also continue to report subscription customer accounts and SaaS dollar-based net retention on an annual basis. Our intention is to provide you with the tools to understand the various drivers to our business and to illustrate how we believe our SaaS business can continue to grow at very healthy levels in 2026 and beyond. In Q4, SaaS ARR was $638.5 million, or 86% of total ARR, and SaaS ARR increased 32% year-over-year when excluding the impact of conversion.
so I'll I'll
This represents SAS our growth of 18%. The 20% excluding conversion.
Free cash flow of 100 million to 105 million.
Total revenues of 722 million to 730, million dollars, representing growth of 16 to 17%.
Non-gaap operating income of Break, Even to 4 million.
Non-gaap net income per diluted share in the range of 6 cents to 10 cents. This assumes, 134.2 million diluted shares outstanding.
In summary, We are continuing to see momentum across our SAS business. This demand is coming from both new customers and existing SAS customers. Looking to secure more of their data footprint, with veronus.
We remain focused on executing on the many Tailwind. We see ahead with that, we would be happy to take questions, operator.
Guy Melamed: We are proud of our record number of ARR conversions in Q4, which totaled approximately $65 million, including the uplift. We believe that this result was driven by our lessons learned in Q3 and our decision to end of life our self-hosted platform. At the end of Q4, we had approximately $105 million of non-SaaS ARR remaining. In 2025, ARR from new customers was approximately $80 million. We ended the year with approximately 6,400 subscription customers, which grew 14% year-over-year. Our dollar-based net retention rate for SaaS customers was 110% at the end of 2025. To be clear, this metric only includes customers that were SaaS customers in the prior year and therefore is reflective of the organic expansion of ARR within our SaaS customer base.
Guy Melamed: We are proud of our record number of ARR conversions in Q4, which totaled approximately $65 million, including the uplift. We believe that this result was driven by our lessons learned in Q3 and our decision to end of life our self-hosted platform. At the end of Q4, we had approximately $105 million of non-SaaS ARR remaining. In 2025, ARR from new customers was approximately $80 million. We ended the year with approximately 6,400 subscription customers, which grew 14% year-over-year. Our dollar-based net retention rate for SaaS customers was 110% at the end of 2025. To be clear, this metric only includes customers that were SaaS customers in the prior year and therefore is reflective of the organic expansion of ARR within our SaaS customer base.
I'll start with the uh the last part part of your question. Our assumption is that we won't have any non SAS ARR at the end of the year. So basically that's ARR at the end of 2026 is going to be equal ARR. But for this year, if you want to focus on what is right for the business, what is driving the business in the present and in the future? The right metrics to look at is SAS ARR, excluding conversion. Now, when you look at the performance in 2025, we had SAS nrr of 110% and we had approximately 18 million dollars of new customers. Um, uh, are when you look at our expectation going forward, we believe that with the fact that rest won't have to focus on the conversions, the way they focused on conversions. In 2025, they can go back to selling to new customers and selling to existing customers, and we have so much more to sell. So
Well, now we conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will be your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment. May be necessary to pick up your handset before pressing the star key.
What moment please while we pull up for questions.
Our expectation. Is that the SAS nrr can can can increase. And obviously, with the offering that we have, we can increase our sales to new customers. So, as a starting point, I'm going back to that 18 to 20%. It's a good starting point, uh, that we feel very confident with where we sit here today and obviously believe that we can, uh, increase that throughout the year.
Our first question is from Matthew Hedberg. With RBC Capital markets,
Our next question is from Brian Essex with JP Morgan.
Guy Melamed: We believe that this metric can trend higher over time as we put more focus on the upsell motion with our SaaS customers. Our renewal rate for the year ending December 31, 2025, continued to be over 90%. Although our renewal activity from our non-SaaS customers was slightly below our historical levels, it was better than what we experienced in Q3. Our renewal rate disclosure going forward will be the SaaS renewal rate. This metric aligns with our new business model and how we view the business. Now, I'd like to recap our Q4 results in more detail. In Q4, ARR was $745.4 million, increasing 16% year-over-year.
Guy Melamed: We believe that this metric can trend higher over time as we put more focus on the upsell motion with our SaaS customers. Our renewal rate for the year ending December 31, 2025, continued to be over 90%. Although our renewal activity from our non-SaaS customers was slightly below our historical levels, it was better than what we experienced in Q3. Our renewal rate disclosure going forward will be the SaaS renewal rate. This metric aligns with our new business model and how we view the business. Now, I'd like to recap our Q4 results in more detail. In Q4, ARR was $745.4 million, increasing 16% year-over-year.
Hi, good afternoon and thank you for taking the question. Thank you for me as well for all the additional color. Um, I guess guy. I wanted to dig in a little bit to, uh, current period results. The 110% net dollar retention, how does that compare with prior periods? And then maybe you can also help us understand how much has co-pilot uh, in, you know, AI driven some of the demand do you have a maybe a
Hey guys, thanks for taking my question. Um you know thanks for all the additional disclosures that it'll be really helpful when we think about the Standalone SAS business uh on a go forward basis. You know, I think, you know, we're getting some inbound from some investors. And I think some of the confusion is, you know, around kind of the growth rate assumptions from this year, your guiding for 18 to 20% sass Arrow growth X conversions. Um, yet, you know, if you look at sort of just like your your exit rate uh sass are uh for for 26 relative to kind of like the 745 million that you got. That you had ended 25 with it looks like closer to 10.
An attached or, uh, an exposure rate you can provide for the SAS business attributable to that, uh, that demand in the quarter. Thank you.
% growth. So, you know, I I know there's some headwinds to conversions here and some churn assumptions, but maybe you could just help sort of like, again, sort of like square off. Like the 10% kind of total our guide with, you know, how optimistic you are on the SAS side of the house.
So, I'll take the first part of the question. When we look at the SAS NRR, you have to remember that this only takes
Thanks, Matt. For the question, I think when we had many conversations with investors throughout the last
Guy Melamed: In 2025, we generated $131.9 million of free cash flow, up from $108.5 million in the same period last year. In Q4, total revenues was $173.4 million, up 9% year-over-year. SaaS revenues were $142.3 million. Firm license subscription revenues were $21 million, and maintenance and services revenues were $10.1 million. Moving down to the income statement, I'll be discussing non-GAAP results going forward. Gross profit for Q4 was $138.7 million, representing a gross margin of 80%, compared to 84.4% in Q4 of 2024.
Guy Melamed: In 2025, we generated $131.9 million of free cash flow, up from $108.5 million in the same period last year. In Q4, total revenues was $173.4 million, up 9% year-over-year. SaaS revenues were $142.3 million. Firm license subscription revenues were $21 million, and maintenance and services revenues were $10.1 million. Moving down to the income statement, I'll be discussing non-GAAP results going forward. Gross profit for Q4 was $138.7 million, representing a gross margin of 80%, compared to 84.4% in Q4 of 2024.
SAS customers last year and Compares what their ARR is a year later. So obviously it's on a much larger base. Um, and it's at 110 and we absolutely think, um, that it was impacted, uh, with some headwind because reps had, it had to focus their time on the conversions. Keep in mind that we had close to 190 million dollars of conversions in 2025 alone. So, that doesn't happen in itself. The refs, had to focus on those conversions. And, and when we think about nrr, when you only take SAS customers and look at the progression, that is actually an indication of how of how
Really on the ability to sign new customers, and expand existing SAS customers and that's what's going to drive the business in 2026 2027 and Beyond.
Guy Melamed: Our gross margin continues to be healthy and in line with our long-term target set at our Investor Day. Operating expenses in Q4 totaled $134.1 million. As a result, Q4 operating income was $4.6 million or an operating margin of 2.6%. This compares to an operating income of $15.3 million, or an operating margin of 9.7% in the same period last year. Q4 ARR contribution margin was 15.9%, down from 16.6% last year. If our non-SaaS business would have renewed at historical levels this year, our contribution margin would have shown a significant improvement versus 2024. In 2026, we expect a lower ARR contribution margin and lower free cash flow due to the impact of the end-of-life announcement.
Guy Melamed: Our gross margin continues to be healthy and in line with our long-term target set at our Investor Day. Operating expenses in Q4 totaled $134.1 million. As a result, Q4 operating income was $4.6 million or an operating margin of 2.6%. This compares to an operating income of $15.3 million, or an operating margin of 9.7% in the same period last year. Q4 ARR contribution margin was 15.9%, down from 16.6% last year. If our non-SaaS business would have renewed at historical levels this year, our contribution margin would have shown a significant improvement versus 2024. In 2026, we expect a lower ARR contribution margin and lower free cash flow due to the impact of the end-of-life announcement.
When we sit here today, we feel very good about guiding. This growth rate of 18 to 20%, Which really calls for 120 million dollars of net, new organic SAS ARR versus the 109.5 million that we had in 2025, and that's our starting point. So we're still keeping the same philosophy of guidance. This is our starting point.
And we know what we need to do in order to continue throughout the year and increase that number going forward. So as a starting point looking at the ARR would be extremely misleading because it takes into account the conversions which are really the rear view mirror of this company. If you want to focus on the present and the future, the right thing to look at is SAS arriving conversion and as a starting point with this, um with the same guidance philosophy, we're at 120 million dollars versus 109.5 and 2025
And me, we also believe.
Okay.
Move to the next 1. Thank you.
Our next question is from second Kalia with Barclays.
Guy Melamed: While this announcement negatively impacts 2026 ARR contribution margin and free cash flow by $30 to 50 million, based on our guidance. We believe it will allow us to show a healthier financial profile beginning in 2027, due to the removal of our lower renewal self-hosted customer base. During the quarter, we had financial income of approximately $9.6 million, driven primarily by interest income on our cash, deposit, and investments in marketable securities. Net income for Q4 2025 was $11.1 million, or net income of $0.08 per diluted share, compared to net income of $23.9 million, or net income of $0.18 per diluted share for Q4 2024.
Guy Melamed: While this announcement negatively impacts 2026 ARR contribution margin and free cash flow by $30 to 50 million, based on our guidance. We believe it will allow us to show a healthier financial profile beginning in 2027, due to the removal of our lower renewal self-hosted customer base. During the quarter, we had financial income of approximately $9.6 million, driven primarily by interest income on our cash, deposit, and investments in marketable securities. Net income for Q4 2025 was $11.1 million, or net income of $0.08 per diluted share, compared to net income of $23.9 million, or net income of $0.18 per diluted share for Q4 2024.
Great. Hey guys, thanks for taking my questions here and, uh, echo echo. The point earlier just on. Appreciate the additional disclosure. I think it's um, I think it's really helpful and, and to your point really focuses on kind of what the future of the business will look like right? That's SAS part. And so for that reason, I just want to dig into that 18 to 20% growth, excluding, conversions guy, maybe the question is for you can we just talk about how much of that you think comes from new customers versus existing? And again SAS is the future but just to make sure we're all squared away. Can you touch on whether there's going to be any remnants of on-prem are at the end of 26 as well?
Guy Melamed: This is based on 133.3 million diluted shares outstanding and 135.1 million diluted shares outstanding for Q4 2025 and Q4 2024, respectively. As of 31 December 2025, we had $1.1 billion in cash, cash equivalents, short-term deposits, and marketable securities. For the twelve months ended 31 December 2025, we generated $147.4 million of cash from operations, compared to $115.2 million generated in the same period last year, and CapEx was $15.5 million compared to $6.7 million in the same period last year. During the fourth quarter, we repurchased 448,439 shares at an average purchase price of $33.45, for a total of $15 million.
Guy Melamed: This is based on 133.3 million diluted shares outstanding and 135.1 million diluted shares outstanding for Q4 2025 and Q4 2024, respectively. As of 31 December 2025, we had $1.1 billion in cash, cash equivalents, short-term deposits, and marketable securities. For the twelve months ended 31 December 2025, we generated $147.4 million of cash from operations, compared to $115.2 million generated in the same period last year, and CapEx was $15.5 million compared to $6.7 million in the same period last year. During the fourth quarter, we repurchased 448,439 shares at an average purchase price of $33.45, for a total of $15 million.
So I'll I'll I'll start with the uh the last part part of your question. Our assumption is that we won't have any non SAS ARR at the end of the year. So basically SAS ARR at the end of 2026 is going to be equal ARR. But for this year if you want to focus on what is right for the business, what is driving the business in the present and in the future? The right metrics to look at is SAS ARR, excluding conversion. Now, when you look at the performance in 2025, we had SAS nrr of 110% and we had approximately 18 million dollars of
Guy Melamed: I will now briefly recap our full year 2025 results. Total revenues increased 13% to $623.5 million. Our full year operating margin was -0.6% compared to 2.9% for 2024. Turning now to our initial 2026 guidance. Apart from conversions, which we included a wide range to account for a pessimistic and optimistic scenario, our guidance was set using the same philosophy that we have used historically. As a reminder, our new KPI for this year is SaaS ARR growth, excluding conversions, which reflects our ability to add new SaaS customers and also expand with existing ones, as this will be the primary growth driver of our business in the years ahead. In 2026, we will provide quarterly SaaS ARR, excluding conversion guidance for this year only.
Guy Melamed: I will now briefly recap our full year 2025 results. Total revenues increased 13% to $623.5 million. Our full year operating margin was -0.6% compared to 2.9% for 2024. Turning now to our initial 2026 guidance. Apart from conversions, which we included a wide range to account for a pessimistic and optimistic scenario, our guidance was set using the same philosophy that we have used historically. As a reminder, our new KPI for this year is SaaS ARR growth, excluding conversions, which reflects our ability to add new SaaS customers and also expand with existing ones, as this will be the primary growth driver of our business in the years ahead. In 2026, we will provide quarterly SaaS ARR, excluding conversion guidance for this year only.
New customers. Um uh our artists when you look at our expectation going forward, we believe that with the fact that rats won't have to focus on the conversions, the way they focused on conversions. In 2025, they can go back to selling to new customers and selling to existing customers, and we have so much more to sell. So, our expectation is that the SAS nrr can can can increase. And obviously, with the offering that we have, we can increase our sales to new customers. So, as a starting point, I'm going back to that 18 to 20%. It's a good starting point, uh, that we feel very confident with where we sit here today and obviously believe that we can, uh, increase that throughout the year.
Our next question is from Brian Essex with JP Morgan?
Hi, good afternoon. Thank you for taking the question. Thank you for me as well for all the additional color. Um, I guess guy. I wanted to dig in a little bit to, uh, current period results. The 110% net dollar retention, how does that compare with prior periods? And then maybe you can also help us understand how much has co-pilot uh, in, you know, AI driven. Some of the demand, you have a, maybe a
Guy Melamed: We are doing this because of the difficulty in modeling the year-over-year growth rates due to the impact of conversions in 2025 and 2026. We will also provide a bridge to quarterly total SaaS ARR in our investor deck, which assumes zero conversions for the upcoming quarter. For the full year 2026, we will provide annual guidance for both SaaS ARR excluding conversions, and total SaaS ARR. We have provided a wide range of outcomes for the conversions of our non-SaaS ARR to SaaS ARR within our guidance framework in order to bridge SaaS ARR excluding conversions to SaaS ARR for modeling purposes. We believe this range of conversions captures a pessimistic and optimistic scenario, with a midpoint representing our base case for 2026. From a modeling perspective, we have assumed no uplift for these conversions.
