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What changed in VARONIS SYSTEMS INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of VARONIS SYSTEMS INC's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+406 added−440 removedSource: 10-K (2026-02-04) vs 10-K (2025-02-06)

Top changes in VARONIS SYSTEMS INC's 2025 10-K

406 paragraphs added · 440 removed · 248 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeTherefore, we drastically simplified our subscription licensing under SaaS, combining five of our most popular licenses into a single Varonis Data Security Platform license. The Varonis Data Security Platform SaaS license will include, by default, the functionality of five core modules: DatAdvantage, DatAlert, Automation Engine, Data Classification Engine and Data Classification Policy Pack.
Biggest changeThese capabilities include: • Varonis Data Security Platform . We know that customers who utilize a higher number of licenses see more value upfront through automation and synergy between modules. Therefore, we drastically simplified our subscription licensing under SaaS, combining five of our most popular licenses into a single Varonis Data Security Platform license.
Provides high-fidelity, data-centric alerts and automated response actions. Includes a web-based alerts dashboard and investigative interface, and seamlessly integrates with security information and event management systems (SIEM). ◦ User & entity behavior analytics . Profiles users and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise.
Provides high-fidelity, data-centric alerts and automated response actions. Includes a web-based alerts dashboard and investigative interface, and seamlessly integrates with security information and event management systems (SIEM). ◦ User & entity behavior analytics . Profiles users, agents and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise.
We also regularly seek input from employees, including through broad employee satisfaction and pulse surveys on specific issues, intended to assess our degree of success in promoting an environment where employees are engaged, satisfied, productive and possess a strong understanding of our business goals. • Promote Sense of Belonging .
We also regularly seek input from employees, including through broad employee satisfaction and pulse surveys on 8 specific issues, intended to assess our degree of success in promoting an environment where employees are engaged, satisfied, productive and possess a strong understanding of our business goals. • Promote Sense of Belonging .
Automatically and continuously scans the contents of files, folders, and other objects to determine sensitivity with a high degree of accuracy and precision. ◦ Discovery policy library . A frequently updated library for identifying and classifying personal information specific to GDPR, CCPA, and US federal controlled unclassified information (CUI). 6 ◦ Least privilege automation .
Automatically and continuously scans the contents of files, folders, and other objects to determine sensitivity with a high degree of accuracy and precision. ◦ Discovery policy library . A frequently updated library for identifying and classifying personal information specific to GDPR, CCPA, and US federal controlled unclassified information (CUI). ◦ Least privilege automation .
We strive to ensure that our employees receive competitive and fair compensation and innovative benefit offerings, tying incentive compensation to both business and individual performance, offering competitive maternal and paternal leave policies, providing meaningful retirement and health benefits and maintaining an employee stock purchase plan. 10 • Support Employee Well-being and Engagement .
We strive to ensure that our employees receive competitive and fair compensation and innovative benefit offerings, tying incentive compensation to both business and individual performance, offering competitive maternal and paternal leave policies, providing meaningful retirement and health benefits and maintaining an employee stock purchase plan. • Support Employee Well-being and Engagement .
We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls and webcasts. 11
We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls and webcasts.
Includes support for SharePoint Online, OneDrive for Business, Microsoft Teams, and Entra ID (formerly known as Azure AD). Customers can purchase add-on support for Exchange Online and Microsoft 365 Copilot. ◦ Windows & NAS . Includes support for Windows/CIFS-based file shares and NAS storage such as Nutanix, Nasuni, Panzura, Pure Storage, NetApp and Dell EMC.
Includes support for SharePoint Online, OneDrive for Business, Microsoft Teams, and Entra ID (formerly known as Azure AD). Customers can purchase add-on support for Exchange Online, Microsoft 365 Copilot and ChatGPT Enterprise. ◦ Windows & NAS . Includes support for Windows/CIFS-based file shares and NAS storage such as Nutanix, Nasuni, Panzura, Pure Storage, NetApp and Dell EMC.
We also conduct manager training programs on an annual basis, which include in-depth managerial and coaching skills, as well as tailored feedback. We have established an internal mentoring program in which seasoned employees mentor new managers based on defined goals. • Promote Community Outreach and Support .
We also conduct manager training programs on an annual basis, which include in-depth managerial and coaching skills, as well as tailored feedback. We have established an internal mentoring program in which seasoned employees' mentor new managers based on defined goals. • Promote Community Outreach and Support .
We also had 76 patents issued and 34 applications pending for examination in non-U.S. jurisdictions, and 18 pending Patent Cooperation Treaty (“PCT”) patent applications, all of which are counterparts of our U.S. patent applications. The claims for which we have sought patent protection relate primarily to inventions we have developed for incorporation into our products.
We also had 95 patents issued and 79 applications pending for examination in non-U.S. jurisdictions, and 31 pending Patent Cooperation Treaty (“PCT”) patent applications, all of which are counterparts of our U.S. patent applications. The claims for which we have sought patent protection relate primarily to inventions we have developed for incorporation into our products.
The nature and extent of legal protection of our intellectual property rights depends on, among other things, its type and the jurisdiction in which it arises. As of December 31, 2024, we had 89 issued patents and 31 pending patent applications in the United States. Our issued U.S. patents expire between 2025 and 2042.
The nature and extent of legal protection of our intellectual property rights depends on, among other things, its type and the jurisdiction in which it arises. As of December 31, 2025, we had 116 issued patents and 63 pending patent applications in the United States. Our issued U.S. patents expire between 2026 and 2043.
Varonis software enables enterprises of all sizes and industries to protect data stored in the cloud and on-premises, including: sensitive files, emails and databases; confidential personal data belonging to customers, patients and employees; financial records; source code, strategic and product plans; and other intellectual property.
Varonis software helps organizations of all sizes and industries protect sensitive data stored in the cloud and on-premises, including: files, emails and databases, confidential personal data, financial records, source code, strategic and product plans, and other intellectual property.
Customers can purchase add-on support for on-premises Active Directory, UNIX/Linux and Edge devices (VPN, DNS, proxy). ◦ Hybrid . Combined support for the protected resources in the Microsoft 365 and Windows & NAS packages. • Varonis DatAdvantage Cloud. DatAdvantage Cloud is a SaaS platform that helps organizations protect data across SaaS applications and IaaS environments.
Customers can purchase add-on support for on-premises Active Directory, UNIX/Linux and Edge devices (VPN, DNS, proxy). ◦ Hybrid . Combined support for the protected resources in the Microsoft 365 and Windows & NAS packages. 5 ◦ Cloud Environments. Protects data across SaaS applications and IaaS environments.
Competition for qualified personnel in the technology space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce.
We understand that our innovation leadership is ultimately rooted in our people. Competition for qualified personnel in the technology space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce.
Today, the Varonis Data Security Platform SaaS license includes: ◦ Data security posture management ("DSPM") . Provides customers with real-time visibility of their data security posture across their multi-cloud and on-premises data, helps prioritize remediation efforts, and tracks progress over time. ◦ Data access intelligence .