Guy Melamed: We are doing this because of the difficulty in modeling the year-over-year growth rates due to the impact of conversions in 2025 and 2026. We will also provide a bridge to quarterly total SaaS ARR in our investor deck, which assumes zero conversions for the upcoming quarter. For the full year 2026, we will provide annual guidance for both SaaS ARR excluding conversions, and total SaaS ARR. We have provided a wide range of outcomes for the conversions of our non-SaaS ARR to SaaS ARR within our guidance framework in order to bridge SaaS ARR excluding conversions to SaaS ARR for modeling purposes. We believe this range of conversions captures a pessimistic and optimistic scenario, with a midpoint representing our base case for 2026. From a modeling perspective, we have assumed no uplift for these conversions.
And attached or a uh an an exposure rate, you can provide for the the SAS business attributable to that. Uh, that demand in the quarter. Thank you.
So, I'll take the first part of the question. When, when we look at the SAS nrr, you have to remember that this only takes
Guy Melamed: The largest cohort of customers that we don't expect to convert to SaaS are federal and state government customers. As a reminder, we expect this to have a $30 to 50 million headwind to free cash flow and ARR contribution margin in 2026. For more information, please see our earnings deck on our investor relations website, which includes a more detailed breakdown of our financial guidance. For Q1 2026, we expect SaaS ARR growth of 27% to 28%, excluding conversions, total revenues of $164 million to $166 million, representing growth of 20% to 22%, non-GAAP operating loss of negative $11 million to negative $10 million, and non-GAAP net loss per basic and diluted share in the range of $0.06 to $0.05.
Guy Melamed: The largest cohort of customers that we don't expect to convert to SaaS are federal and state government customers. As a reminder, we expect this to have a $30 to 50 million headwind to free cash flow and ARR contribution margin in 2026. For more information, please see our earnings deck on our investor relations website, which includes a more detailed breakdown of our financial guidance. For Q1 2026, we expect SaaS ARR growth of 27% to 28%, excluding conversions, total revenues of $164 million to $166 million, representing growth of 20% to 22%, non-GAAP operating loss of negative $11 million to negative $10 million, and non-GAAP net loss per basic and diluted share in the range of $0.06 to $0.05.
Customers. And look at the progression, that is actually an indication of how, um, we can grow within our SAS. Customer base going forward, and we actually believe that that number can improve. So again, when you look at kind of the, the mix between existing and new customers, I think that in going forward, as we kind of went through the transition and there's not much of a non- SAS ARR left. The Reps can actually focus on acquiring new customers in a better way, and can actually go back to the base and sell them additional products. Going forward. My co-pilot definitely was, uh, you know, just a big driver, but AI in general is a big driver because you everything that's related to AI. The AI, the these agents are as good as as risky as the data they can access. And definitely they, I left the station and the ability to understand the identity and the data that it can access is everything.
Guy Melamed: This assumes 118 million basic and diluted shares outstanding. For the full year 2026, we expect total SaaS ARR of $805 million to $840 million, representing growth of 26% to 32%. This represents SaaS ARR growth of 18% to 20%, excluding conversions. Free cash flow of $100 million to $105 million. Total revenues of $722 million to $730 million, representing growth of 16% to 17%. Non-GAAP operating income of breakeven to $4 million. Non-GAAP net income per diluted share in the range of $0.06 to $0.10. This assumes 134.2 million diluted shares outstanding. In summary, we are continuing to see momentum across our SaaS business.
Guy Melamed: This assumes 118 million basic and diluted shares outstanding. For the full year 2026, we expect total SaaS ARR of $805 million to $840 million, representing growth of 26% to 32%. This represents SaaS ARR growth of 18% to 20%, excluding conversions. Free cash flow of $100 million to $105 million. Total revenues of $722 million to $730 million, representing growth of 16% to 17%. Non-GAAP operating income of breakeven to $4 million. Non-GAAP net income per diluted share in the range of $0.06 to $0.10. This assumes 134.2 million diluted shares outstanding. In summary, we are continuing to see momentum across our SaaS business.
So it's not just the conversion and co-pilot. The other thing that we saw in the fourth quarter is is just a lot a lot of success with everything that related to other uh Cloud repositories in, you know, AWS and Azure. And also uh the database activity monitoring good pipeline is starting to sell the product and and everything that is happening with
The acquisition of Slash next important to understand that AI not just from the agencies, the big problem but also from Bad actors. So everything that's related to
What we should expect that rate to be if you can, you know, sustain that for next year and then I have a follow-up.
So I I want to focus, I want to focus. Um, the analysts and the investors and what's important. And what's important is SAS, growth X conversion.
Um, we've been asked, um, many times by investors recently to try and break it out and show what would be the growth rate? Because if you think about it, by the end of 2026, there will be the assumption, is that there will be no, no non SAS our list.
Guy Melamed: This demand is coming from both new customers and existing SaaS customers looking to secure more of their data footprint with Varonis. We remain focused on executing on the many tailwinds we see ahead. With that, we would be happy to take questions. Operator?
Guy Melamed: This demand is coming from both new customers and existing SaaS customers looking to secure more of their data footprint with Varonis. We remain focused on executing on the many tailwinds we see ahead. With that, we would be happy to take questions. Operator?
So the question that you're asking actually relates to 2026, only our assumption, for 2026 is that um, um, from a modeling perspective is that the conversions will come in flat.
Compromise to get compromised from trusted sources is something that the Sleek acquisition, the product called Interceptor is doing extremely well. So, definitely, in terms of the platform we hit on all cylinders and also have a very good understanding the core of customers that we explained before that will not go to SAS and with the 86% SAS business. It's uh, you know, just at the end of it and the the SAS apis are extremely strong and we are very, very happy where the platform is and the, how it will perform. And primarily we believe that the whole AI Revolution is a big Tailwind to everything that runs does.
Operator: We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions.
Operator: We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions.Our first question is from Matthew Hedberg with RBC Capital Markets.
Our next question is from Rob Owens with Piper Sandler.
Great, good afternoon. Thanks for taking my question, 1 of the focus, a little bit on on, go to market. And I know there were some changes to the federal team back in Q3 just curious, as you enter the new fiscal year. Uh, any broader changes overall, where you are from a a sales capacity perspective and uh, how you're feeling from a sales maturity perspective, relative to the the folks you have in those seats. Thank you.
Operator: Our first question is from Matthew Hedberg with RBC Capital Markets.
The intention is to break down on a quarterly basis. What is the SAS growth X conversion? So, every single investor can understand what is the business, how the business is performing present and what is the driver for the business going forward that to us the conversions. Um, are obviously an important factor but they're not the driver. They are the rear view mirror that every investor. Obviously we care about getting as many customers over to SAS as we can. But that's not the driver of the business, the driver of the business is SAS arrr, X conversions. And that's why we spent a lot of time in order to break it out and what we hope,
Matthew Hedberg: Hey, guys, thanks for taking my question. You know, I thanks for all the additional disclosures. I think it'll be really helpful when we think about the standalone SaaS business, on a go-forward basis. You know, I think, you know, we're getting some inbound from some investors, and I think some of the confusion is, you know, around kind of the growth rate assumptions from this year. You're guiding for 18% to 20% SaaS ARR growth ex conversions. Yet, you know, if you look at sort of just like your exit rate, SaaS ARR, for 2026 relative to kind of like the $745 million that you ended 2025 with, it looks like closer to 10% growth.
Matthew Hedberg: Hey, guys, thanks for taking my question. You know, I thanks for all the additional disclosures. I think it'll be really helpful when we think about the standalone SaaS business, on a go-forward basis. You know, I think, you know, we're getting some inbound from some investors, and I think some of the confusion is, you know, around kind of the growth rate assumptions from this year. You're guiding for 18% to 20% SaaS ARR growth ex conversions. Yet, you know, if you look at sort of just like your exit rate, SaaS ARR, for 2026 relative to kind of like the $745 million that you ended 2025 with, it looks like closer to 10% growth.
Is a very simplistic way, um, for investors to be able to understand what is the growth rate of SAS ARR X conversion. We gave a range of what the expectation of the conversion is, and remember, at the end of Q3, we got asked every single investor asked us, what is the expectation to get the conversions over? We talked about 180 million approximately 180 million dollars of non SAS ARR that are up for Renewal and we said that about a third of them were up for in all in Q4.
Matthew Hedberg: So, you know, I know there's some headwinds to conversions here and some churn assumptions, but maybe could you just help sort of like, again, sort of like square off, like the 10% kind of total ARR guide with, you know, how optimistic you are on the SaaS side of the house?
Matthew Hedberg: So, you know, I know there's some headwinds to conversions here and some churn assumptions, but maybe could you just help sort of like, again, sort of like square off, like the 10% kind of total ARR guide with, you know, how optimistic you are on the SaaS side of the house?
Guy Melamed: Thanks, Matt, for the question. I think we, we had many conversations with investors throughout the last several months, and they've all asked for the SaaS growth ex conversions to really understand the true growth of the business. And really, what-- we wanna try and help everyone understand all of this better. So we-we're providing today more disclosures around our business to help you understand what drives our business in the present and in the future. Now, the SaaS ARR excluding conversions is really the, the most important KPI, which we're gonna focus really on the ability to sign new customers and expand existing SaaS customers, and that's what's gonna drive the business in 2026, 2027, and beyond.
Guy Melamed: Thanks, Matt, for the question. I think we, we had many conversations with investors throughout the last several months, and they've all asked for the SaaS growth ex conversions to really understand the true growth of the business. And really, what-- we wanna try and help everyone understand all of this better. So we-we're providing today more disclosures around our business to help you understand what drives our business in the present and in the future. Now, the SaaS ARR excluding conversions is really the, the most important KPI, which we're gonna focus really on the ability to sign new customers and expand existing SaaS customers, and that's what's gonna drive the business in 2026, 2027, and beyond.
So there are 2 elements, um, to that question that I want to address 1 is in terms of the Federal Business. Um, we're still focused on on trying to sell. As you remember. Um, our federal business is approximately 5% of total ARR, um, but we still see an opportunity there. Um, we did make some adjustments in terms of our investments there. Um, I will say that the second component that I want to address is the conversion, the non SAS ARR. Um, we're actually baking a good portion of that Federal business, that will not convert. And that's why we gave a range of more of a bare case and an optimistic range, which is a really wide range that 50 million to 75 million that will convert, um, in 2026. So, um, when you look at the element and what is impacting kind of the the conversion number, the assumption that we have had is that uh, many of the the federal and state and government, uh, customers uh might not.
And we were able to get in Q4, including the uplift, approximately $65 million. So the non-SaaS ARR left has come down significantly. It's now approximately $105 million going into 2026. We're giving this range of $50 million to $75 million, but our desire and the way management is focused in terms of the forward-looking health of the business is SaaS ARR, excluding conversions.
Convert. And that was baked in that number. Um, and and the expectation is that we can go and sell, um, to new customers in that Federal space, uh, but some of them will not move to SAS with us. But in terms of the coverage and capacity, you believe we, you know, that the new products now building a good pipeline that will kick in and we can have a, a, we believe that we can have strong productivity gains we have now, these sales motions that
It doesn't critical to understand. This is just a massive expansion we did in the platform. This is what will go the business. This is the new licenses, this is not the—these are not the uplift. It's selling new licenses and adding more value. Covering more data, securing our customers end to end from a data breach, making sure that they can use AI in the right way, making sure that they don't have compliance fines, and doing everything on an architecture with too many—
Guy Melamed: When we sit here today, we feel very good about guiding this growth rate of 18 to 20%, which really calls for $120 million of net new organic SaaS ARR, versus the $109.5 million that we had in 2025. That's our starting point. We're still keeping the same philosophy of guidance. This is our starting point, and we know what we need to do in order to continue throughout the year and increase that number, going forward. As a starting point, looking at the ARR would be extremely misleading because it takes into account the conversions, which are really the rearview mirror of this company.
Guy Melamed: When we sit here today, we feel very good about guiding this growth rate of 18 to 20%, which really calls for $120 million of net new organic SaaS ARR, versus the $109.5 million that we had in 2025. That's our starting point. We're still keeping the same philosophy of guidance. This is our starting point, and we know what we need to do in order to continue throughout the year and increase that number, going forward. As a starting point, looking at the ARR would be extremely misleading because it takes into account the conversions, which are really the rearview mirror of this company.
The scale you need to understand that the amount of data that we need to Crunch in order to provide this value is massive. And this is, this is the whole growth is driven by the just the new licenses.
Our next question is from Jason Adder with William Blair.
Yeah, thanks. Hi, guys. Uh,
Guy, can you help us understand the $30 to $50 million headwind to contribution margin and free cash flow in 2026? I'm not, I'm not sure I quite get that.
Guy Melamed: If you wanna focus on the present and the future, the right thing to look at is SaaS ARR, excluding conversion, and as a starting point with this, with the same guidance philosophy, we're at $120 million versus $109.5 million in 2025.
Guy Melamed: If you wanna focus on the present and the future, the right thing to look at is SaaS ARR, excluding conversion, and as a starting point with this, with the same guidance philosophy, we're at $120 million versus $109.5 million in 2025.
The whole Vision to be end to end in the AI world. So when the we believe and we starting to see that we will see a lot of budgets that are related to the iPhone security and Ai. And we really believe that we can be the foundation for acceleration in adoption of secure AI in within organizations. So we're really happy with where we are. And the way that the pipeline is developing and we think that, you know, in the next few quarters we are going to it's going to Rewards.
Yeah. So I I first of all I I want to say that there's really no change from a philosophy perspective of how we are trying to run the business. Um, we believe the business should grow on the top line in healthy levels, but also generate better margins and more meaningful cash flow over time. I think that's been the way we ran the business uh, for many, many years and there's really no change in the way we're thinking about that uh going forward. We're facing that 30 to 50 million dollar headwind from the end of life announcement in 2026.
All right. Thank you.
Yaki Faitelson: And Matt, we also believe... move to the next one. Thank you.
Yaki Faitelson: And Matt, we also believe... move to the next one. Thank you.
Our next question is from Joshua Tilton with Wolfe research.
Operator: Our next question is from Saket Kalia with Barclays.
Operator: Our next question is from Saket Kalia with Barclays.
Saket Kalia: Great. Hey, guys, thanks for taking my questions here. And I echo the point earlier just on appreciate the additional disclosure. I think it's really helpful. And to your point, really focuses on kind of what the future of the business will look like, right? That SaaS part. And so for that reason, I just wanna dig into that 18 to 20% growth, excluding conversions. Guy, maybe the question is for you. Can we just talk about how much of that you think comes from new customers versus existing? And again, SaaS is the future, but just to make sure we're all squared away, can you touch on whether there's gonna be any remnants of on-prem ARR at the end of 2026 as well?
Saket Kalia: Great. Hey, guys, thanks for taking my questions here. And I echo the point earlier just on appreciate the additional disclosure. I think it's really helpful. And to your point, really focuses on kind of what the future of the business will look like, right? That SaaS part. And so for that reason, I just wanna dig into that 18 to 20% growth, excluding conversions. Guy, maybe the question is for you. Can we just talk about how much of that you think comes from new customers versus existing? And again, SaaS is the future, but just to make sure we're all squared away, can you touch on whether there's gonna be any remnants of on-prem ARR at the end of 2026 as well?