Provides customers with real-time visibility of their data security posture across their multi-cloud and on-premises data, helps prioritize remediation efforts, and tracks progress over time. ◦ Data access intelligence .
For convenience in this report, the terms “Company,” “Varonis,” “we” and “us” may be used to refer to Varonis Systems, Inc. and/or its subsidiaries, except where indicated otherwise. Our telephone number is (877) 292-8767.
For convenience in this report, the terms “Company,” “Varonis,” “we” and “us” may be used to refer to Varonis Systems, Inc. and/or its subsidiaries, except where indicated otherwise. Our telephone number is (877) 292-8767. Overview Varonis is a data security company focused on protecting what matters most to organizations: their data.
Item 1. Business We were incorporated under the laws of the State of Delaware on November 3, 2004 and commenced operations on January 1, 2005. Our principal offices are located at 1250 Broadway, 28th Floor, New York, NY 10001.
Item 1. Business We were incorporated under the laws of the State of Delaware on November 3, 2004 and commenced operations on January 1, 2005. Our principal offices are located at 801 Brickell Avenue, Miami, FL 33131.
We believe that the diverse coverage and functionality offered by our platform positions us well to capitalize on this powerful trend in the digital universe.
We believe that the diverse coverage and functionality offered by our platform positions us well to capitalize on this powerful trend in the digital universe. Growth Strategy Our objective is to be the primary platform enterprises rely on to protect their most sensitive data.
New UEBA threat models are automatically delivered to customers to guard against evolving tactics used by cybercriminals, insiders and advanced persistent threats (APTs).
New UEBA threat models are automatically delivered to customers to guard against evolving tactics used by cybercriminals, insiders and advanced persistent threats (APTs). Customers select which environments to protect by purchasing “Protection Packages.” These packages allow customers to extend the platform across: ◦ Microsoft 365 .
These maintenance agreements provide customers the right to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period and access to our technical support services. Our renewal rate for 2024 continued to be over 90%.
Maintenance and support associated with past perpetual licenses is included in the Maintenance and services line of the statement of operations. These maintenance agreements provide customers the right to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period and access to our technical support services.
Size of Our Market Opportunity The International Data Corporation’s Global DataSphere Forecast, 2024-2028, predicts that over the next five years, data will reach approximately 394 zettabytes (or 394 trillion Gigabytes) by 2028, representing a nearly 10x increase compared to 2018.
Size of Our Market Opportunity The International Data Corporation’s Global DataSphere Forecast, 2025-2029, predicts that over the next five years, data will grow at a compound annual growth rate of 25.4% to reach more than 527 zettabytes (or 527 trillion Gigabytes) by 2029.
Recognizing the challenge of protecting data with growing volume, velocity and variety, we have built an integrated platform to simplify and streamline data security, threat detection and response and data privacy and compliance. The Varonis Data Security Platform helps enterprises protect data against cyberattacks from both external and internal threats.
As the volume, velocity and variety of enterprise data continues to grow, we have built an integrated platform designed to simplify and streamline data security, threat detection and response, and privacy and compliance workflows.
We maintain a customer support organization that provides all levels of support to our customers. Our customers that purchase maintenance and support services receive guaranteed response times, direct telephonic support and access to online support portals. Our customer support organization has global capabilities with expertise in both our software and complex IT environments and associated third-party infrastructure.
Additionally, we do not expect perpetual license revenues in the future and, accordingly, we also expect the associated maintenance and support to decline. We maintain a customer support organization that provides all levels of support to our customers. Our customers receive guaranteed response times, direct telephonic support and access to online support portals.
Employees and Human Capital Resources As of December 31, 2024, we had 2,406 employees and independent contractors who developed, marketed, sold and supported our technology solutions, including 1,081 in the United States, 844 in Israel and 481 in other countries. We understand that our innovation leadership is ultimately rooted in our people.
Seasonality See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality and Quarterly Trends.” Employees and Human Capital Resources As of December 31, 2025, we had 2,658 employees and independent contractors who developed, marketed, sold and supported our technology solutions, including 1,139 in the United States, 916 in Israel and 603 in other countries.
It may be necessary in the future to seek or renew licenses relating to various aspects of our products, processes and services.
It may be necessary in the future to seek or renew licenses relating to various aspects of our products, processes and services. While we have generally been able to obtain such licenses on commercially reasonable terms in the past, such third parties may not continue to maintain such software or continue to make it available to us.
Services Maintenance and Support of Subscription and Perpetual Licenses Maintenance and support associated with a term license subscription is included in the Term license subscriptions revenue line of the statement of operations. Maintenance and support associated with past perpetual licenses is included in the Maintenance and services line of the statement of operations.
We believe our ability to deliver automated risk reduction, rapid detection and response, and measurable security outcomes, positions as a long-term partner rather than a point solution provider. 6 Services Maintenance and Support of Subscription and Perpetual Licenses Maintenance and support associated with a term license subscription is included in the Term license subscriptions revenue line of the statement of operations.
Due to the transition to a SaaS delivery model, we expect maintenance and support revenues related to term license subscriptions to continue to decline. Additionally, we do not expect perpetual license revenues in the future and, accordingly, we expect the associated maintenance and support to continue to decline.
Our renewal rate for 2025 continued to be over 90%. Due to the transition to a SaaS delivery model, we expect maintenance and support revenues related to term license subscriptions to decline, as we move closer to their end-of-life.
We will no longer refer to these licenses by name; rather, they will be considered built-in functionality of the Varonis Data Security Platform SaaS license. In addition to the functionality mentioned above, the Varonis Data Security Platform SaaS license includes new capabilities not available in our self-hosted product suite.
The Varonis Data Security Platform SaaS license includes new capabilities not available in our self-hosted product suite. Today, the Varonis Data Security Platform SaaS license includes: ◦ Data security posture management ("DSPM") .
Sales and Marketing Sales We sell substantially all of our products and services to a global network of resellers and distributors that we refer to as our channel partners. Our channel partners, in turn, sell the products they purchase from us to customers.
Our customer support organization has global capabilities with expertise in both our software and complex IT environments and associated third-party infrastructure. Sales and Marketing Sales We sell our products and services through a global network of resellers and distributors, which we refer to as our channel partners.
As organizations customize AI agents (such as Microsoft Copilot Studio and Salesforce Agentforce) and train their own large language models ("LLMs"), we believe additional challenges around the security of training data, models and the underlying infrastructure will require automated solutions.
When those controls are overly permissive, poorly understood and unmonitored, AI can unintentionally amplify risk by scaling access faster than organizations can manage manually. As companies customize AI agents and train their own small and large language models, we believe the security of data, identities, agents and underlying infrastructure will increasingly require automated solutions.
In addition, we maintain a highly trained professional sales force that is responsible for overall market development, including the management of the relationships with our channel partners and supporting channel partners in winning customers through operating demonstrations and risk assessments. Our channel partners identify potential sales targets, maintain relationships with 8 customers and introduce new products to existing customers.