For uh thanks for sneaking me in here. Uh, I have 2 uh 1 of the follow-up. 1 is not uh I'll start with the non follow-up 1 and that's um,
But what's important to note is that 1 um, the announcement of end of life, actually generated a sense of urgency for customers to move. And we did see that in Q4 the second thing, that's important to note that we would have had a headwind from the remaining self-hosted customers, having a lower renewal rate that would have had that would have really massed the strength of our tax business and you can see that in
In the H2 2025 results, and also in the 2026 guidance.
Um, and the third thing to keep in mind is that if we didn't have the end-of-life announcement, that cost of maintaining the same set of customers would have increased exponentially over time.
When we look at kind of the benefits of fast from from converting me on premise, States relative to kind of, you know, the dollars that you lost in on premise business last year, it kind of feels that you the uplift that you were getting was below that 26.25% Blended rate that you've been communicating to us. Is there any way to help us understand like
Guy Melamed: So I'll start with the last part of your question. Our assumption is that we won't have any non-SaaS ARR at the end of the year. So basically, SaaS ARR at the end of 2026 is gonna be equal ARR. So for this year, if you wanna focus on what is right for the business, what is driving the business in the present and in the future, the right metric to look at is SaaS ARR, excluding conversion. Now, when you look at the performance in 2025, we had SaaS NRR of 110%, and we had approximately $80 million of new customers ARR.
Guy Melamed: So I'll start with the last part of your question. Our assumption is that we won't have any non-SaaS ARR at the end of the year. So basically, SaaS ARR at the end of 2026 is gonna be equal ARR. So for this year, if you wanna focus on what is right for the business, what is driving the business in the present and in the future, the right metric to look at is SaaS ARR, excluding conversion. Now, when you look at the performance in 2025, we had SaaS NRR of 110%, and we had approximately $80 million of new customers ARR.
What you are actually getting from a conversion at uplift or what you're getting on uplifted a conversion and you know what we what we should expect that rate to be if you can, you know, sustain that for next year. And then I have a follow-up.
Non SAS, uh, business. But I think we've proven over time, um, our ability to show better margins and cash flow, and we believe in our ability to continue to do that going forward. So, when we think about the 2027 Target,
So I I want to focus, I want to focus, um, the analysts and the investors and what's important. And what's important is SAS, growth X conversions.
We really completed the transition two years ahead of schedule. But as we sit here today, we see a path to achieving the 2027 targets laid out in the investor day. So, um, we feel confident with that.
Our next question is from Shaul Eyal with TD Cowen.
Um, we've been asked, um, many times by investors recently to try and break it out and show what would be the growth rate? Because if you think about it, by the end of 2026, there will be, the assumption, is that there will be no, no, naans sass.
So the question that you're asking actually relates to 2026, only our assumption, for 2026 is that um, um, from a modeling perspective is that the conversions will come in flat.
Guy Melamed: When you look at our expectation going forward, we believe that with the fact that reps won't have to focus on the conversions the way they focused on conversions in 2025, they can go back to selling to new customers and selling to existing customers. And we have so much more to sell. So our expectation is that the SaaS NRR can increase, and obviously, with the offering that we have, we can increase our sales to new customers. So as a starting point, I'm going back to that 18% to 20%. It's a good starting point that we feel very confident in... with where we sit here today, and obviously believe that we can increase that throughout the year.
Guy Melamed: When you look at our expectation going forward, we believe that with the fact that reps won't have to focus on the conversions the way they focused on conversions in 2025, they can go back to selling to new customers and selling to existing customers. And we have so much more to sell. So our expectation is that the SaaS NRR can increase, and obviously, with the offering that we have, we can increase our sales to new customers. So as a starting point, I'm going back to that 18% to 20%. It's a good starting point that we feel very confident in... with where we sit here today, and obviously believe that we can increase that throughout the year.
Thank you. Good afternoon yakiyan, Gaia. Thanks for the new disclosures. Um yeah, can I know you might have touched on that earlier but when I go back to that topic dujour in recent weeks um AI eating software, uh maybe not so much in the security category but definitely we're seeing a guilt by a
Of cyber-related names in recent days.
So, if I have to look at today's um, performance, uh, can you offer us an investors? Uh, your Viewpoint as to whether AI is augmenting security, or whether there's room for concerns based on potential Market disruption, uh, and maybe also just a word about your current relations with Microsoft over the past quarter. Thank you.
The intention is to break down on a quarterly basis. What is the SAS growth X conversion? So, every single investor can understand what is the business, how the business is performing present and what is the driver for the business going forward that to us the conversions. Um, are obviously an important factor but they're not the driver. They are the rear view mirror that every investor. Obviously we care about getting as many customers over to SAS as we can. But that's not the driver of the business, the driver of the business.
Operator: Our next question is from Brian Essex with JP Morgan.
Operator: Our next question is from Brian Essex with JPMorgan.
Brian Essex: Hi, good afternoon. Thank you for taking the question. Thank you for me as well, for all the additional color. I guess, Guy, I wanted to dig in a little bit to current period results, the 110% net dollar retention. How does that compare with prior periods? And then maybe you can also help us understand how much has Copilot, and, you know, AI driven some of the demand. Do you have a, maybe an attach or an exposure rate you can provide for the SaaS business attributable to that demand in the quarter? Thank you.
Brian Essex: Hi, good afternoon. Thank you for taking the question. Thank you for me as well, for all the additional color. I guess, Guy, I wanted to dig in a little bit to current period results, the 110% net dollar retention. How does that compare with prior periods? And then maybe you can also help us understand how much has Copilot, and, you know, AI driven some of the demand. Do you have a, maybe an attach or an exposure rate you can provide for the SaaS business attributable to that demand in the quarter? Thank you.
Yeah, I think that, in terms of the market itself, what we and primarily our Market, they said before, AI is as good as as risky as the data that it can access and you are going to see velocity that we have never seen before and also for Bad actors. The ability just to get in to do, you know everything that's related to the initial thought? To get identity session tokens and so forth is going to grow the ability to build very sophisticated Advanced consistent threats. That don't need to, you know, to call home can talk with local llms and agents talking to agents.
Is SAS, ARX conversions. And that's why we spent a lot of time in order to break it out in what we hope is a very simplistic way. Um, for investors to be able to understand what is the growth rate of SAS ARR X conversions. We gave a range of what the expectation of the conversion is, and remember, at the end of Q3, we got asked every single investor asked us, what is the expectation to get the conversions over? We talked about 180 million approximately 180 million dollars of non SAS ARR that are up for Renewal and we said that about a third of them were up for renewal in Q4.
Guy Melamed: So I'll, I'll take the first part of the question. When, when we look at the SaaS NRR, you have to remember that this only takes SaaS customers last year and compares what their ARR is a year later. So obviously, it's on a much larger base, and it's at 110, and we absolutely think that it was impacted with some headwind because reps hadn't had to focus their time on the conversions. Keep in mind that we had close to $190 million of conversions in 2025 alone. So that doesn't happen in itself.
Guy Melamed: So I'll, I'll take the first part of the question. When, when we look at the SaaS NRR, you have to remember that this only takes SaaS customers last year and compares what their ARR is a year later. So obviously, it's on a much larger base, and it's at 110, and we absolutely think that it was impacted with some headwind because reps hadn't had to focus their time on the conversions. Keep in mind that we had close to $190 million of conversions in 2025 alone. So that doesn't happen in itself.
And also, the the just the human State. I think that definitely AI has tremendous impact on development Cycles, but we believe that still complicated architecture and deep Tech. We need a lot. A lot of expertise and this is what we have and believe that, even in this environment we have
we have a very strong mode, and we also believe that in order for organization to adapt, AI
And we were able to get in Q4 including the uplifts approximately 65 million. So the non SAS ARR left has come down significantly. It's now approximately 105 million dollars going into 2026, we're giving this range of 50 million to 75 million but our desire and the way management is focused in terms of the forward-looking help of the business is SAS ARR. Excluding conversions.
They need to make sure that they understand what the data can access and if it's behaved correctly,
this is the core competency of vanis and you need to do it in a tremendous scale and the second thing show that it needs to do and this related to the
Guy Melamed: The reps had to focus on those conversions, and when we think about NRR, when you only take SaaS customers and look at the progression, that is actually an indication of how we can grow within our SaaS customer base going forward, and we actually believe that that number can improve. So again, when you look at kind of the mix between existing and new customers, I think that in going forward, as we kind of went through the transition and there's not much of a non-SaaS ARR left, the reps can actually focus on acquiring new customers in a better way and can actually go back to the base and sell them additional products going forward.
Guy Melamed: The reps had to focus on those conversions, and when we think about NRR, when you only take SaaS customers and look at the progression, that is actually an indication of how we can grow within our SaaS customer base going forward, and we actually believe that that number can improve. So again, when you look at kind of the mix between existing and new customers, I think that in going forward, as we kind of went through the transition and there's not much of a non-SaaS ARR left, the reps can actually focus on acquiring new customers in a better way and can actually go back to the base and sell them additional products going forward.
All to acquisition is, you need to understand the actual agent of stemming from which tool the intent of what they plan to do and also the pipeline, what data they are going to access.
So in terms of AI all to start from the beginning to make sure, okay, this is the tool. This is the intent.
Massive expansion, we did in the platform. This is what will go the business. Just the the new licenses. This is not. It's the these are not the the uplift. It's selling new licenses and ending more value. Covering more data securing our customers end to end from a data breach, make sure that they can use AI in the right way. Make sure that they don't have a compliance fine and doing everything on an architecture with tremendous scale. You need to understand that the amount of data that we need to Crunch in order to provide this value is massive. And this is, this is the whole growth is driven by the just the new licenses.
Our next question is from Jason ater with William Blair.
Yeah, thanks. Hi, guys. Uh,
Yaki Faitelson: My Copilot definitely was, you know, just a big driver, but AI in general is a big driver because everything that's related to AI, the AI, these agents are as good as, as risky as the data they can access. And definitely, the AI trend left the station, and the ability to understand the identity and the data that it can access is everything. So it's not just the conversion and Copilot. The other thing that we saw in Q4 is just a lot of success with everything that related to other cloud repositories in, you know, AWS and Azure, and also the database activity monitoring. Good pipeline is starting to sell the product and everything that is happening with the acquisition of SlashNext.
Yaki Faitelson: My Copilot definitely was, you know, just a big driver, but AI in general is a big driver because everything that's related to AI, the AI, these agents are as good as, as risky as the data they can access. And definitely, the AI trend left the station, and the ability to understand the identity and the data that it can access is everything. So it's not just the conversion and Copilot. The other thing that we saw in Q4 is just a lot of success with everything that related to other cloud repositories in, you know, AWS and Azure, and also the database activity monitoring. Good pipeline is starting to sell the product and everything that is happening with the acquisition of SlashNext.
Headwind to contribution, margin and free cash flow in 2026. I'm not, I'm not sure. I I clicked at that.
And the pipeline then massive force multiplier with bonus. What is the identity and the data that they can access, and also then back from all to how agents talk to each other. So, you know, maybe an agent can ask another agent—that is, the permission to do something on his behalf—and this is a big issue regarding Microsoft. You know, we have just a lot of synergy with them. And, you know, we're building pipelines together and feel comfortable about the partnership. So we feel comfortable about the partnership, but
The one thing that we are very excited about is just where our
Yeah. So I I first of all I I want to say that there's really no change from a philosophy perspective of how we are trying to run the business. Um, we believe the business should grow on the top line in healthy levels, but also generate better margins and more meaningful cash flow over time. I think that's been the way we ran the business uh, for many, many years and there's really no change in the way we're thinking about that uh, going forward. We're facing that 30 to 50 million headwind from the end of life announcement in 2026.
Where the platform is, if you look at a year ago, you know, starting from a task of starting with Interceptor, with Flaschex taking the database activity market. With the classification, the user behavior analytics with a lot of success on the cloud, the data stores, and these data stores,
Yaki Faitelson: Important to understand that AI, not just from the agent, is a big problem, but also from bad actors. So everything that's related to compromise, to get compromised from trusted sources is something that the SlashNext acquisition, the product called Interceptor, is doing extremely well. So definitely in terms of the platform, we hit on all cylinders and also have a very good understanding the cohort of customers, as we explained before, that will not go to SaaS. And with the 86% SaaS business, it's, you know, just at the end of it, and the SaaS KPIs are extremely strong. And we are very, very happy where the platform is and how it will perform. And primarily, we believe that the whole AI revolution is a big tailwind to everything Varonis does.
Yaki Faitelson: Important to understand that AI, not just from the agent, is a big problem, but also from bad actors. So everything that's related to compromise, to get compromised from trusted sources is something that the SlashNext acquisition, the product called Interceptor, is doing extremely well. So definitely in terms of the platform, we hit on all cylinders and also have a very good understanding the cohort of customers, as we explained before, that will not go to SaaS. And with the 86% SaaS business, it's, you know, just at the end of it, and the SaaS KPIs are extremely strong. And we are very, very happy where the platform is and how it will perform. And primarily, we believe that the whole AI revolution is a big tailwind to everything Varonis does.
Tremendous scale and you know and Veronica is doing a divorce platform. Extremely well there. And now everything that we are doing to the agentki and we combine it with our cost Banks. So we are very excited about the platform is where where the platform is and the, the value that you can provide in the marketplace.
But what's important to note is that 1 um, the announcement of end of life, actually generated a sense of urgency for customers to move. And we did see that in Q4. The second thing that important to note that we would have had a headwind from the remaining self-hosted customers, having a lower renewal rate that would have had, that would have really massed the strength of our SAS business and you can see that in the H2 2025 results and also in the 2026 guidance
Our next question is from meta Marshall with Morgan Stanley.
Um, and the third thing to keep in mind is that if we didn't have the end of life announcement, that cost of M of maintaining the same set of customers would have increased exponentially over time.
Database activity monitoring or, you know, the acquisition that you just announced. Like what do you see as the biggest driver of upsells uh over the next year? Thanks.
So, when we look at this 30 to 50 million headwind, that's really with a lower expected renewal rate for the non SAS, uh, business. But I think we've proven over time, um, our ability to show better margins and cash flow and we believe in our ability to continue to do that going forward. So, when we think about the 2027 targets,
Operator: Our next question is from Rob Owens with Piper Sandler.
Operator: Our next question is from Rob Owens with Piper Sandler.
Rob Owens: Great. Good afternoon, thanks for taking my question. Wanted to focus a little bit on, on go-to-market. I know there were some changes to the federal team back in Q3. Just curious, as you enter the new fiscal year, any broader changes overall, where you are from a, a sales capacity perspective, and, how you're feeling from a sales maturity perspective relative to the, the folks you have in those seats? Thank you.
Rob Owens: Great. Good afternoon, thanks for taking my question. Wanted to focus a little bit on, on go-to-market. I know there were some changes to the federal team back in Q3. Just curious, as you enter the new fiscal year, any broader changes overall, where you are from a, a sales capacity perspective, and, how you're feeling from a sales maturity perspective relative to the, the folks you have in those seats? Thank you.