Our channel model is complemented by a highly trained, professional sales organization that is responsible for market development, managing partner relationships and supporting customer engagements. Our sales teams work closely with channel partners to conduct platform demonstrations and risk assessments that help customers understand their data exposure and the value of reducing risk through automation.
In 2022, we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which offers simpler deployment, faster time-to-value, and groundbreaking automation capabilities that help customers prevent data breaches.
In 2022, we introduced the Varonis Data Security Platform as a SaaS offering to simplify deployment, accelerate time-to-value, and enable continuous cloud-delivered automation for protecting data.
A number of factors influence our ability to compete in the markets in which we operate, including, without limitation: the continued reliability and effectiveness of our products’ functionalities; the breadth and completeness of our solutions’ features; the scalability of our solutions; and the ease of deployment and use of our products.
Competition in our markets is influenced by several factors including the effectiveness and reliability of solutions, the breadth of support environments, scalability, ease of deployment and the ability to deliver measurable risk reduction.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, energy and utilities, technology, consumer and retail, education and construction and engineering sectors. We also believe our existing customers represent significant future revenue opportunities for us.
Customers We serve a global customer base across more than 95 countries, supporting organizations that operate in different environments and face significant security, privacy and compliance requirements. Our customers span a wide range of industries, including financial services, public, healthcare, industrial, insurance, energy and utilities, technology, construction and engineering, education, and consumer and retail sectors.
Sales to our channel partners are generally subject to our standard, non-exclusive channel partner agreement. These agreements are generally for a term of one year with an automatic renewal of successive one-year periods and can be terminated by us or the channel partner for any reason upon 30 days’ notice.
These channel partners sell our products to end customers and play a key role in identifying opportunities, maintaining customer relationships and supporting deployment. Sales to channel partners are subject to our standard, non-exclusive channel partner agreements that are generally renewed annually and can be terminated by either party with notice.
Our Products With the introduction of our flagship Varonis Data Security Platform as a SaaS, we are transitioning away from selling on-premises subscription licenses. Our SaaS offering is sold as a platform license, providing the functionality of multiple core modules in a single license.
Products Our products are delivered through our flagship Varonis Data Security Platform, a unified platform designed to protect enterprise data across cloud, SaaS and on-premises environments. With the introduction of our SaaS offering, we have simplified how customers use our capabilities by moving away from individually licensed modules and towards a platform-based model.
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Overview Varonis is a leader in data security as, since we started operations in 2005, we recognized that an enterprise's capacity to create and share data far exceeded its capacity to protect it.
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Modern enterprises run on data that is created, copied, shared and accessed across cloud services, SaaS applications and on-premises environments, often faster than security teams can see, understand or control.
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We believed that rapid data growth combined with increasing information dependence would change the global economy and the risk profiles of all organizations - from corporations to governmental agencies. Our focus has been on using innovation to address the cyber-implications of these trends, creating software that provides new ways to track, alert and protect data wherever it is stored.
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We started Varonis around a simple observation that we believe has only intensified over time: the ability to create and share data scales far faster than the ability to secure it.
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Data continues to grow in new and existing data stores both in the cloud and on-premises, a trend we have seen accelerate as companies worldwide undergo waves of digital transformation and artificial intelligence ("AI") initiatives that have significantly impacted how they must approach data security.
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Our strategy is built around closing that gap, giving organizations the deep visibility and automated controls to deeply understand their enterprise data, reduce exposure and respond to threats quickly, wherever their data lives. Data growth itself is not new. What has changed is the combination of scale, sprawl and speed.
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While the significant increase of software-as-service (“SaaS”) and infrastructure-as-service (“IaaS”) usage has accelerated workforce collaboration and information technology ("IT") operations, it has also created unprecedented data sprawl and complexity that have contributed to a growing number of catastrophic data breaches.
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Cloud transformation and artificial intelligence ("AI") initiatives are pushing data into more systems, across more environments and making it accessible to more users, applications and AI agents. As adoption of software-a-service (“SaaS”) and infrastructure-as-a-service (“IaaS”) has accelerated collaboration and productivity, it has also expanded and fragmented the enterprise data footprint.
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We believe the adoption of generative artificial intelligence (“Gen AI”) tools will dramatically compound data growth and introduce new data security challenges that can only be addressed with automation. Gen AI-powered productivity features, commonly called “copilots,” are now embedded within applications such as Microsoft 365, Salesforce, Google Workspace, and Box.
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In many organizations, data security controls have not kept pace, increasing the likelihood that misconfigurations or credential compromise can lead to significant data exposure, threats and regulatory penalties. We believe the adoption of AI materially raises the stakes for security and risk.
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These tools typically leverage existing data security controls to determine which sensitive information can be used by AI; if an organization’s data security controls are not optimized, they face an increased risk of unintentional data exposure and potential abuse by malicious actors.
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Copilots, agents and automated workflows are now embedded in widely used enterprise platforms such as Microsoft 365, Salesforce, Google Workspace and Box and they increasingly act on data at machine speed. These systems typically rely on existing access controls to determine what data can be surfaced, summarized or acted upon.
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In addition to data growth, companies face an environment where threat actors continue to refine their strategies to monetize sensitive data and the risk of substantial fines for noncompliance with data-centric regulations continues to grow.
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In this environment, access becomes the risk multiplier. When too many people, systems or automated agents can reach sensitive data ungoverned, small incidents can quickly become large ones.
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At the same time, organizations are seeing a global scarcity of in-house technical expertise, as the demand for cybersecurity professionals significantly outpaces supply, and IT and security experts are under pressure to solve growing problems with fewer resources.
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We refer to this risk as the “blast radius.” We believe organizations must continuously reduce their blast radius – limiting unnecessary ability to access, move or misuse data – to reap the tremendous benefits of AI. Achieving this consistently and at scale isn’t possible through manual processes, making automation essential.
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We believe that these trends provide us with a long-term opportunity to fulfill our mission of protecting sensitive data for our customers and alleviating the resource pressure and skills shortage that companies face through our automation capabilities and Managed Data Detection and Response ("MDDR") offering.
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At the same time, threat actors continue to refine their methods of monetizing sensitive data, and regulatory expectations around privacy, data protection, and AI governance continue to evolve. Many organizations are also operating under real constraints – the demand for skilled security professionals continues to exceed supply, and teams are expected to manage growing complexity with limited resources.
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Enterprises now use many different combinations of data stores and applications, making it difficult to holistically visualize, quantify and control data breach risk without a unified data security platform. We believe our offering's comprehensive data coverage and automation allows organizations to keep pace with the relentless data growth, sprawl and complexity.
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We believe these pressures will continue to drive adoption of automated approaches that reduce data exposure by default and enable faster detection and response. Enterprises today rely on many combinations of data stores, cloud services and SaaS applications, making it difficult to understand data exposure holistically or control breach risk without a unified approach.
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We started in 2005 with coverage for Windows file shares. Today, we offer coverage for most mission-critical cloud and on-premises data stores, cloud infrastructure environments, identity repositories and many critical SaaS applications.
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We believe comprehensive coverage and automation are required to keep pace with the scale and complexity of modern data environments. Our platform has expanded from an initial focus on Windows files shares to cover a broad range of mission-critical cloud and on-premises data stores, cloud infrastructure environments, identity repositories, and key SaaS and AI applications.
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Since that time, we have seen SaaS deployments grow significantly and expect them to continue to increase through 2025, when we believe our transition to a SaaS delivery model to be complete.
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Platform and Technology 1 Our platform is designed around a core belief: in modern data environments, security outcomes are determined less by perimeter controls and more by how much access exists when something goes wrong.
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Our technology enables enterprises to analyze data, application and account activity and user behavior to help detect and prevent attacks.
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As data spreads across cloud services, SaaS applications and on-premises systems – and as humans, services and AI agents interact with that data at increasing speed – manual approaches to security do not scale. We believe reducing unnecessary access to sensitive data and automatically responding to abnormal behavior are essential to limiting the impact of inevitable failures.
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Varonis prevents or limits unauthorized use of sensitive information, detects and prevents potential 1 cyberattacks and limits potential damage by automatically locking down data, allowing access to only those who need it, and automating the removal of stale data when it is no longer useful.
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At the foundation of the Varonis Data Security Platform is our ability to understand data in context. Our proprietary technology, continuously collects and analyzes metadata – data about data – across an organizations' environments. We understand what types of data exists, where it lives, who can access it and how it’s being used.
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The Varonis Data Security Platform is driven by a proprietary technology, our Metadata Framework, that extracts critical metadata, or data about data, from an enterprise’s IT infrastructure. Our platform uses this contextual information to map functional relationships among employees, data objects, systems, content and usage.
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This contextual view allows us to map relationships among users, devices, applications, automated agents and data objects, creating a durable model of the organization’s data exposure even as environments change. This metadata-driven approach enables our platform to operate at enterprise scale with minimal impact on production systems.
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In doing so, our platform provides real-time intelligence about an enterprise’s massive volumes of data, making it more secure, accessible and manageable.
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Rather than relying on static rules or periodic scans, the platform continuously normalizes metadata from disparate sources, making it actionable across hybrid and multi-cloud environments. We believe this persistent, contextual understanding of data is critical to enabling productivity and AI adoption that is effective and safe.
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We believe that the (i) Varonis Data Security Platform technology, (ii) coverage for most mission-critical cloud and on-premises data stores and cloud infrastructure environments, identity repositories and many critical SaaS applications and (iii) technical experts within the Company who continue to expand and improve our offering are our primary, hard to replicate competitive advantages.
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Building on this foundation, the Varonis Data Security Platform is designed to automate outcomes across data protection, threat detection and response, and privacy and compliance.
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The strength of our solution is driven by several proprietary technologies and methodologies that we have developed, coupled with how we have combined them into our highly versatile platform.
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The platform continuously discovers and classifies well-defined sensitive data like credit card numbers, SSNs and patient IDs, and uses machine learning and AI to identify novel domain- and organization-specific data such as recipes, contracts, formulas and other intellectual property.
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Our belief in our technological advantage stems from having developed a way to do each of the following: • analyze the relationships between users and data with sophisticated algorithms, including cluster analyses and machine learning; • visualize and depict the analyses in an intuitive manner, including simulating contemplated changes and automatically executing tasks that are becoming increasingly more complex for IT and business personnel; • identify and automatically classify data as sensitive, critical, private or regulated, to help organizations ensure compliance with regulations, including the General Data Protection Regulation ("GDPR") and the California Consumer Privacy Act ("CCPA"); • automate remediation of excessive access to sensitive information across large data stores and cloud applications to safely ensure a Zero Trust or least privilege model; • profile users, devices and data to detect suspicious account behavior and unusual file and email activity using deep analysis of metadata, machine learning and user behavior analytics; • profile cloud configurations and interconnectivity to identify potential exposure and abuse; • generate meaningful, actionable alerts when security-related incidents are detected; • enable security teams to investigate and respond to cyber threats more quickly and conclusively with the help of Gen AI; • automatically respond to severe incidents, such as ransomware, to limit the potential impact and reduce recovery times; • provide customers live updates to our platform, which address the rapidly evolving threats they face; • determine relevant metadata and security information to capture without impacting the enterprise's computing and network infrastructure; • modify and enrich that metadata in a way that makes it comparable and analyzable despite it having originated from disparate IT systems, and create supplemental metadata, as needed, when the existing IT infrastructure’s activity logs are insufficient; • decipher the key functional relationships of metadata, the underlying data, and its creators; and • use those functional relationships to create a graphical depiction, or map, of the data that will endure as enterprises continuously add large volumes of data to their network and storage resources.
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Beyond understanding the data estate, Varonis identifies excessive or risky access and automatically remediates exposure by right-sizing permissions and removing outdated or unnecessary access.
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The broad applicability of our technology has resulted in our customers deploying our software for numerous use cases.
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By reducing the amount of data that users, systems and automated agents can reach, the platform helps organizations move toward a least-agency model that limits the potential blast radius of an incident without disrupting everyday business operations. The same model is used to detect and respond to threats.
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These use cases include: automatic discovery and classification of high-risk, sensitive data; data security posture management; SaaS security posture management; automated remediation of over-exposed data; centralized visibility and risk analysis of enterprise data and monitoring of user behavior and file activity; security monitoring and risk reduction; data breach, insider threat, malware and ransomware detection with MDDR; automatic response to ransomware and other severe incidents to limit exposure and reduce recovery times; data ownership identification, assignment, and automatic involvement; forensics, reporting 2 and auditing with searchable logs; meeting security policy and compliance regulation; automatic data migration; cloud migration; automation of retention and disposition policies; automatic data quarantine; intelligent archiving; and automated indexing for data subject requests related to privacy and compliance requirements.
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By analyzing data access patterns – user and entity behavior and system activity together – the platform can identify suspicious behavior that could be compromised credentials, insider misuse, malware or ransomware. When threats are detected, the platform can automatically take action to contain it such as restricting access or locking down affected accounts, limiting potential damage and reducing recovery time.
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We sell substantially all our products and services to channel partners, including distributors and resellers, which sell to end-user customers, whom we refer to in this report as our customers. Our products are also available to trial and purchase via the Azure Marketplace, AWS Marketplace, and Salesforce AppExchange.
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The Varonis platform is offered as a SaaS offering, which we believe is key to our ability to deliver these outcomes at scale.