I think that all of them, I think that all of them, and it's also, you know, we created this data security market. And now, it was a very natural expansion to go to other places. So, you know, the database activity monitoring is, you know, a big market with just incumbents that we can replace.
we we we really completed the transition 2 years ahead of schedule. But as we sit here today, we see a path to achieving the 2027 targets laid out in the investor day. So, um, we feel confident with that,
Everything that related to social engineering, and business email compromise. So, this is a
Our next question is from Shaw eel with TD Cowen.
Guy Melamed: So, there are two elements to that question that I wanna address. One is in terms of the federal business, we're still focused on trying to sell. As you remember, our federal business is approximately 5% of total ARR, but we still see an opportunity there. We did make some adjustments in terms of our investments there. I will say that the second component that I wanna address is the conversion. The non-SaaS ARR, we're actually baking a good portion of that federal business that will not convert, and that's why we gave a range of more of a bear case, and an optimistic range, which is a really wide range, that $50 million to $75 million that will convert, in 2026.
Guy Melamed: So, there are two elements to that question that I wanna address. One is in terms of the federal business, we're still focused on trying to sell. As you remember, our federal business is approximately 5% of total ARR, but we still see an opportunity there. We did make some adjustments in terms of our investments there. I will say that the second component that I wanna address is the conversion. The non-SaaS ARR, we're actually baking a good portion of that federal business that will not convert, and that's why we gave a range of more of a bear case, and an optimistic range, which is a really wide range, that $50 million to $75 million that will convert, in 2026.
Type of product that every organization need and will attack. So starting today, and we believe that in terms of multimodality the problem, starting with trusted sources and we have the best solution for that and every organization in this age trying to use AI.
Thank you. Good afternoon yakiyan, Gaia. Thanks for the new disclosures. Um yeah. Okay, I know you might have touched on that earlier but when I go back to that topic dujour in recent weeks um AI eating software, uh maybe not so much in the security category but definitely we're seeing a guilt by a
Of cyber related names in recent days.
In order to survive and thrive and with all to together, with what we have, is a big Force multiplier. So we, we really excited about everything and we also excited about everything is integrated with everything else.
Great. Thank you.
Our next question is from Roger Boyd.
Suffice to look at today's um performance. Uh, can you offer us any investors, uh, your Viewpoint as to whether AI is augmenting security, or whether there's room for concerns based on potential Market disruption? Uh, and maybe also just a word about your current relations with Microsoft over the past quarter.
Thank you.
Guy Melamed: So, when you look at the element and what is impacting kind of the conversion number, the assumption that we have had is that many of the federal and state and government customers might not convert, and that was baked in that number. And the expectation is that we can go and sell to new customers in that federal space, but some of them will not move to SaaS with us.
Guy Melamed: So, when you look at the element and what is impacting kind of the conversion number, the assumption that we have had is that many of the federal and state and government customers might not convert, and that was baked in that number. And the expectation is that we can go and sell to new customers in that federal space, but some of them will not move to SaaS with us.
Oh great, thanks for the question guy. I know this is not the focus Point going forward, but I wonder if you could just unpack that the rebound you saw in Fork you conversion rates and um, as as you look forward, um, I think you said 105 million of remaining on premise software with the expectation that 50 to 75 million of of that converts with zero uplift. When I back out fed and sled my gut reaction is, that's a pretty optimistic view on, on conversions going forward. So maybe just talk about kind of your confidence over the remaining commercial, customer base there and in terms of timing, just any sense of how quickly you get in front of this, or if you expect it to be, maybe more back half weighted, thanks.
Yeah, I think that in terms of the market itself, what we and primarily our Market, as I said before, AI is as good as as risky as the data that it can access. And you are going to see velocity that we have never seen before and also for Bad actors. The ability just to get in to do, you know everything that's related to the initial 4? To get identity session tokens. And so forth is going to grow the ability to build very sophisticated advanced persistent threats. That don't need to, you know, to call home can talk with local llms and agents talking to agents.
Yaki Faitelson: But in terms of the coverage and capacity, we believe we, you know, that the new products now building a good pipeline, and that will kick in and we can have, we believe that we can have strong productivity gains. We have now the sales motions that are touching to, you know, the budget and everything that's related to social engineering and business email compromise, in the email space. And we have some other in the API and the browser extension, very good assets there. Database activity monitoring, you know, just most of the install base of the incumbents wants to replace them, and this is another one for us. Everything, the expansion of the data security, including the MDDR, and now, the AllTrue acquisition, that really just finalizing the whole vision to be end-to-end, in the AI world.
Yaki Faitelson: But in terms of the coverage and capacity, we believe we, you know, that the new products now building a good pipeline, and that will kick in and we can have, we believe that we can have strong productivity gains. We have now the sales motions that are touching to, you know, the budget and everything that's related to social engineering and business email compromise, in the email space. And we have some other in the API and the browser extension, very good assets there. Database activity monitoring, you know, just most of the install base of the incumbents wants to replace them, and this is another one for us. Everything, the expansion of the data security, including the MDDR, and now, the AllTrue acquisition, that really just finalizing the whole vision to be end-to-end, in the AI world.
And also, the the just the human mistake. I think that definitely AI has tremendous impact on development Cycles, but we believe that still complicated architecture and deep Tech. We need a lot. A lot of expertise and this is what we have and believe that even in this environment we have, we have a very strong mode. And we also believe that in order for organization to adapt, AI
But let's start with the fact that we, um, converted in Q4 approximately 65 million dollars. That's a really large number, you can see that in comparison to any of the other quarters. It's, it's 50% higher than Q2. It's, it's close to 60% higher than Q3. I think part of it was absolutely driven by the fact that we had the end of life announcement that generated a sense of urgency with our customers and actually helped us uh get customers to convert in terms of 2026. We put a bare case and an optimistic case and that those are the 2 ranges. I would say that in terms of guiding,
they need to make sure that they understand what it the data it can access and if it's behaved correctly,
this is the core competency of 1 is and you need to do it in a tremendous scale and the second thing show that it needs to do and this related to the
Yaki Faitelson: So when we believe, and we're starting to see that, we will see a lot of budgets that are related to AI from security and AI, and we really believe that we can be the foundation for acceleration and adoption of secure AI within organizations. So we're really happy with where we are and the way that the pipeline is developing, and we think that, you know, in the next few quarters, we are going to reward us.
Yaki Faitelson: So when we believe, and we're starting to see that, we will see a lot of budgets that are related to AI from security and AI, and we really believe that we can be the foundation for acceleration and adoption of secure AI within organizations. So we're really happy with where we are and the way that the pipeline is developing, and we think that, you know, in the next few quarters, we are going to reward us.
Um, the 50 to 75, um, is not expected to to our expectation. Is to be within that range. Our base case is, is kind of that midpoint. We do expect some of the customers from the federal and state governments to convert. So it's not like we're riding off every single customer, but I would say that the focus
All to acquisition is you need to understand the actual agents of stemming from which tools the intent of what they plan to do, and also the pipeline, what data they are going to access.
Rob Owens: All right. Thank you.
Rob Owens: All right. Thank you.
Operator: Our next question is from Joshua Tilton with Wolfe Research.
Operator: Our next question is from Joshua Tilton with Wolfe Research.
Joshua Tilton: ... Thanks for, thanks for sneaking me in here. I have two, one is a follow-up, one is not. I'll start with the non-follow-up one, and that's when we look at kind of the benefit to SaaS from converting the on-premise base relative to kinda, you know, the dollars that you lost in on-premise business last year, it kind of feels that you, the uplift that you were getting was below that 26, 25-ish percent blended rate that you've been communicating to us. Is there any way to help us understand, like, what you are actually getting from a conversion at uplift, or what you're getting on uplift at a conversion? And, you know, what we should expect that rate to be, if you can, you know, sustain that for next year. And then I have a follow-up.
Joshua Tilton: Thanks for, thanks for sneaking me in here. I have two, one is a follow-up, one is not. I'll start with the non-follow-up one, and that's when we look at kind of the benefit to SaaS from converting the on-premise base relative to kinda, you know, the dollars that you lost in on-premise business last year, it kind of feels that you, the uplift that you were getting was below that 26, 25-ish percent blended rate that you've been communicating to us. Is there any way to help us understand, like, what you are actually getting from a conversion at uplift, or what you're getting on uplift at a conversion? And, you know, what we should expect that rate to be, if you can, you know, sustain that for next year. And then I have a follow-up.
Agent can ask another agent. That is the permission to do something on his behalf and this is a big issue regarding Microsoft. You know, we have just a lot of synergy with them. And, you know, we're building pipeline together and feel comfortable about about the partnership. So we feel comfortable about the partnership but
From, uh, from, uh, um, kind of a perspective of, of a vertical that will, um, that would convert at lower rates, um, it is that Federal business, but it's not an expectation that none of them will convert, so we feel very good with that 50 to 75 range. And as you can see, that range is wide because there are a lot of uncertainties, but we do feel confident with that range itself. So, uh, our base case scenario is that midpoint, and I think we can do a really good job of getting those customers over. Keep in mind, we got questions about the $180 million of non-SaaS ARR at the end of Q3, and so many of the investors wanted to get a number and wanted to get a range, and many of the investors that we talked to had an expectation that we won't get any, which we thought wasn't reasonable either. So, um, I think when you look at the actual performance of Q4, the fact that we were able to convert such a large portion...
The 1 thing that we are very excited about is just where our when the platform is, if you look at the year ago, you know, starting from we have a tax of starting with Interceptor, with flesh, necks taking the database activity market. With the classification, the user Behavior analytics with a lot of success. On the cloud, the data stores and these data stores have tremendous scale and you know, and veronics is doing the wrong platform. Extremely well there. And now everything that we are doing to the agentki and we combine it with our cost strength. So we are very excited about the platform is where where the platform is and the, the value that it can provide in the marketplace.
Guy Melamed: So I wanna focus the analysts and the investors on what's important. And what's important is SaaS growth ex conversions. We've been asked many times by investors recently to try and break it out and show what would be the growth rate, because if you think about it, by the end of 2026, there will be... The assumption is that there will be no non-SaaS ARR left. So the question that you're asking actually relates to 2026 only. Our assumption for 2026 is that, from a modeling perspective, the conversions will come in flat.
Guy Melamed: So I wanna focus the analysts and the investors on what's important. And what's important is SaaS growth ex conversions. We've been asked many times by investors recently to try and break it out and show what would be the growth rate, because if you think about it, by the end of 2026, there will be... The assumption is that there will be no non-SaaS ARR left. So the question that you're asking actually relates to 2026 only. Our assumption for 2026 is that, from a modeling perspective, the conversions will come in flat.
Our next question is from meta Marshall with Morgan Stanley.
Um, had to do with the end of life announcement and the urgency that that generated within our customer base and the expectation for 2026 is within those ranges of 50 to 75. It's also critical to understand the in most other companies that they are doing these SAS transition. There is not a big discrepancy in features between the on-prem and uh, the cloud for us. It's something that is completely different in our Cloud moving extremely fast and we integrate the new acquisitions there. And these customers, the guys said, it's Federal customers and some just the local government customers and some customers that hesitation and don't want to go to start.
Great, thanks. Um maybe building on that last uh answer that you gave just as you guys, look at products that you can now with more focus on kind of the the core SAS business. Whether it's MDR identity protection or database activity monitoring or you know the acquisition that you just announced. Like what do you see as the biggest driver of upsells uh over the next year? Thanks.
Guy Melamed: The intention is to break down on a quarterly basis, what is the SaaS growth ex conversion, so every single investor can understand what is the business how the business is performing present, and what is the driver for the business going forward. To us, the conversions are obviously an important factor, but they're not the driver. They are the rear view mirror that every investor, obviously, we care about getting as many customers over to SaaS as we can, but that's not the driver of the business. The driver of the business is SaaS ARR ex conversions, and that's why we spent a lot of time in order to break it out in what we hope is a very simplistic way, for investors to be able to understand what is the growth rate of SaaS ARR ex conversions.
Guy Melamed: The intention is to break down on a quarterly basis, what is the SaaS growth ex conversion, so every single investor can understand what is the business how the business is performing present, and what is the driver for the business going forward. To us, the conversions are obviously an important factor, but they're not the driver. They are the rear view mirror that every investor, obviously, we care about getting as many customers over to SaaS as we can, but that's not the driver of the business. The driver of the business is SaaS ARR ex conversions, and that's why we spent a lot of time in order to break it out in what we hope is a very simplistic way, for investors to be able to understand what is the growth rate of SaaS ARR ex conversions.
I think that all of them, I think that all of them and it's also, you know, we created these data security market. And now, it was very natural expansion to go to other places. So you know, the database activity monitoring is, you know, big Market with just incumbents that we can replace
Everything that related to social engineering and business email compromise. Know this is a
We believe that we can get to the 2027 goals with a, a these customers that will not convert to the 2027 goals that we outlined in the in in the in investor dates. Very important to understand that it's just it's something that is completely different. And not only that with the way that we move and release features and the SAS platform works, the discrepancy is going and going and what will happen is that you will have small Court of customers that will take this, a lot of operational resources to do something that is just not relevant. So this is what you see from us. We just, you know, we are now 86%, you know, there and we just want to be 100% there and make sure that we, you know, we have this SAS platforms with
Type of product that every organization need and will attack. So, starting today, and we believe that, in terms of multimodality the problem, starting with trusted sources, and we have the best solution for that and if the organization in this stage, trying to use AI,
High quality SAS matrixes. And this is where we invest and this is how we move forward and we just want to make sure that, you know, the last leg of convergence anybody that we can convert will convert and fight for it, but folks, but not go to the cloud. We need to end the flight.
in order to survive inside, and with all through together, with what we have is, uh,
And partway with them.
Guy Melamed: We gave a range of what the expectation of the conversion is, and remember, at the end of Q3, we got asked, every single investor asked us, "What is the expectation to get the conversions over?" We talked about $180 million, approximately $180 million of non-SaaS ARR that are up for renewal, and we said that about a third of them were up for renewal in Q4. We were able to get in Q4, including the uplift, approximately $65 million. So the non-SaaS ARR left has come down significantly. It's now approximately $105 million going into 2026. We're giving this range of $50 million to $75 million, but our desire and the way management is focused in terms of the forward-looking health of the business, is SaaS ARR excluding conversions.
Guy Melamed: We gave a range of what the expectation of the conversion is, and remember, at the end of Q3, we got asked, every single investor asked us, "What is the expectation to get the conversions over?" We talked about $180 million, approximately $180 million of non-SaaS ARR that are up for renewal, and we said that about a third of them were up for renewal in Q4. We were able to get in Q4, including the uplift, approximately $65 million. So the non-SaaS ARR left has come down significantly. It's now approximately $105 million going into 2026. We're giving this range of $50 million to $75 million, but our desire and the way management is focused in terms of the forward-looking health of the business, is SaaS ARR excluding conversions.
Our next question is from Fatima, bulani with City.
Big Force multiplier. So we, we really excited about everything and we also excited about everything is integrated with everything else.
Great. Thank you.
All right. Next question is from Roger Boyd.
Oh great, thanks for the question guy. I know this is not the focus Point going forward, but I wonder if you could just unpack the the rebound you saw in in Fork you conversion rate. And um, as as you look forward, um, I think you said 105 million of remaining on premise software with the expectation that 50 to 75 million of of that converts with, with zero uplift. When I back out fed and sled my gut reaction is, that's a pretty optimistic view on, on conversions going forward. So maybe just talk about kind of your confidence over the remaining commercial, customer base there and in terms of um, timing just any sense of how quickly you get in front of this, or if you expect it to be, maybe more back half weighted, thanks.
Yaki Faitelson: It's also critical to understand that just the massive expansion we did in the platform, this is what will grow the business, the new licenses. This is not the uplift. It's selling new licenses and adding more value, covering more data, securing our customers end-to-end from a data breach, make sure that they can use AI in the right way, make sure that they don't have a compliance fine, and doing everything on an architecture with tremendous scale. You need to understand that the amount of data that we need to crunch in order to provide this value is massive, and this is the whole growth is driven by just the new licenses.
Yaki Faitelson: It's also critical to understand that just the massive expansion we did in the platform, this is what will grow the business, the new licenses. This is not the uplift. It's selling new licenses and adding more value, covering more data, securing our customers end-to-end from a data breach, make sure that they can use AI in the right way, make sure that they don't have a compliance fine, and doing everything on an architecture with tremendous scale. You need to understand that the amount of data that we need to crunch in order to provide this value is massive, and this is the whole growth is driven by just the new licenses.
Oh, good afternoon, thank you for taking my question. Um guy, I wanted to just zero in On The Backs and free cash flow expectations. Uh, you've been very clear about a number of different factors that is impacting that trajectory but I was hoping you could sort of recrystallize, some of what you shared with respect to the end of life headwind. Um, you know, the our contribution compression as it relates to some of the non-renewal assumptions, uh, as well as, uh, maybe some organic Investments that you are making in, uh, growing your sales capacity and then also, in the context of the ultra acquisition. So hoping you can stack rank the level of impact uh, from an operating expense and free cash flow headwind. Uh, perspective between the organic inputs, and in organic inputs, uh, especially kind of giving the number of Acquisitions that you're absorbing into the cost base. Thank you.
So, let's start with the fact that we, um, converted in Q4 approximately 65 million dollars. That's a really large number, you can see that in comparison to any of the other quarters. It's, it's 50% higher than Q2. It's, it's close to 60% higher than Q3. I think part of it was absolutely driven by the fact that we had the end of life announcement.
Absolutely, I'll start by the fact that when you look at the free cash flow progression, I think we've done a good job of increasing kind of the free cash flow number over the last couple of years. And when you look at the ARR contribution margin, we've actually increased it to levels that are just below the 2027 model that we laid out in our 2023 investor day. So I think, from a, from a profitability perspective, we have proven to investors.
Operator: Our next question is from Jason Ader with William Blair.
Operator: Our next question is from Jason Ader with William Blair.
Jason Ader: Yeah, thanks. Hi, guys. Guy, can you help us understand the $30 to 50 million headwind to contribution margin and free cash flow in 2026? I'm not sure I quite get that.
Jason Ader: Yeah, thanks. Hi, guys. Guy, can you help us understand the $30 to 50 million headwind to contribution margin and free cash flow in 2026? I'm not sure I quite get that.
Guy Melamed: Yeah. So, first of all, I wanna say that there's really no change from a philosophy perspective of how we are trying to run the business. We believe the business should grow on the top line in healthy levels, but also generate better margins and more meaningful cash flow over time. I think that's been the way we ran the business for many, many years, and there's really no change in the way we're thinking about that going forward. We're facing that $30 to 50 million headwind from the end-of-life announcement in 2026, but what's important to note is that, one, the announcement of end of life actually generated a sense of urgency for customers to move, and we did see that in Q4.
Guy Melamed: Yeah. So, first of all, I wanna say that there's really no change from a philosophy perspective of how we are trying to run the business. We believe the business should grow on the top line in healthy levels, but also generate better margins and more meaningful cash flow over time. I think that's been the way we ran the business for many, many years, and there's really no change in the way we're thinking about that going forward. We're facing that $30 to 50 million headwind from the end-of-life announcement in 2026, but what's important to note is that, one, the announcement of end of life actually generated a sense of urgency for customers to move, and we did see that in Q4.
That generated a sense of urgency with our customers and actually helped us uh get customers to convert in terms of 2026. We put a bare case and an optimistic case and that those are the 2 ranges. I would say that in terms of guidance, um, the 50 to 75, um, is not expected to to our expectation is to be within that range. Our base case is, is kind of that midpoint. We do expect some of the customers from the federal and state governments to convert. So it's not like we're riding off every single customer, but I would say that the focus
That we have the path and and we know how to improve and increase the Top Line growth with the with uh, bringing some of it to the bottom line. Um, when you look at the 2026 numbers. And especially, when you look at some of the, um, lower renewal rates for the non-s SAS business, um, that have been below our historical levels, obviously, when you think about renewals, they go directly to the bottom line, that's, that's your pure profitability component, um, and they are way more profitable than the acquisition of new customers that have a higher cost. So when you think about kind of the uh non-s SAS um ARR that is not going to renew um, that obviously has that uh headwind and we talked about the 30-50 million dollars of Edwin from that end of life announcement. But I think what's important to note is that if we didn't call that end of life, um, the impact would have been much higher so,
Guy Melamed: The second thing that's important to note, that we would have had a headwind from the remaining self-hosted customers having a lower renewal rate, that would have really masked the strength of our SaaS business, and you can see that in the H2 2025 results and also in the 2026 guidance. And the third thing to keep in mind is that if we didn't have the end-of-life announcement, that cost of maintaining the same set of customers would have increased exponentially over time. So when we look at this $30 to 50 million headwind, that's really with a lower expected renewal rate for the non-SaaS business. But I think we've proven over time our ability to show better margins and cash flow, and we believe in our ability to continue to do that going forward.
Guy Melamed: The second thing that's important to note, that we would have had a headwind from the remaining self-hosted customers having a lower renewal rate, that would have really masked the strength of our SaaS business, and you can see that in the H2 2025 results and also in the 2026 guidance. And the third thing to keep in mind is that if we didn't have the end-of-life announcement, that cost of maintaining the same set of customers would have increased exponentially over time. So when we look at this $30 to 50 million headwind, that's really with a lower expected renewal rate for the non-SaaS business. But I think we've proven over time our ability to show better margins and cash flow, and we believe in our ability to continue to do that going forward.
So if I have to break down um kind of that headwind, I would say that um, for the most part, it relates to the lower renewal rate for that non SAS business, obviously the Acquisitions, um, have a, a, a cost. And when you think about the guidance, we didn't bake in any upside from those from those Acquisitions. We saw very good momentum in Q4 with, uh, Interceptor. Um, but we need to see how that progresses from
Do feel confident with that range itself. So uh our base case scenario is that midpoint and I think we can do a really good job of getting those customers over. Keep in mind, we got questions about the 180 million dollars of non SAS. Um, ARR at the end of Q3. And so many of the investors wanted to get a number and wanted to get a range and many of the investors that we talked to had an expectation that we won't get any, which we thought wasn't reasonable either. So, um, I think when you look at the actual performance of Q4 the fact that we were able to convert such a large portion, um, had to do with the end of life announcement, and the urgency that that generated within our customer base and the expectation for 2026 is within those ranges of 50 to 75. It's also critical to understand the in most other companies that they are doing these SAS transition, there is not a big discrepancy in features between the on-prem and
Guy Melamed: So when we think about the 2027 targets, we're really completed the transition 2 years ahead of schedule, but as we sit here today, we see a path to achieving the 2027 targets laid out in the Investor Day. So we feel confident with that.
Guy Melamed: So when we think about the 2027 targets, we're really completed the transition 2 years ahead of schedule, but as we sit here today, we see a path to achieving the 2027 targets laid out in the Investor Day. So we feel confident with that.
Uh, the cloud for us, it's something that is completely different in our Cloud moving extremely fast and we integrate the new acquisitions there. And these customers, these guys said it's Federal customers and some just the local government customers and some customers that hesitation and don't want to go to South
2026. So I think there's upside there for us, um, and the acquisition that we announced today, um, we feel good about our ability to capitalize on that as well. Um, so from an expense perspective, um, we baked in those expenses as part of that guidance, obviously. Um, we didn't fully bake in any real upside for 2026, and we do believe that we can get there. So, um, if you had to break down that headwind, I would say that for the most part it comes from the renewals, but obviously some of it is from the acquisitions themselves.
Our next question is from Mike Picos with needam.
Operator: Our next question is from Shaul Eyal with TD Cowen.
Operator: Our next question is from Shaul Eyal with TD Cowen.
Shaul Eyal: Thank you. Good afternoon, Yaki and Guy, thanks for the new disclosures. Yaki, I know you might have touched on that earlier, but wanna go back to that topic du jour in recent weeks, AI eating software. Maybe not so much in the security category, but definitely we're seeing a guilt by association of cyber-related names in recent days, suffice to look at today's performance. Can you offer us and investors your viewpoint as to whether AI is augmenting security, or whether there's room for concerns based on potential market disruption? And maybe also just a word about your current relations with Microsoft over the past quarter. Thank you.
Shaul Eyal: Thank you. Good afternoon, Yaki and Guy, thanks for the new disclosures. Yaki, I know you might have touched on that earlier, but wanna go back to that topic du jour in recent weeks, AI eating software. Maybe not so much in the security category, but definitely we're seeing a guilt by association of cyber-related names in recent days, suffice to look at today's performance. Can you offer us and investors your viewpoint as to whether AI is augmenting security, or whether there's room for concerns based on potential market disruption? And maybe also just a word about your current relations with Microsoft over the past quarter. Thank you.
Great. Thanks for taking the questions here, guys. Just to be perfectly clear on the M&A assumptions: so you're not assuming any revenue or ARR contribution from Syro or SlashNext, even though both those products launched so last year?
And then I guess the follow-up, given some of the changes that were announced following Q3 with the 5% headcount reduction and the downsized Federal team, can you just help us think about your go-to-market organization today? What is the typical tenure of your sales rep, or have there been any changes to incentives as we enter the new year?
Thank you.
Uh, just uh, it's it's it's a huge, huge difference. And then when you have this growth business, that is strong and profitable. And this guy said, you know, we believe that we can get to the 2027 goals with a a this customers that will not convert to the 2027 goals that we outlined in the in in in the in investor dates. Very important to understand that it's just it's something that is completely different. And not only that with the way that we move and release features and the S platform work. The discrepancy is going and going and what will happen is that you will have small cord of customers that will take just a lot of operational resources to do something that is just not relevant. So this is what you see from us. We just you know, we are now 86%, you know, there and we just want to be 100% there and make sure that we, you know, we have this sass platforms with
Yaki Faitelson: Yeah, I think that in terms of the market itself, and primarily our market, as I said before, AI is as good or as risky as the data that it can access, and you are going to see velocity that we have never seen before. And also for bad actors, the ability just to get in to do, you know, everything that's related to the initial fraud, to get identity, session tokens, and so forth, is going to grow. The ability to build very sophisticated, advanced, persistent threats that don't need to, you know, to call home, can talk with local LLMs and agents talking to agents. And also just the human mistakes.
Yaki Faitelson: Yeah, I think that in terms of the market itself, and primarily our market, as I said before, AI is as good or as risky as the data that it can access, and you are going to see velocity that we have never seen before. And also for bad actors, the ability just to get in to do, you know, everything that's related to the initial fraud, to get identity, session tokens, and so forth, is going to grow. The ability to build very sophisticated, advanced, persistent threats that don't need to, you know, to call home, can talk with local LLMs and agents talking to agents. And also just the human mistakes.
High quality SASS matrixes. And this is where we invest and this is how we move forward and we just want to make sure that you know, the last leg of convergence anybody that we can convert will convert and fight for it, but Focus does not go to the cloud. We need to end the class.
And pathways.
Our next question is from Fatima, bulani with City.
Absolutely. So yeah, when you when you think about kind of the, the assumptions that that we had for guidance for 2026, um, we didn't bake in any real um, Topline contribution from from any of the Acquisitions. That doesn't mean that we don't think we can generate activity and and, and, uh, Topline growth from them. But our starting point um, assumed um, a real modest contribution from them, um, and nothing major. But we do feel that there's there's a path there and and we're seeing good momentum in conversation with customers. Keep in mind, the Interceptor acquisition, um, only closed in September. So, um, it's a, it's a really short Runway when we sit here today, um, um, for our company that didn't have any material, um, ARR but we definitely see, um, significant
Opportunity going forward.
Yaki Faitelson: I think that definitely AI has tremendous impact on development cycles, but we believe that still complicated architecture and deep tech, we need a lot, a lot of expertise, and this is what we have. We also believe that in order for organization to adopt AI, they need to make sure that they understand what it, the data it can access, and if it's behaved correctly. This is the core competency of Varonis, and you need to do it in a tremendous scale.
Yaki Faitelson: I think that definitely AI has tremendous impact on development cycles, but we believe that still complicated architecture and deep tech, we need a lot, a lot of expertise, and this is what we have. We also believe that in order for organization to adopt AI, they need to make sure that they understand what it, the data it can access, and if it's behaved correctly. This is the core competency of Varonis, and you need to do it in a tremendous scale.
Oh, good afternoon, thank you for taking my question. Um guy, I wanted to just zero in On The Backs and free cash flow expectations. Uh, you've been very clear about a number of different factors that is impacting that trajectory but I was hoping you could sort of recrystallize, some of what you shared with respect to the end of life headwind. Um, you know, the our contribution compression as it relates to some of the non-renewal assumptions, uh, as well as, uh, maybe some organic Investments that you are making in, uh, growing your sales capacity and then also, in the context of the ultra acquisition. So hoping you can stack rank the level of impact uh, from an operating expense and free cash flow headwind. Uh, perspective between the organic inputs, and in organic inputs, uh, especially kind of giving the number of Acquisitions that you're being into the cost base. Thank you.
Yaki Faitelson: And the second thing, Shaul, that it needs to do, and this is related to the AllTrue acquisition, is you need to understand the actual agents of stemming from which tool, the intent of what they plan to do, and also the pipeline, what data they are going to access. So in terms of AI, AllTrue starts from the beginning to make sure, okay, this is the tool, this is the intent and the pipeline, then massive force multiplier with Varonis. What is the, the identity and the data that they can access? And also then back from AllTrue, our agents talk to each other. So, you know, maybe an agent can ask another agent that has the permission to do something on his behalf, and this is a big issue.
Yaki Faitelson: And the second thing, Shaul, that it needs to do, and this is related to the AllTrue acquisition, is you need to understand the actual agents of stemming from which tool, the intent of what they plan to do, and also the pipeline, what data they are going to access. So in terms of AI, AllTrue starts from the beginning to make sure, okay, this is the tool, this is the intent and the pipeline, then massive force multiplier with Varonis. What is the, the identity and the data that they can access? And also then back from AllTrue, our agents talk to each other. So, you know, maybe an agent can ask another agent that has the permission to do something on his behalf, and this is a big issue.