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We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force, has and will continue to play a major role in our ability to grow and successfully deliver our unique value proposition for securing enterprise data.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis SaaS strategy may give rise to a number of risks, including the following: • our revenues and operating margins may fluctuate more than anticipated over the short-term as a result of this strategy; • if current customers desire only self-hosted licenses our SaaS sales may lag behind our expectations; • the shift to a SaaS strategy may raise concerns among our customer base, including concerns regarding changes to pricing over time and access to data once a subscription has expired; • we may be unsuccessful in maintaining or implementing our target pricing or new pricing models, product adoption and projected renewal rates, or we may select a target price or new pricing model that is not optimal and could negatively affect our sales or earnings; • if our customers do not renew their subscriptions or do not renew them on a timely basis, our revenues may decline and our business may suffer; • we may incur hosting costs at a higher than forecasted rate or our SaaS platform can operate less efficiently than anticipated; • we may incur sales compensation costs at a higher than forecasted rate if the pace of our subscription transition is faster than anticipated; and • our sales force may struggle with the transition which may lead to increased turnover rates and lower headcount.
Biggest changeThis SaaS strategy continues to pose a number of risks, including the following: • our revenues and operating margins may fluctuate more than anticipated as our business model relies increasingly on subscription revenues, which may be more sensitive to renewal rates, customer usage patterns, and macroeconomic conditions; • the remaining self‑hosted customer base may convert more slowly than projected, or certain customers may choose not to transition at all, which could reduce expected growth or require continuing investment in legacy offerings; • customers may continue to express concerns related to long‑term pricing, data access, data residency, or vendor lock‑in, which could affect new subscription sales or renewal rates; • we may be unsuccessful in maintaining or adjusting our pricing models, product tiers, or packaging strategies, or such changes may adversely affect customer adoption, demand, or earnings; • if our customers do not renew their subscriptions, reduce usage, or delay renewal decisions, our revenues may decline and our business and operating results may suffer; • our hosting, infrastructure, or third‑party cloud costs may exceed forecasts, or our SaaS platform may not scale or operate as efficiently as anticipated, negatively affecting gross margins; • we may incur higher than expected sales compensation expenses if the pace of remaining conversions or new SaaS sales varies from forecasted levels; and • our sales force and customer facing teams may face ongoing challenges with selling and supporting SaaS solutions, which may lead to productivity issues, increased turnover, or the need for additional training and investment.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, including potential write-downs of deferred revenues, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; 22 • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • challenges inherent in effectively managing an increased number of employees in diverse locations; • the potential strain on our financial and managerial controls and reporting systems and procedures; • potential known and unknown liabilities or deficiencies associated with an acquired company that were not identified in advance; • our use of cash to pay for acquisitions would limit other potential uses for our cash and affect our liquidity; • if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
Acquisitions involve many risks, including the following: • an acquisition may negatively affect our results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, including potential write-downs of deferred revenues, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter difficulties in, or may be unable to, successfully sell any acquired products; • an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions; • challenges inherent in effectively managing an increased number of employees in diverse locations; • the potential strain on our financial and managerial controls and reporting systems and procedures; • potential known and unknown liabilities or deficiencies associated with an acquired company that were not identified in advance; • our use of cash to pay for acquisitions would limit other potential uses for our cash and affect our liquidity; • if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; • the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions; • to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and • managing the varying intellectual property protection strategies and other activities of an acquired company.
Bribery Act of 2010 (the “UK Bribery Act”), import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our software in certain foreign markets, and the risks and costs of non-compliance; • heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of financial statements and irregularities in financial statements; • reduced protection for intellectual property rights in certain countries and practical difficulties and costs of enforcing rights abroad; and 19 • compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes and digital tax imposed on our operations in foreign taxing jurisdictions.
Bribery Act of 2010 (the “UK Bribery Act”), import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our software in certain foreign markets, and the risks and costs of non-compliance; • heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of financial statements and irregularities in financial statements; • reduced protection for intellectual property rights in certain countries and practical difficulties and costs of enforcing rights abroad; and • compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes and digital tax imposed on our operations in foreign taxing jurisdictions.
Factors that could impede our ability to maintain or increase the amount of revenues derived from public sector contracts include: • changes in public sector fiscal or contracting policies; • decreases or elimination of available public sector funding; • non-compliance with or an inability to attain the proper certification to conduct business in the public sector; • changes in public sector programs or applicable requirements; • the adoption of new laws or regulations or changes to existing laws or regulations; • potential delays or changes in the public sector appropriations or other funding authorization processes; • the requirement of contractual terms that are unfavorable to us, such as most-favored-nation pricing provisions; and • delays in the payment of our invoices by public sector payment offices.
Factors that could impede our ability to maintain or increase the amount of revenues derived from public sector contracts include: • changes in public sector fiscal or contracting policies; 20 • decreases or elimination of available public sector funding; • non-compliance with or an inability to attain the proper certification to conduct business in the public sector; • changes in public sector programs or applicable requirements; • the adoption of new laws or regulations or changes to existing laws or regulations; • potential delays or changes in the public sector appropriations or other funding authorization processes; • the requirement of contractual terms that are unfavorable to us, such as most-favored-nation pricing provisions; and • delays in the payment of our invoices by public sector payment offices.
If a “make-whole fundamental change” (as defined in the Indentures) occurs prior the maturity date, we will in some cases be required to increase the conversion rate of the Notes for a holder that elects to convert its Notes in connection with such “make-whole fundamental change.” These features of the Notes may make a potential acquisition more expensive for a potential acquiror, which may in turn make it less likely for a potential acquiror to offer to purchase our company, or reduce the amount of consideration offered for each share of our common stock in a potential acquisition.
If a “make-whole fundamental change” (as defined in the Indentures) occurs prior the maturity date, we will in some cases be required to increase the conversion rate of the 2029 Notes for a holder that elects to convert its Notes in connection with such “make-whole fundamental change.” These features of the 2029 Notes may make a potential acquisition more expensive for a potential acquiror, which may in turn make it less likely for a potential acquiror to offer to purchase our company, or reduce the amount of consideration offered for each share of our common stock in a potential acquisition.
Our brand recognition and reputation are dependent upon: • our ability to continue to offer high quality, innovative and error- and bug-free products; • our ability to maintain customer satisfaction with our products; • our ability to be responsive to customer concerns and provide high quality customer support, training and professional services; • our marketing efforts; • any misuse or perceived misuse of our products; • positive or negative publicity; • our ability to prevent or quickly react to any cyberattack on our IT systems or security breach of or related to our software; • interruptions, delays or attacks on our website; and 20 • litigation or regulatory-related developments.
Our brand recognition and reputation are dependent upon: • our ability to continue to offer high quality, innovative and error- and bug-free products; • our ability to maintain customer satisfaction with our products; • our ability to be responsive to customer concerns and provide high quality customer support, training and professional services; • our marketing efforts; • any misuse or perceived misuse of our products; • positive or negative publicity; • our ability to prevent or quickly react to any cyberattack on our IT systems or security breach of or related to our software; • interruptions, delays or attacks on our website; and • litigation or regulatory-related developments.
In addition, if such fundamental change also constitutes a “make-whole fundamental change,” the conversion rate for the Notes may be increased upon conversion of the Notes in connection with such “make-whole fundamental change.” Any increase in the conversion rate will be determined based on the date on which the “make-whole fundamental change” occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction.