In terms of, um, kind of the, the, um, rep profile. I think that 1 of the things that is, is interesting, um, going into 2026 is that with those Acquisitions. We actually do have an earmarked budget that we can go and replace which, uh, which does change and simplify some of the go-to market for for the, for the sale of those, uh, Interceptor and and, and the syro acquisition, um, and it's definitely something that we need to see how that progresses. But we we feel very good with that um, path. And when you think about the comp plan, um, it for 2026 and I want to touch on the 2025 comp plan. I know many of the investors asked us a lot about it throughout the year, but in 2025, um, reps had a lot of ways to make money. They could, they could sell to new customers. They could sell to existing customers and they could make money from the conversion in 2026. They cannot retire quota on the conversions themselves. Um, so,
Absolutely, I'll start by the fact that when you look at the free cash flow progression, I think we've done a good job of increasing kind of the free cash flow number over the last couple of years. And when you look at the ARR contribution margin, we've actually increased it to levels that are just below the 2027.
So, their way to make money is by selling to new customers and by selling to existing customers. And I want to put another caveat in: they can make money by selling to both, but they have absolutely no way of making big money if they don't sell to new customers. So, there is a threshold from a new customer perspective for them to sell. And we believe that, as we have gone through the non-SaaS ARR and got to 86%, and—
Yaki Faitelson: Regarding Microsoft, you know, we have just a lot of synergy with them, and, you know, we're building a pipeline together and feel comfortable about about the partnership. So we feel comfortable about the partnership, but the one thing that we are very excited about is just where our where the platform is. If you look at the year ago, you know, starting from, where attacks are starting with Interceptor, with SlashNext, taking the database activity market, with the classification, the User Behavior Analytics, with a lot of success on the cloud data stores. And these data stores have tremendous scale and, you know, and Varonis is doing the Varonis platform extremely well there. And now everything that we are doing to the agentic AI, and we combine it with our core strength.
Yaki Faitelson: Regarding Microsoft, you know, we have just a lot of synergy with them, and, you know, we're building a pipeline together and feel comfortable about about the partnership. So we feel comfortable about the partnership, but the one thing that we are very excited about is just where our where the platform is. If you look at the year ago, you know, starting from, where attacks are starting with Interceptor, with SlashNext, taking the database activity market, with the classification, the User Behavior Analytics, with a lot of success on the cloud data stores. And these data stores have tremendous scale and, you know, and Varonis is doing the Varonis platform extremely well there. And now everything that we are doing to the agentic AI, and we combine it with our core strength.
And can go back to focusing on new customers and existing customer sales, um, and don't need to have the Reps, cannibalized, their time by focusing on the conversions that actually opens up their ability, um, to increase their productivity levels. Uh, and that's uh, that's the way the comp plan was structured with a with, with no ability for them to make money um to towards their quarter retirement um, on the conversion side.
That question is from Rudy Keer with DA Davidson.
Yaki Faitelson: So we are very excited where the platform is, and the value that it can provide in the marketplace.
Yaki Faitelson: So we are very excited where the platform is, and the value that it can provide in the marketplace.
Operator: Our next question is from Meta Marshall with Morgan Stanley.
Operator: Our next question is from Meta Marshall with Morgan Stanley.
Meta Marshall: Great, thanks. Maybe building on that last answer that you gave. Just as you guys look at products that you can now with more focus on kind of the core SaaS business, whether it's MDR or identity protection or database activity monitoring, or, you know, the acquisition that you just announced, like, what do you see as the biggest driver of upsells over the next year? Thanks.
Meta Marshall: Great, thanks. Maybe building on that last answer that you gave. Just as you guys look at products that you can now with more focus on kind of the core SaaS business, whether it's MDR or identity protection or database activity monitoring, or, you know, the acquisition that you just announced, like, what do you see as the biggest driver of upsells over the next year? Thanks.
Hey, great. Thanks for your speaking in here. So, Guy, um, actually, I again—as I've read in this course—said I appreciate the new disclosures here. I actually want to dig into the, uh, SaaS net new ARR guidance. Excluding the conversions, midpoint of about $121.5 million, um, and certainly hear your comments about, you know, reps were really bogged down and tied up with conversions last year. And yet, you still did about $110 million of net new SaaS ARR excluding those conversions. And so if I consider the reps being much more freed up,
New, um, that obviously has that uh headwind and we talked about the 30-50 million dollars of Edwin from that end of life announcement. But I think what's important to note is that if we didn't call that end of life, um, the impact would have been much higher. So if I have to break down, um, kind of that headwind, I would say that, um, for the most part, it relates to the lower renewal rate for that non-s SAS business, obviously the Acquisitions, um, have a, a, a cost. And when you think about the guidance, we didn't bake in any upside from those from those Acquisitions. We saw very good momentum in Q4 with, uh, Interceptor. Um, but we need to see how that progresses from 2026. So, I think there's upside there for us, um, and the acquisition that we announced today, um, we feel good about our ability to capitalize on that as well. Um, so from an expense process,
Yaki Faitelson: I think that all of them, and it's also, you know, we created this data security market, and now it was very natural expansion to go to other places. So, you know, the database activity monitoring is a, you know, big market with just incumbents that we can replace. Everything that's related to social engineering and business email compromise, this is a type of product that every organization need and where attacks are starting today. And we believe that in terms of multimodality, the problem starting with trusted sources, and we have the best solution for that. And every organization in this age trying to use AI in order to survive and thrive. And with AllTrue together with what we have, is a big force multiplier.
Yaki Faitelson: I think that all of them, and it's also, you know, we created this data security market, and now it was very natural expansion to go to other places. So, you know, the database activity monitoring is a, you know, big market with just incumbents that we can replace. Everything that's related to social engineering and business email compromise, this is a type of product that every organization need and where attacks are starting today. And we believe that in terms of multimodality, the problem starting with trusted sources, and we have the best solution for that. And every organization in this age trying to use AI in order to survive and thrive. And with AllTrue together with what we have, is a big force multiplier.
To really focus on Fast expansion, new logo this year, the 121 and a half million actually to me seems, um, you know, pretty conservative and, and, or lower than it should be. If I assume you maintain at least 110% assessment net retention rate. So could you just maybe take a step further like what are the assumptions in that 121 million figure around? New logo contribution, net retention rate, Etc. And just how conservative are those assumptions?
Perspective. Um, we baked in those expenses as part of that guidance. Obviously. Um, we didn't fully baked in any real upside, uh, for 2026 and we do believe that we can get there. So, um, if you had to break down that headwind, I would say that for the most part, it comes from, um, the renewals, but obviously, uh, some of it is from the Acquisitions themselves.
Our next question is from Mike Picos with nem.
Great. Thanks for taking the questions here guys. Um just guy to be perfectly clear on the m&a assumptions. So you're not assuming any revenue or our contribution from syro or slash next. Even though both those products loans last year,
Yaki Faitelson: So, we're really excited about everything, and we're also excited about everything is integrated with everything else.
Yaki Faitelson: So, we're really excited about everything, and we're also excited about everything is integrated with everything else.
And then I guess the the follow-up given some of the changes that were announced following Q3 with the 5% headcount reduction. Um and the downsized Federal team, can you just help us think about your go to market organization today and what is typical tenure of your sales rep. Uh, have there been any changes to incentives as we enter the new year. Thank you.
Meta Marshall: Great. Thank you.
Meta Marshall: Great. Thank you.
Operator: Our next question is from Roger Boyd.
Operator: Our next question is from Roger Boyd.
Shaul Eyal: Oh, great, thanks for the question. Guy, I know this is not the focus point going forward, but I wonder if you could just unpack the rebound you saw in Q4 conversion rates. And as you look forward, you—I think you said $105 million of remaining on-premise software, with the expectation that $50 to 75 million of that converts with zero uplift. When I back out Fed and Sled, my gut reaction is that's a pretty optimistic view on conversions going forward. So maybe just talk about-
Roger Boyd: Oh, great, thanks for the question. Guy, I know this is not the focus point going forward, but I wonder if you could just unpack the rebound you saw in Q4 conversion rates. And as you look forward, you—I think you said $105 million of remaining on-premise software, with the expectation that $50 to 75 million of that converts with zero uplift. When I back out Fed and Sled, my gut reaction is that's a pretty optimistic view on conversions going forward. So maybe just talk about kind of your confidence over the remaining commercial customer base there. And in terms of, timing, just any sense of how quickly you get in front of this, or if you expect it to be maybe more back-half weighted? Thanks.
The net new SaaS arriving. Conversions being at 109.5, 90.
To to, uh, to many more new customers and sell to them as well. Um so I agree with your statement and and uh and that that is our starting point for for 2026. If you if you look at our offering
Roger Boyd: ... kind of your confidence over the remaining commercial customer base there. And in terms of, timing, just any sense of how quickly you get in front of this, or if you expect it to be maybe more back-half weighted? Thanks.
Absolutely. So yeah, when you when you think about kind of the, the assumptions that that we had for guidance for 2026, um, we didn't bake in any real um, Topline contribution from from any of the Acquisitions. That doesn't mean that we don't think we can generate activity and and, and, uh, Topline growth from them. But our starting point um, assumed um, a real modest contribution from them, um, and nothing major. But we do feel that there's there's a path there and, and we're seeing good momentum, in conversation with customers. Keep in mind the intercept acquisition, um, only closed in September. So, um, it's a, it's a really short Runway when we sit here today, um, um, for our company that didn't have any
Guy Melamed: So let's start with the fact that we converted in Q4 approximately $65 million. That's a really large number. You can see that in comparison to any of the other quarters, it's 50% higher than Q2, it's close to 60% higher than Q3. I think part of it was absolutely driven by the fact that we had the end-of-life announcement. That generated a sense of urgency with our customers, and actually helped us get customers to convert. In terms of 2026, we put a bear case and an optimistic case, and that, those are the two ranges. I would say that in terms of guidance, the 50 to 75 is not expected to. Our expectation is to be within that range. Our base case is kind of that midpoint.
Guy Melamed: So let's start with the fact that we converted in Q4 approximately $65 million. That's a really large number. You can see that in comparison to any of the other quarters, it's 50% higher than Q2, it's close to 60% higher than Q3. I think part of it was absolutely driven by the fact that we had the end-of-life announcement. That generated a sense of urgency with our customers, and actually helped us get customers to convert. In terms of 2026, we put a bear case and an optimistic case, and that, those are the two ranges. I would say that in terms of guidance, the 50 to 75 is not expected to. Our expectation is to be within that range. Our base case is kind of that midpoint.
Material, um, ARR, but we definitely see, um, significant opportunity going forward.
Today, this is just a year ago, we, you know, doubled the the platform that was of value in the focus needs to be to not on the conversions to create value and make sure that our C, the data of our customers is protected in an automated way. This is our mission and this is what we're going to do.
Our next question is from Joseph Gallo with Jefferies.
Hey guys, really appreciate the question and thanks for all the extra disclosures guy. Can you just help me understand a little bit more? The, you know, end of life headwind to free cash flow? I mean, you know, billions in our were really strong and for to you're still guiding for our to grow in calendar 26. So I'd imagine billions and bookings are growing so just just is there something different with the cash Collections and then just any more that you can kind of quantify on, you know what, the benefit for not having to support on premise, 10 days. Is that a few points to margin and and is that a 26 story or 27? Thank you.
Guy Melamed: We do expect some of the customers from the federal and state government to convert, so it's not like we're writing off every single customer. But I would say that the focus from a perspective of a vertical that would convert at lower rates, it is that federal business, but it's not an expectation that none of them will convert, so we feel very good with that 50 to 75 range. And as you can see, that range is wide because there are a lot of uncertainties, but we do feel confident with that range itself. So, our base case scenario is that midpoint, and I think we can do a really good job of getting those customers over.
Guy Melamed: We do expect some of the customers from the federal and state government to convert, so it's not like we're writing off every single customer. But I would say that the focus from a perspective of a vertical that would convert at lower rates, it is that federal business, but it's not an expectation that none of them will convert, so we feel very good with that 50 to 75 range. And as you can see, that range is wide because there are a lot of uncertainties, but we do feel confident with that range itself. So, our base case scenario is that midpoint, and I think we can do a really good job of getting those customers over.
In terms of, um, kind of the, the, um, re profile. I think that 1 of the things that is, is interesting, um, going into 2026 is that with those Acquisitions. We actually do have an earmarked budget that we can go and replace which, uh, which does change and simplify some of the go-to market for for the, for the sale of those uh, Interceptor and and and the thyro acquisition. Um, and it's definitely something that we need to see how that progresses. But we we feel very good with that um, path. And when you think about the comp plan, um, for 2026. And I want to touch on the 2025 comp plan. I know many of the investors asked us a lot about it throughout the year, but in 2025, um, reps had a lot of ways to make money. They could, they could sell to new customers. They could sell to existing customers and they could make money from the conversion in 2026. They cannot retire quota on the conversions themselves. Um, so,
So Joe, I I I actually think that the free cash flow headwind is a much simpler story than than, than anything else. Honestly, when you think, if you took the renewal rate, the historical renewal rate of the business and baked it into the non-s sac ARR. That is the Delta, that that is the headwind. Um, and where obviously um, not not
So their way to make money is by selling to new customers and by selling to existing customers. And I want to put another caveat in, um, they can make money by selling to both, but they have absolutely no way of making big money if they don't sell to new customers. So there is a threshold from a new customer perspective, for them to sell. Um, and we believe that as we have gone through the non
SAS ARR and got the 86% and and
Guy Melamed: Keep in mind, we got questions about the $180 million of non-SaaS ARR at the end of Q3, and so many of the investors wanted to get a number and wanted to get a range, and many of the investors that we talked to had an expectation that we won't get any, which we thought wasn't reasonable either. So, I think when you look at the actual performance of Q4, the fact that we were able to convert such a large portion had to do with the end-of-life announcement and the urgency that that generated within our customer base, and the expectation for 2026 is within those ranges of 50 to 75.
Guy Melamed: Keep in mind, we got questions about the $180 million of non-SaaS ARR at the end of Q3, and so many of the investors wanted to get a number and wanted to get a range, and many of the investors that we talked to had an expectation that we won't get any, which we thought wasn't reasonable either. So, I think when you look at the actual performance of Q4, the fact that we were able to convert such a large portion had to do with the end-of-life announcement and the urgency that that generated within our customer base, and the expectation for 2026 is within those ranges of 50 to 75.
Um, on the conversion side.
our next question is from Rudy keper with da Davidson
Not getting the same or at least the assumption is that we won't be getting the, the non SAS ARR at the same, uh, renewal rate historical level. Um, a, because we didn't see that in Q3 and B, we we, although Q4 renewal rates, uh, for the non-s SAS business were better than Q3, they were still below. Historical levels. Um, and I think the end of life actually helped us get a lot of the customers converted. And the expectation, is that the end of life announcement will actually help us get a lot of our, um, customers converted in 2026. But as you can see, that 50 to 75 million dollar range from a approximately 105 million dollar denominator is not over 90% remotely. And I I think it's it's a much simpler math. Um and I know we're getting a lot of questions on it but to me it's it's a pretty straightforward. Um,
Yaki Faitelson: It's also critical to understand the in most other companies that they are doing this SaaS transition, there is not a big discrepancy in features between the on-prem and the cloud. For us, it's something that is completely different, and our cloud moving extremely fast, and we integrate the new acquisitions there. And these customers, as Guy said, these federal customers, some just local government customers, and some customers with hesitation and don't want to go to SaaS, just. It's a huge, huge difference. And then when you have this growth business that is strong and profitable, and as Guy said, you know, we believe that we can get to the 2027 goals with these customers that will not convert to the 2027 goals that we outlined in the Investor Day.
Yaki Faitelson: It's also critical to understand the in most other companies that they are doing this SaaS transition, there is not a big discrepancy in features between the on-prem and the cloud. For us, it's something that is completely different, and our cloud moving extremely fast, and we integrate the new acquisitions there. And these customers, as Guy said, these federal customers, some just local government customers, and some customers with hesitation and don't want to go to SaaS, just. It's a huge, huge difference. And then when you have this growth business that is strong and profitable, and as Guy said, you know, we believe that we can get to the 2027 goals with these customers that will not convert to the 2027 goals that we outlined in the Investor Day.
Calculation, in terms of of the headwind itself. Um, so when I look at the actual, um, kind of profitability profile for us as an organization, nothing really has changed. Um, we're not changing, um, kind of the philosophy of investment, we're not trying, um, to invest more in order to generate a lower Topline growth rate. Um, if you look at the trajectory from an ARR contribution margin perspective and you bake in um, the additional
Hey, great. Thanks for sneaking in here. So guy, um, actually I, again, as everybody on this call said, appreciate the new disclosures here. I actually want to dig into the, uh, SAS net new, our guidance. Excluding the conversions midpoint of about 121.5 million. Um, certainly here your comments about, you know, reps were really bogged down and tied up with conversions last year. And yet, you still did about 110 million of net. New SAS are excluding those conversions. And so if I consider the Reps being much more freed up,
Yaki Faitelson: It's very important to understand that it's just, it's something that is completely different. And not only that, with the way that we move and release features, and the SaaS platform works, the discrepancy is growing and growing. And what will happen is that you will have small cohort of customers that will take just a lot of operational resources to do something that is just not relevant. So this is what you see from us. We just, you know, we are now 86%, you know, there, and we just want to be 100% there and make sure that we, you know, we have this, a SaaS platform with high quality SaaS metrics, and this is where we invest, and this is how we move forward.
Yaki Faitelson: It's very important to understand that it's just, it's something that is completely different. And not only that, with the way that we move and release features, and the SaaS platform works, the discrepancy is growing and growing. And what will happen is that you will have small cohort of customers that will take just a lot of operational resources to do something that is just not relevant. So this is what you see from us. We just, you know, we are now 86%, you know, there, and we just want to be 100% there and make sure that we, you know, we have this, a SaaS platform with high quality SaaS metrics, and this is where we invest, and this is how we move forward.
To really focus on SAS expansion and new logos this year. The 121 and a half million actually to me, seems, um, you know, pretty conservative and, and are lower than it should be. If I assume you maintain, at least 110% assessment with net retention rate. So could you just maybe take a step further like what are the assumptions in that 121 million figure around? New logo contribution, net retention rate, Etc. And just how conservative are those assumptions?
Yaki Faitelson: We just want to make sure that, you know, the last leg of conversion, anybody that we can convert, we convert and fight for it, but folks that not go to the cloud, we need to end the cloud in part way with them.
Yaki Faitelson: We just want to make sure that, you know, the last leg of conversion, anybody that we can convert, we convert and fight for it, but folks that not go to the cloud, we need to end the cloud in part way with them.
Uh, the total growth rate would have been masked by that component versus a really strong SAS business. And that's why we spent so much time on breaking out, the SAS excluding conversions and putting the conversions as a separate bucket because that allows investors and Alice to actually see the the 2 companies that Ronis is right now, the forward-looking and the and the rear view mirror which is that conversion component. And yes we believe that.
Operator: Our next question is from Fatima Bhoolani, with Citi.
Operator: Our next question is from Fatima Bhoolani, with Citi.
Announcing that end of life going to to 2027 and Beyond can actually generate benefits on the bottom line on savings. Uh and that's why we feel confident with our 2027 model.
Fatima Bhoolani: Oh, good afternoon. Thank you for taking my question. Guy, I wanted to just zero in on the OpEx and free cash flow expectations. You've been very clear about a number of different factors that is impacting that trajectory, but I was hoping you could sort of recrystallize some of what you shared with respect to the end-of-life headwind, you know, the ARR contribution compression as it relates to some of the non-renewal assumptions, as well as maybe some organic investments that you are making in growing your sales capacity, and then also in the context of the AllTrue acquisition.
Fatima Boolani: Oh, good afternoon. Thank you for taking my question. Guy, I wanted to just zero in on the OpEx and free cash flow expectations. You've been very clear about a number of different factors that is impacting that trajectory, but I was hoping you could sort of recrystallize some of what you shared with respect to the end-of-life headwind, you know, the ARR contribution compression as it relates to some of the non-renewal assumptions, as well as maybe some organic investments that you are making in growing your sales capacity, and then also in the context of the AllTrue acquisition.
So you're absolutely right. Um we are guiding in a in a conservative way um as a starting point for the year um and and your absolutely right. That if you look at the um, at the net, new SAS arriving, conversions being at 109.5, but also accounting for approximately 190 million dollars of conversion are when you don't have that component the conversion side, then you can go, um, and and sell the new customers and existing customers in a better way. Um, so I agree with with your statements and I think that we fully understand what we need to do in order to to execute and and grow this business in the way that we believe we can grow the business, um, sitting here today, we feel very comfortable with the guidance that we provided and know what we need to do in order to execute and and and improve it throughout the year. Um, but the assumptions from an nrr perspective is that we we actually can do better. Um, there's a lot.
Our next question is from June 8th. Sadiki with Truist.
For us to sell, going back to the base. Um,
Uh, great. Thank you for taking my question. Um, guys, you've talked about MDD or having software-like gross margins over time. Um, as it becomes a material contributor to your business, how do you envision gross margins? Do you anticipate any changes from the range, uh, in that high 70s, low 80s?
And we think that, um, we're selling to new customers, um, freeing that time that was cannibalized by irfs. They can actually go to to, uh, to many more new customers and, and sell to them as well. Um, so I agree with you a statement and, and uh, and that that is our starting point for for 2026. If you, if you look at our offering
Fatima Bhoolani: So, hoping you can stack rank the level of impact from an operating expense and free cash flow headwind perspective between the organic inputs and inorganic inputs, especially kind of given the number of acquisitions that you're absorbing into the cost base. Thank you.
Fatima Boolani: So, hoping you can stack rank the level of impact from an operating expense and free cash flow headwind perspective between the organic inputs and inorganic inputs, especially kind of given the number of acquisitions that you're absorbing into the cost base. Thank you.
Today, this is just a year ago. We you know doubled the the platform in terms of uh value the focus needs to be to not on the conversions to create value and make sure that our C the data of our customers is protected in an automated way. This is our mission and this is what we're going to do.
Guy Melamed: Absolutely. I'll start by the fact that when you look at the free cash flow progression, I think we've done a good job of increasing kind of that free cash flow number over the last couple of years. And when you look at the ARR contribution margin, we've actually increased it to levels that are just below the 2027 model that we laid out in our 2023 Investor Day. So I think from a profitability perspective, we have proven to investors that we have the path and we know how to improve and increase the top line growth with bringing some of it to the bottom line. When you look at the 2026 numbers, and especially when you look at some of the lower renewal rates for the non-SaaS business...
Guy Melamed: Absolutely. I'll start by the fact that when you look at the free cash flow progression, I think we've done a good job of increasing kind of that free cash flow number over the last couple of years. And when you look at the ARR contribution margin, we've actually increased it to levels that are just below the 2027 model that we laid out in our 2023 Investor Day. So I think from a profitability perspective, we have proven to investors that we have the path and we know how to improve and increase the top line growth with bringing some of it to the bottom line. When you look at the 2026 numbers, and especially when you look at some of the lower renewal rates for the non-SaaS business...
Our next question is from Joseph Gallo with Jeffrey.
No, we don't expect any material. Change their, the mddr has been um, very well received by both our customers and our sales force, um, and has been adopted uh, very well. Um, keep in mind, we only introduced it in 2024 and it's been adopted, uh, in a very positive way. We still believe that every single customer should have mddr, it's going to take time. But, um, we're definitely feeling very good about, um, the path that we have taken so far. And, and what we, what, what is, lying ahead with with MDR as well. But also, it's, it's very important to understand that the MDR is really the, I based off of it. It's just a genetic offering and most, uh, most of the alerts are being reviewed and closed by the AI.
The AI agents, the robot. And this is the beauty of it.
Thank you. There are no more questions at this time. I'd like to turn the floor back over to Tim Purge for any closing remarks.
Hey guys, really appreciate the question and thanks for all the extra disclosures guy. Can you just help me understand a little bit more? The, you know, end of life headwind to free cash flow? I mean you know billions and our were really strong and 4 to. You're still guiding for our to grow in calendar 26. So I'd imagine billions and bookings are growing so just just is there something different with the cash Collections and then just any more that you can kind of quantify on, you know what the benefit for not having to support on premise can be is that a few points to margin and and is that a 26 story or 27? Thank you.
Yeah, thanks everybody for the interest in Verona. As we look forward to meeting with you all, um, later this quarter.
Goodbye.
Guy Melamed: That have been below our historical levels. Obviously, when you think about renewals, they go directly to the bottom line. That's, that's your pure profitability component, and they are way more profitable than the acquisition of new customers that have a higher cost. So when you think about kind of the non-SaaS ARR that is not going to renew, that obviously has that headwind, and we talked about the $30 to 50 million of headwind from that end-of-life announcement. But I think what's important to note is that if we didn't call that end of life, the impact would have been much higher. So if I have to break down kind of that headwind, I would say that, for the most part, it relates to the lower renewal rate for that non-SaaS business.
Guy Melamed: That have been below our historical levels. Obviously, when you think about renewals, they go directly to the bottom line. That's, that's your pure profitability component, and they are way more profitable than the acquisition of new customers that have a higher cost. So when you think about kind of the non-SaaS ARR that is not going to renew, that obviously has that headwind, and we talked about the $30 to 50 million of headwind from that end-of-life announcement. But I think what's important to note is that if we didn't call that end of life, the impact would have been much higher. So if I have to break down kind of that headwind, I would say that, for the most part, it relates to the lower renewal rate for that non-SaaS business.
This concludes today's conference. You may disconnect your line at this time. Thank you again for your participation.
So Joe, I I I actually think that the free cash flow headwind is a much simpler story than than, than anything else. Honestly, when you think, if you took the renewal rate, the historical renewal rate of the business and baked it into the non-s sac ARR. That is the Delta, that that is the headwind. Um, and where obviously um, not not
Guy Melamed: Obviously, the acquisitions have a cost, and when you think about the guidance, we didn't bake in any upside from those acquisitions. We saw very good momentum in Q4 with Interceptor, but we need to see how that progresses from 2026, so I think there's upside there for us. And the acquisition that we announced today, we feel good about our ability to capitalize on that as well. So from an expense perspective, we baked in those expenses as part of that guidance, obviously. We didn't fully bake in any real upside for 2026, and we do believe that we can get there.
Guy Melamed: Obviously, the acquisitions have a cost, and when you think about the guidance, we didn't bake in any upside from those acquisitions. We saw very good momentum in Q4 with Interceptor, but we need to see how that progresses from 2026, so I think there's upside there for us. And the acquisition that we announced today, we feel good about our ability to capitalize on that as well. So from an expense perspective, we baked in those expenses as part of that guidance, obviously. We didn't fully bake in any real upside for 2026, and we do believe that we can get there.
105 million denominator is not over 90% renewal rate and I I think it's it's a much simpler math um and I know we're getting a lot of questions on it but to me it's it's a pretty straightforward. Um,
Guy Melamed: So, if you had to break down that headwind, I would say that for the most part, it comes from the renewals, but obviously, some of it is from the acquisitions themselves.
Guy Melamed: So, if you had to break down that headwind, I would say that for the most part, it comes from the renewals, but obviously, some of it is from the acquisitions themselves.
Calculation, in terms of of the headwind itself. Um, so when I look at the actual, um, kind of profitability profile for us as an organization, nothing really has changed. Um, we're not changing, um, kind of the philosophy of investment, we're not trying, um, to invest more in order to generate a lower Topline growth rate. Um, if you look at the trajectory from an ARR contribution margin perspective and you bake in um, the additional
Operator: Our next question is from Mike Secos with Needham.
Operator: Our next question is from Mike Secos with Needham.
Mike Secos: Great. Thanks for taking the questions here, guys. And just, Guy, to be perfectly clear on the M&A assumptions, so you're not assuming any revenue or ARR contribution from Cyrell or SlashNext, even though both those products launched last year? And then I guess the follow-up, given some of the changes that were announced following Q3 with the 5% headcount reduction, and the downsized federal team, can you just help us think about your go-to-market organization today? What is typical tenure of your sales rep, or have there been any changes to incentives as we enter the new year? Thank you.
Mike Cikos: Great. Thanks for taking the questions here, guys. And just, Guy, to be perfectly clear on the M&A assumptions, so you're not assuming any revenue or ARR contribution from Cyrell or SlashNext, even though both those products launched last year? And then I guess the follow-up, given some of the changes that were announced following Q3 with the 5% headcount reduction, and the downsized federal team, can you just help us think about your go-to-market organization today? What is typical tenure of your sales rep, or have there been any changes to incentives as we enter the new year? Thank you.
Um, kind of loss on the headwind from from the non SAS component. You would see that we would continue to grow in the same historical levels, um, but the announcement of the end of life. And I I said this before and I I probably want to re-emphasize this, the announcement of the end of life actually helped us in 3 ways 1 is generating that sense of urgency for customers to convert. Um, the second 1 and I think this is actually important to note, um, if we would have kept the on-prem subscription going forward and we would have had, um, a renewal rate that is historically lower, um, than or lower than our historical levels. Then the growth rate would have been massed, uh, the total growth rate,
Guy Melamed: Absolutely. So yeah, when you think about kind of the assumptions that we had for guidance for 2026, we didn't bake in any real top-line contribution from any of the acquisitions. That doesn't mean that we don't think we can generate activity and top-line growth from them, but our starting point assumed a real modest contribution from them and nothing major. But we do feel that there's a path there, and we're seeing good momentum in conversation with customers. Keep in mind, the Interceptor acquisition only closed in September, so it's a really short runway when we sit here today for a company that didn't have any material ARR, but we definitely see significant opportunity going forward.
Guy Melamed: Absolutely. So yeah, when you think about kind of the assumptions that we had for guidance for 2026, we didn't bake in any real top-line contribution from any of the acquisitions. That doesn't mean that we don't think we can generate activity and top-line growth from them, but our starting point assumed a real modest contribution from them and nothing major. But we do feel that there's a path there, and we're seeing good momentum in conversation with customers. Keep in mind, the Interceptor acquisition only closed in September, so it's a really short runway when we sit here today for a company that didn't have any material ARR, but we definitely see significant opportunity going forward.
Would have been masked by that component versus a really strong SAS business and that's why we spent so much time on breaking out, the SAS excluding conversions and putting the conversions is a separate bucket because that allows investors and Alice to actually see the the 2 companies that Ronis is right now, the forward-looking and the and the rear view mirror which is that conversion component. And yes we believe that.
Announcing that end of life going to to 2027 and Beyond can actually generate benefits on the bottom line on savings. Uh and that's why we feel confident with our 2027 models.
Our next question is from June 8th. Sadiki with truist.