In addition, if such fundamental change also constitutes a “make-whole fundamental change,” the conversion rate for the 2029 Notes may be increased upon conversion of the 2029 Notes in connection with such “make-whole fundamental change.” Any increase in the conversion rate will be determined based on the date on which the “make-whole fundamental change” occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction.
High-profile cyberattacks and security breaches have increased in recent years, with the potential for such acts heightened as a result of the number of employees working remotely due to many companies adopting a hybrid working model. Security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting IT products and enterprise infrastructure.
High-profile cyberattacks and security breaches have increased in recent years, with the potential for such acts heightened as a result of the number of employees working remotely due to many companies adopting a hybrid working model. Security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting IT products and 12 enterprise infrastructure.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets. 21 We incorporate certain encryption technology into certain of our products and, as a result, are required to comply with U.S. export control laws and regulations, including the Export Administration Regulations administered by the U.S.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets. We incorporate certain encryption technology into certain of our products and, as a result, are required to comply with U.S. export control laws and regulations, including the Export Administration Regulations administered by the U.S.
Furthermore, the Indentures prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. General Risks Factors Real or perceived errors, failures or bugs in our software could adversely affect our growth prospects. Because our software uses complex technology, undetected errors, failures or bugs may occur.
Furthermore, the Indentures prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2029 Notes. General Risks Factors Real or perceived errors, failures or bugs in our software could adversely affect our growth prospects. Because our software uses complex technology, undetected errors, failures or bugs may occur.
For example, customers may delay making purchases of products and services to permit them to make a more thorough evaluation of these new products and 15 services or until industry and marketplace reviews become widely available. We may be unable to realize the benefits of our investments or the resources we have committed to expanding our cloud-delivered services.
For example, customers may delay making purchases of products and services to permit them to make a more thorough evaluation of these new products and services or until industry and marketplace reviews become widely available. We may be unable to realize the benefits of our investments or the resources we have committed to expanding our cloud-delivered services.
In addition, our solution may incorporate third-party software under commercial licenses. We cannot be certain whether such third-party software incorporates open source software without our knowledge. In the past, companies that incorporate open source software into their products have faced claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software.
In addition, our solution may incorporate third-party software under commercial licenses. We cannot be certain whether such third-party software incorporates open source software without our knowledge. In the past, companies that incorporate open 23 source software into their products have faced claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software.
Until such time that we pay a dividend, stockholders, including holders of our Notes who receive shares of our common stock upon conversion of the Notes, must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Until such time that we pay a dividend, stockholders, including holders of our Notes who receive shares of our common stock upon conversion of the 2029 Notes, must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
These provisions include: 32 • authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock, which would increase the number of outstanding shares and could thwart a takeover attempt; • a classified board of directors whose members can only be dismissed for cause; • the prohibition on actions by written consent of our stockholders; • the limitation on who may call a special meeting of stockholders; • the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings; and • the requirement of at least 75% of the outstanding capital stock to amend any of the foregoing second through fifth provisions.
These provisions include: • authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock, which would increase the number of outstanding shares and could thwart a takeover attempt; • a classified board of directors whose members can only be dismissed for cause; • the prohibition on actions by written consent of our stockholders; • the limitation on who may call a special meeting of stockholders; • the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings; and 30 • the requirement of at least 75% of the outstanding capital stock to amend any of the foregoing second through fifth provisions.
Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase. Our ability to meet our payment obligations under the Notes depends on our future cash flow performance.
Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase. Our ability to meet our payment obligations under the 2029 Notes depends on our future cash flow performance.
If the Company undergoes a “fundamental change,” subject to certain conditions, holders may require the Company to repurchase for cash all or part of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
If the Company undergoes a “fundamental change,” subject to certain conditions, holders may require the Company to repurchase for cash all or part of their 2029 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
It is possible that our operations could be disrupted if this continues for a significant period of time or if the situation further deteriorates, including, among other things, an expansion of the war to other countries, damage to critical infrastructure and general unrest, which could harm our business.
It is possible that our operations could be disrupted if this continues for a significant period of time or if 28 the situation further deteriorates, including, among other things, an expansion of the war to other countries, damage to critical infrastructure and general unrest, which could harm our business.
Our policy is to require our employees (and our consultants and 26 service providers that develop intellectual property included in our products) to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property).
Our policy is to require our employees (and our consultants and service providers that develop intellectual property included in our products) to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property).
In the event that the remaining Notes are converted and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock.
In the event that the remaining 2029 Notes are converted and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock.
The market is characterized by the exponential growth in enterprise data, rapid technological advances, changes in customer requirements, including customer requirements driven by changes to legal, regulatory and self-regulatory compliance mandates, frequent new product introductions and enhancements and evolving industry standards in computer hardware and software technology.
The market is characterized by the exponential growth in enterprise data, rapid technological advances, changes in customer requirements, including customer requirements driven by changes to legal, regulatory and self-regulatory compliance mandates, 21 frequent new product introductions and enhancements and evolving industry standards in computer hardware and software technology.
Accordingly, our failure to provide satisfactory technical support, 24 customer success or professional services could lead our customers not to renew their agreements with us or renew on terms less favorable to us, and therefore have a material and adverse effect on our business and results of operations.
Accordingly, our failure to provide satisfactory technical support, customer success or professional services could lead our customers not to renew their agreements with us or renew on terms less favorable to us, and therefore have a material and adverse effect on our business and results of operations.
Customer renewal rates may decline or fluctuate due to a number of factors, including offering pricing, competitive offerings, customer satisfaction and reductions in customer spending levels or customer activity due to economic downturns, the adverse impact of import tariffs, inflation or other market uncertainty.
Customer renewal or conversion rates may decline or fluctuate due to a number of factors, including offering pricing, competitive offerings, customer satisfaction and reductions in customer spending levels or customer activity due to economic downturns, the adverse impact of import tariffs, inflation or other market uncertainty.
In addition, the laws of some foreign countries where we operate do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.
In addition, the laws of some foreign countries where we operate do not protect our proprietary rights to as great an extent as the laws of the 24 United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.
Our hosted offerings rely upon third-party providers to supply data center space, equipment maintenance and other colocation services and rely upon the ability of those providers to maintain continuous service availability and protect customer data on their services.
Our hosted offerings rely upon third-party providers to supply data center space, equipment maintenance and other colocation services and rely upon the ability of those providers to maintain continuous service availability and protect customer data on 13 their services.
Risks Related to the Industry in which we Operate The market for software that analyzes, secures, governs, manages and migrates enterprise data may not continue to grow or grow at the same pace.
Risks Related to the Industry in which we Operate 9 The market for software that analyzes, secures, governs, manages and migrates enterprise data may not continue to grow or grow at the same pace.
In addition, if a “fundamental change” occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us to repurchase all or a portion of their Convertible Notes.