Guy Melamed: In terms of kind of the rep profile, I think that one of the things that is interesting going into 2026 is that with those acquisitions, we actually do have a near marked budget that we can go and replace, which does change and simplify some of the go-to market for the app, for the sale of those Interceptor and the Cyro acquisition. It's definitely something that we need to see how that progresses, but we feel very good with that path.
Guy Melamed: In terms of kind of the rep profile, I think that one of the things that is interesting going into 2026 is that with those acquisitions, we actually do have a near marked budget that we can go and replace, which does change and simplify some of the go-to market for the app, for the sale of those Interceptor and the Cyro acquisition. It's definitely something that we need to see how that progresses, but we feel very good with that path.
Uh great, thank you for taking my question. Um guy you've talked about mddr having software like gross margins over time. Um, as it becomes a material contributor to your business. How do you envision gross margins? Do you do you anticipate any changes from the range uh, that in that P? 700 is low 80s.
Guy Melamed: And when you think about the comp plan, it for 2026, and I want to touch on the 2025 comp plan. I know many of the investors asked us a lot about it throughout the year, but in 2025, reps had a lot of ways to make money. They could, they could sell to new customers, they could sell to existing customers, and they could make money from the conversions. In 2026, they cannot retire quota on the conversions themselves. So their way to make money is by selling to new customers and by selling to existing customers. And I want to put another caveat in. They can make money by selling to both, but they have absolutely no way of making big money if they don't sell to new customers.
Guy Melamed: And when you think about the comp plan, it for 2026, and I want to touch on the 2025 comp plan. I know many of the investors asked us a lot about it throughout the year, but in 2025, reps had a lot of ways to make money. They could, they could sell to new customers, they could sell to existing customers, and they could make money from the conversions. In 2026, they cannot retire quota on the conversions themselves. So their way to make money is by selling to new customers and by selling to existing customers. And I want to put another caveat in. They can make money by selling to both, but they have absolutely no way of making big money if they don't sell to new customers.
No, we don't expect any material. Change their, the mddr has been um, very well received by both our customers and our sales force, um, and has been adopted uh, very well. Um, keep in mind, we only introduced it in 2024 and it's been adopted, uh, in a very positive way. We still believe that every single customer should have mddr, it's going to take time. But, um, we're definitely feeling very good about, um, the path that we have taken so far. And, and what we, what, what is lying ahead with with mddr as well. But also, it's, it's very important to understand that the MDR is really AI based offering. It's just a genetic offering and most, uh, most of the alerts are being reviewed and closed by the AI.
The AI agents, the robots. And this is the beauty of it.
Guy Melamed: So there is a threshold from a new customer perspective for them to sell. We believe that as we have gone through the non-SaaS ARR and got to 86% and can go back to focusing on new customers and existing customer sales, and don't need to have the reps cannibalize their time by focusing on the conversions, that actually opens up their ability to increase their productivity levels. That's the way the comp plan was structured, with no ability for them to make money towards their quarter retirement on the conversion side.
Guy Melamed: So there is a threshold from a new customer perspective for them to sell. We believe that as we have gone through the non-SaaS ARR and got to 86% and can go back to focusing on new customers and existing customer sales, and don't need to have the reps cannibalize their time by focusing on the conversions, that actually opens up their ability to increase their productivity levels. That's the way the comp plan was structured, with no ability for them to make money towards their quarter retirement on the conversion side.
Thank you. There are no more questions at this time. I'd like to turn the floor back over to Tim pairs for any closing remarks.
Yeah, thanks everybody for the interest in veronus. We look forward to meeting with you all, um, later this quarter.
Goodbye.
This concludes today's conference. You may disconnect your line at this time. Thank you again for your participation
Operator: Now, our next question is from Rudy Kessinger with D.A. Davidson.
Operator: Now, our next question is from Rudy Kessinger with D.A. Davidson.
Rudy Kessinger: Hey, great. Thanks for sneaking me in here. So, Guy, actually, like, again, as everybody on this call said, appreciate the new disclosure here. I actually want to dig into the SaaS net new ARR guidance, excluding the conversions midpoint of about $121.5 million. Certainly hear your comments about, you know, reps were really bogged down and tied up with conversions last year, and yet you still did about $110 million of net new SaaS ARR, excluding those conversions. And so if I consider the reps being much more freed up to really focus on SaaS expansion, new logos this year.
Rudy Kessinger: Hey, great. Thanks for sneaking me in here. So, Guy, actually, like, again, as everybody on this call said, appreciate the new disclosure here. I actually want to dig into the SaaS net new ARR guidance, excluding the conversions midpoint of about $121.5 million. Certainly hear your comments about, you know, reps were really bogged down and tied up with conversions last year, and yet you still did about $110 million of net new SaaS ARR, excluding those conversions. And so if I consider the reps being much more freed up to really focus on SaaS expansion, new logos this year.
Rudy Kessinger: The $121.5 million actually, to me, seems, you know, pretty conservative and, or lower than it should be, if I assume you maintain at least 110% SaaS net retention rate. So could you just maybe take it a step further? Like, what are the assumptions in that $121 million figure around new logo contribution, net retention rate, et cetera, and just how conservative are those assumptions?
Rudy Kessinger: The $121.5 million actually, to me, seems, you know, pretty conservative and, or lower than it should be, if I assume you maintain at least 110% SaaS net retention rate. So could you just maybe take it a step further? Like, what are the assumptions in that $121 million figure around new logo contribution, net retention rate, et cetera, and just how conservative are those assumptions?
Guy Melamed: So you're absolutely right. We are guiding in a conservative way as a starting point for the year. And you're absolutely right, that if you look at the net new SaaS ARR, excluding conversions, being at $109.5 million, but also accounting for approximately $190 million of conversion ARR, when you don't have that component, the conversion side, then you can go and sell to new customers and existing customers in a better way. So I agree with your statements, and I think that we fully understand what we need to do in order to execute and grow this business in the way that we believe we can grow the business.
Guy Melamed: So you're absolutely right. We are guiding in a conservative way as a starting point for the year. And you're absolutely right, that if you look at the net new SaaS ARR, excluding conversions, being at $109.5 million, but also accounting for approximately $190 million of conversion ARR, when you don't have that component, the conversion side, then you can go and sell to new customers and existing customers in a better way. So I agree with your statements, and I think that we fully understand what we need to do in order to execute and grow this business in the way that we believe we can grow the business.
Guy Melamed: Sitting here today, we feel very comfortable with the guidance that we provided and know what we need to do in order to execute and improve it throughout the year. But the assumptions from an NRR perspective is that we actually can do better. There's a lot for us to sell, going back to the base. And we think that with selling to new customers, freeing that time that was cannibalized by our reps, they can actually go to many more new customers and sell to them as well. So I agree with your statement, and that is our starting point for 2026.
Guy Melamed: Sitting here today, we feel very comfortable with the guidance that we provided and know what we need to do in order to execute and improve it throughout the year. But the assumptions from an NRR perspective is that we actually can do better. There's a lot for us to sell, going back to the base. And we think that with selling to new customers, freeing that time that was cannibalized by our reps, they can actually go to many more new customers and sell to them as well. So I agree with your statement, and that is our starting point for 2026.
Yaki Faitelson: If you, if you look at our offering today versus just a year ago, we, you know, doubled the platform in terms of value. The focus needs to be to, not on the conversions, to create value and make sure that the data of our customers is protected in an automated way. This is our mission, and this is what we are going to do.
Yaki Faitelson: If you, if you look at our offering today versus just a year ago, we, you know, doubled the platform in terms of value. The focus needs to be to, not on the conversions, to create value and make sure that the data of our customers is protected in an automated way. This is our mission, and this is what we are going to do.
Operator: Our next question is from Joseph Gallo with Jefferies.
Operator: Our next question is from Joseph Gallo with Jefferies.
Joseph Gallo: Hey, guys. Really appreciate the question, and thanks for all the extra disclosures. Guy, can you just help me understand a little bit more the, you know, end-of-life headwind to free cash flow? I mean, your billings and ARR were really strong in Q4. You're still guiding for ARR to grow in calendar 2026. I'd imagine billings and bookings are growing. So just, is there something different with the cash collections? And then, just any more that you can kinda quantify on, you know, what the benefit for not having to support on-premise can be? Is that a few points to margin, and is that a 2026 story or 2027? Thank you.
Joseph Gallo: Hey, guys. Really appreciate the question, and thanks for all the extra disclosures. Guy, can you just help me understand a little bit more the, you know, end-of-life headwind to free cash flow? I mean, your billings and ARR were really strong in Q4. You're still guiding for ARR to grow in calendar 2026. I'd imagine billings and bookings are growing. So just, is there something different with the cash collections? And then, just any more that you can kinda quantify on, you know, what the benefit for not having to support on-premise can be? Is that a few points to margin, and is that a 2026 story or 2027? Thank you.
Guy Melamed: So, Joe, I actually think that the free cash flow headwind is a much simpler story than anything else, honestly. When you think. If you took the renewal rate, the historical renewal rate of the business, and baked it into the non-SaaS ARR, that is the delta, that is the headwind. And we're obviously not getting the same, or at least the assumption is that we won't be getting the non-SaaS ARR at the same renewal rate, historical levels. A, because we didn't see that in Q3, and B, although Q4 renewal rates for the non-SaaS business were better than Q3, they were still below historical levels.
Guy Melamed: So, Joe, I actually think that the free cash flow headwind is a much simpler story than anything else, honestly. When you think. If you took the renewal rate, the historical renewal rate of the business, and baked it into the non-SaaS ARR, that is the delta, that is the headwind. And we're obviously not getting the same, or at least the assumption is that we won't be getting the non-SaaS ARR at the same renewal rate, historical levels. A, because we didn't see that in Q3, and B, although Q4 renewal rates for the non-SaaS business were better than Q3, they were still below historical levels.
Guy Melamed: And I think the end-of-life actually helped us get a lot of the customers converted, and the expectation is that the end-of-life announcement will actually help us get a lot of our customers converted in 2026. But as you can see, that $50 to 75 million range from approximately a $105 million denominator is not over 90% renewal rate. And I think it's a much simpler math, and I know we're getting a lot of questions on it, but to me, it's a pretty straightforward calculation in terms of the headwind itself. So when I look at the actual kind of profitability profile for us as an organization, nothing really has changed. We're not changing kind of the philosophy of investment.
Guy Melamed: And I think the end-of-life actually helped us get a lot of the customers converted, and the expectation is that the end-of-life announcement will actually help us get a lot of our customers converted in 2026. But as you can see, that $50 to 75 million range from approximately a $105 million denominator is not over 90% renewal rate. And I think it's a much simpler math, and I know we're getting a lot of questions on it, but to me, it's a pretty straightforward calculation in terms of the headwind itself. So when I look at the actual kind of profitability profile for us as an organization, nothing really has changed. We're not changing kind of the philosophy of investment.
Guy Melamed: We're not trying to invest more in order to generate a lower top-line growth rate. If you look at the trajectory from an ARR contribution margin perspective, and you bake in the additional kind of loss on the headwind from the non-SaaS component, you would see that we would continue to grow in the same historical levels. But the announcement of the end of life, and I said this before, and I probably want to reemphasize this. The announcement of the end of life actually helped us in three ways. One is generating that sense of urgency for customers to convert.
Guy Melamed: We're not trying to invest more in order to generate a lower top-line growth rate. If you look at the trajectory from an ARR contribution margin perspective, and you bake in the additional kind of loss on the headwind from the non-SaaS component, you would see that we would continue to grow in the same historical levels. But the announcement of the end of life, and I said this before, and I probably want to reemphasize this. The announcement of the end of life actually helped us in three ways. One is generating that sense of urgency for customers to convert.
Guy Melamed: The second one, and I think this is actually important to note, if we would have kept the on-prem subscription going forward, and we would have had, a renewal rate that is historically lower, than or lower than our historical levels, then the growth rate would have been masked, the total growth rate would have been masked by that component versus a really strong SaaS business. And that's why we spent so much time on breaking out the SaaS, excluding conversions and putting the conversions as a separate bucket, because that allows investors and analysts to actually see the, the two companies that Varonis is right now, the forward-looking and the, and the rear view mirror, which is that conversion component. And yes, we believe that-...
Guy Melamed: The second one, and I think this is actually important to note, if we would have kept the on-prem subscription going forward, and we would have had, a renewal rate that is historically lower, than or lower than our historical levels, then the growth rate would have been masked, the total growth rate would have been masked by that component versus a really strong SaaS business. And that's why we spent so much time on breaking out the SaaS, excluding conversions and putting the conversions as a separate bucket, because that allows investors and analysts to actually see the, the two companies that Varonis is right now, the forward-looking and the, and the rear view mirror, which is that conversion component. And yes, we believe that-...announcing that end of life, going to 2027 and beyond, can actually generate benefits on the bottom line on savings, and that's why we feel confident with our 2027 model.
Guy Melamed: announcing that end of life, going to 2027 and beyond, can actually generate benefits on the bottom line on savings, and that's why we feel confident with our 2027 model.
Operator: Our next question is from Junaid Siddiqui with Truist.
Operator: Our next question is from Junaid Siddiqui with Truist.
Junaid Siddiqui: Great. Thank you for taking my question. Guy, you've talked about MDDR having software-like gross margins over time. As it becomes a material contributor to your business, how do you envision gross margins? Do you anticipate any changes from the range in that high 70s, low 80s?
Junaid Siddiqui: Great. Thank you for taking my question. Guy, you've talked about MDDR having software-like gross margins over time. As it becomes a material contributor to your business, how do you envision gross margins? Do you anticipate any changes from the range in that high 70s, low 80s?
Guy Melamed: No, we don't expect any material change there. The MDDR has been very well received by both our customers and our sales force, and has been adopted very well. Keep in mind, we only introduced it in 2024, and it's been adopted in a very positive way. We still believe that every single customer should have MDDR. It's gonna take time, but we're definitely feeling very good about the path that we have taken so far and what is lying ahead with MDDR as well.
Guy Melamed: No, we don't expect any material change there. The MDDR has been very well received by both our customers and our sales force, and has been adopted very well. Keep in mind, we only introduced it in 2024, and it's been adopted in a very positive way. We still believe that every single customer should have MDDR. It's gonna take time, but we're definitely feeling very good about the path that we have taken so far and what is lying ahead with MDDR as well.
Yaki Faitelson: But also, it's very important to understand that the MDDR is really AI-based offering. It's just a generic offering, and most, most of the alerts are being reviewed and closed by the AI, the AI agents, the robots, and this is the beauty of it.
Yaki Faitelson: But also, it's very important to understand that the MDDR is really AI-based offering. It's just a generic offering, and most, most of the alerts are being reviewed and closed by the AI, the AI agents, the robots, and this is the beauty of it.
Operator: Thank you. There are no more questions at this time. I'd like to turn the floor back over to Tim Perz for any closing remarks.
Operator: Thank you. There are no more questions at this time. I'd like to turn the floor back over to Tim Perz for any closing remarks.
Tim Perz: Yeah. Thanks, everybody, for the interest in Varonis. We look forward to meeting with you all, later this quarter.
Tim Perz: Yeah. Thanks, everybody, for the interest in Varonis. We look forward to meeting with you all, later this quarter.
Operator: Goodbye. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Goodbye. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.