In addition, if a “fundamental change” occurs prior to the maturity date of the 2029 Notes, holders of the 2029 Notes will have the right, at their option, to require us to repurchase all or a portion of their Convertible Notes.
It may become increasingly difficult to maintain and improve the performance of our websites, especially during peak usage times and as our software becomes more complex and our user traffic increases.
It may become increasingly difficult to maintain and improve the performance of our websites, especially during peak usage times and as our software becomes more complex and 22 our user traffic increases.
In addition, the anticipated conversion of the Notes could depress the market price of our common stock. The fundamental change provisions of the Notes may delay or prevent an otherwise beneficial takeover attempt of us.
In addition, the anticipated conversion of the 2029 Notes could depress the market price of our common stock. The fundamental change provisions of the 2029 Notes may delay or prevent an otherwise beneficial takeover attempt of us.
These factors, as well as the volatility of our common stock, could affect the price at which our convertible noteholders could sell the common stock received upon conversion of the Notes and could also impact the trading price of the Notes.
These factors, as well as the volatility of our common stock, could affect the price at which our convertible noteholders could sell the common stock received upon conversion of the 2029 Notes and could also impact the trading price of the 2029 Notes.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline. 34 Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders.
Risks Related to our Tax Regime 27 Our tax rate may vary significantly depending on our stock price. The tax effects of the accounting for stock-based compensation may significantly impact our effective tax rate from period to period.
Risks Related to our Tax Regime Our tax rate may vary significantly depending on our stock price. The tax effects of the accounting for stock-based compensation may significantly impact our effective tax rate from period to period.
We may issue additional shares of our common stock in connection with conversions of the Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.
We may issue additional shares of our common stock in connection with conversions of the 2029 Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.
Our use of open source software could negatively affect our ability to sell our software and subject us to possible litigation. 25 We use open source software and expect to continue to use open source software in the future.
Our use of open source software could negatively affect our ability to sell our software and subject us to possible litigation. We use open source software and expect to continue to use open source software in the future.
Our success depends in part on maintaining and increasing our sales to customers in the public sector. We derive a portion of our revenues from contracts with federal, state, local and foreign governments and government-owned or -controlled entities (such as public health care bodies, educational institutions and utilities), which we refer to as the public sector herein.
Our success depends in part on maintaining, converting to SaaS and increasing our sales to customers in the public sector. We derive a portion of our revenues from contracts with federal, state, local and foreign governments and government-owned or -controlled entities (such as public health care bodies, educational institutions and utilities), which we refer to as the public sector herein.
From time to time, certain financial institutions (with which we entered into the Capped Call Transactions) or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes.
From time to time, certain financial institutions (with which we entered into the Capped Call Transactions) or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock 27 and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2029 Notes.
Our revenues depend in part on the conversion of enterprises that have undergone risk assessments into paying customers; however, these risk assessments may not be converted at the same historical rates. At the same time, the majority of our sales are typically made during the last three weeks of every quarter.
Our revenues depend in part on the conversion of enterprises that have undergone risk assessments into paying customers; however, these risk assessments may not be converted at the same historical rates or at all. At the same time, the majority of our sales are typically made during the last three weeks of every quarter.
Our Israeli subsidiary has benefited from a status of a “Beneficiary Enterprise” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, since its incorporation. As of December 31, 2024, the tax benefit that we have been utilizing for our Israeli subsidiary terminated.
Our Israeli subsidiary has benefited from a status of a “Beneficiary Enterprise” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, since its incorporation. As of December 31, 2025, the tax benefit that we have been utilizing for our Israeli subsidiary terminated.
We rely on channel partners, such as distribution partners and resellers, to sell the Varonis Data Security Platform. In 2023 and 2024, our channel partners fulfilled substantially all of our sales, and we expect that sales to channel partners will continue to account for substantially all of our revenues for the foreseeable future.
We rely on channel partners, such as distribution partners and resellers, to sell the Varonis Data Security Platform. In 2024 and 2025, our channel partners fulfilled substantially all of our sales, and we expect that sales to channel partners will continue to account for substantially all of our revenues for the foreseeable future.
As of December 31, 2024, we do not have any employees or contractors in Russia. We have no way to predict the progress or outcome of the situation, including any impact on the rest of the world, as the conflict and government reactions are rapidly developing.
As of December 31, 2025, we do not have any employees or contractors in Russia. We have no way to predict the progress or outcome of the situation, including any impact on the rest of the world, as the conflict and government reactions are rapidly developing.
The Capped Call Transactions are expected generally to reduce or offset the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to the Cap Price, subject to certain adjustments under the terms of the Capped Call Transactions.
The Capped Call Transactions are expected generally to reduce or offset the potential dilution upon conversion of the 2029 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap, subject to certain adjustments under the terms of the Capped Call Transactions.
Our future success will depend in large part on our ability to, among other things: • successfully transition to a SaaS delivery model and manage our introduction of cloud-based solutions; • maintain and expand our business, including our customer base and operations, to support our growth, both domestically and internationally; • develop new products and services and bring products and services in beta to market; • renew customer agreements and sell additional products to existing customers; • maintain high customer satisfaction and ensure quality and timely releases of our products and product enhancements; • increase market awareness of our products and enhance our brand; • maintain compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property, international sales and taxation; • hire, integrate, train and retain skilled talent, including members of our sales force and engineers; and • our ability to successfully manage and integrate any acquisitions of businesses.
Our future success will depend in large part on our ability to, among other things: • convert our remaining self-hosted customers to our SaaS delivery model; • manage our introduction of cloud-based solutions; • maintain and expand our business, including our customer base and operations, to support our growth, both domestically and internationally; • develop new products and services and bring products and services in beta to market; • renew customer agreements and sell additional products to existing customers; • maintain high customer satisfaction and ensure quality and timely releases of our products and product enhancements; • increase market awareness of our products and enhance our brand; • maintain compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property, international sales and taxation; • hire, integrate, train and retain skilled talent, including members of our sales force and engineers; and 16 • our ability to successfully manage and integrate any acquisitions of businesses.
We cannot accurately predict renewal rates given our varied customer base of enterprise and small and medium size business customers and the number of multiyear contracts.
We cannot accurately predict renewal or conversion rates given our varied customer base of enterprise and small and medium size business customers and the number of multiyear contracts.
Negative conditions in the general economy both in the United States and abroad, including inflationary pressure, currency fluctuations and a higher interest rate environment, changes in gross domestic product growth, instability in connection with political elections, potential future government shutdowns, the federal government’s failure to raise the debt ceiling, financial and credit market fluctuations, the imposition of trade barriers and restrictions such as tariffs, political deadlock, restrictions on travel, natural catastrophes, warfare and terrorist attacks, could cause a decrease in business investments, including corporate spending on enterprise software in general and negatively affect the rate of growth of our business.
Negative conditions in the general economy both in the United States and abroad, including inflationary pressure, currency fluctuations and a higher interest rate environment, changes in gross domestic product growth, instability in connection with political elections, potential future government shutdowns, the federal government’s failure to raise the debt ceiling, financial and credit market fluctuations, the imposition of trade barriers and restrictions such as tariffs, including tariffs implemented around the world by the United States or other countries, political deadlock, restrictions on travel, natural catastrophes, warfare and terrorist attacks, could cause a decrease in business investments, including corporate spending on enterprise software in general and negatively affect the rate of growth of our business.
The market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot predict or control, including the factors listed below and other factors described in this “Risk Factors” section: 31 • actual or anticipated fluctuations in our results or those of other companies in our industry; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or other companies in our industry; • new announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • price and volume fluctuations in certain categories of companies or the overall stock market, including as a result of trends in the global economy; • the trading volume of our common stock; • investor confusion with respect to the Company's results of operation during the SaaS transition; • changes in accounting principles; • sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; • additions or departures of any of our key personnel; • lawsuits threatened or filed against us; • short sales, hedging and other derivative transactions involving our capital stock; • general economic conditions in the United States and abroad, including inflationary pressures and higher interest rates; • changing legal or regulatory developments in the United States and other countries; • conversion of the Notes; and • other events or factors, including those resulting from war, incidents of terrorism, pandemics, natural disasters or responses to these events.
The market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot predict or control, including the factors listed below and other factors described in this “Risk Factors” section: • actual or anticipated fluctuations in our results or those of other companies in our industry; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or other companies in our industry; • new announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks; 29 • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • price and volume fluctuations in certain categories of companies or the overall stock market, including as a result of trends in the global economy; • the trading volume of our common stock; • volatility with respect to the Company's results of operation while we seek to convert the remaining term license subscription customers to our SaaS platform; • changes in accounting principles; • sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; • additions or departures of any of our key personnel; • lawsuits threatened or filed against us; • short sales, hedging and other derivative transactions involving our capital stock; • general economic conditions in the United States and abroad, including inflationary pressures and higher interest rates; • changing legal or regulatory developments in the United States and other countries; • conversion of the 2029 Notes; and • other events or factors, including those resulting from war, incidents of terrorism, pandemics, natural disasters or responses to these events.
We may not be able to predict renewal rates and their impact on our future revenues and operating results.
We may not be able to predict renewal or conversion rates and their impact on our future revenues and operating results.
For example, our renewal rate for the years ended December 31, 2024, 2023 and 2022 continued to be over 90%.
For example, our renewal rate for the years ended December 31, 2025, 2024 and 2023 continued to be over 90%.
We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of December 31, 2024, we had options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) outstanding that, if fully vested and exercised, would result in the issuance of approximately 7.6 million shares of our common stock.
We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of December 31, 2025, we have options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) outstanding that, if fully vested and exercised, would result in the issuance of approximately 8.6 million shares of our common stock.
Our ability to effectively manage any significant growth of our business will depend on a number of factors, including our ability to do the following: • satisfy existing customers and attract new customers; • adequately and timely recruit, train, motivate and integrate new employees, including our sales force and engineers, while retaining existing employees, maintaining the beneficial aspects of our corporate culture and effectively executing our business plan; • successfully introduce new products and enhancements; • effectively manage existing channel partnerships and expand to new ones; • improve our key business applications and processes to support our business needs; • enhance information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other and our growing customer base; • enhance our internal controls to ensure timely and accurate reporting of all of our operations and financial results; • protect and further develop our strategic assets, including our intellectual property rights; • continue to capitalize on the transition to a SaaS delivery model; and • successfully manage and integrate any future acquisitions of businesses, including without limitation, the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies. 17 These activities will require significant investments and allocation of valuable management and employee resources, and our growth will continue to place significant demands on our management and our operational and financial infrastructure.
Our ability to effectively manage any significant growth of our business will depend on a number of factors, including our ability to do the following: • satisfy existing customers and attract new customers; • adequately and timely recruit, train, motivate and integrate new employees, including our sales force and engineers, while retaining existing employees, maintaining the beneficial aspects of our corporate culture and effectively executing our business plan; • successfully introduce new products and enhancements; • effectively manage existing channel partnerships and expand to new ones; • improve our key business applications and processes to support our business needs; • enhance information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other and our growing customer base; • enhance our internal controls to ensure timely and accurate reporting of all of our operations and financial results; • protect and further develop our strategic assets, including our intellectual property rights; • continue to capitalize on the transition to a SaaS delivery model; and • successfully manage and integrate any future acquisitions of businesses, including without limitation, the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies.
Further, we recently began focusing on the conversion of our current OPS customers to our SaaS platform and the sales cycle of such conversions can and may continue to take longer than the acquisition of new customers.
Further, we have been focusing on the conversion of our current OPS customers to our SaaS platform and the sales cycle of such conversions can and may continue to take longer than the acquisition of new customers.
Moreover, although we have experienced significant growth historically, we may not continue to grow as quickly in the future.
Moreover, although we have experienced significant growth historically, we may not continue to grow as quickly, or at all, in the future.
Risks Related to the Notes We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.
Risks Related to the 2029 Notes 26 We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results. In September 2024, we issued the 2029 Notes.
While we extend our technological capabilities though innovation and strategic transactions, including our recently announced Managed Data Detection and Response and cloud-based solutions, we cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to extend our technological expertise and develop new products or expand the functionality of our current products in a timely manner or at all.
While we extend our technological capabilities though innovation and strategic transactions, including our recently announced MDDR, DAM, email security and cloud-based solutions, we cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to extend our technological expertise and develop new products or expand the functionality of our current products in a timely manner or at all.
Historically, we have generated the majority of our revenues from customers in the United States. For the years ended December 31, 2024 and 2023, approximately 73% and 72%, respectively, of our total revenues were derived from sales in the United States.
Historically, we have generated the majority of our revenues from customers in the United States. For the years ended December 31, 2025 and 2024, approximately 71% and 73%, respectively, of our total revenues were derived from sales in the 17 United States.
If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.
We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.
In addition, it is possible that our product innovations, including our recently announced Managed Data Detection and Response and cloud-based solutions, may not provide satisfactory results to our customers. Accordingly, our business, results of operations and financial condition could be materially and adversely affected.
In addition, it is possible that our product innovations, including our recently announced MDDR, DAM, email security and cloud-based solutions, may not provide satisfactory results to our customers. Accordingly, our business, results of operations and financial condition could be materially and adversely affected.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, results of operations, financial condition and cash flows and may cause a significant increase in the premium paid for our directors and officers insurance.
Such securities litigation, and any potential securities litigation in the future, could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, results of operations, financial condition and cash flows and may cause a significant increase in the premium paid for our directors and officers insurance.
Overall economic uncertainty may in the future give rise to a number of risks, including, but not limited to, the following: 12 • reduced economic activity could lead to a prolonged recession, which could negatively impact spending by our customers or the ability of customers to pay for our services; • not meeting expectations with respect to certain key performance metrics, such as renewal rates and annual recurring revenues; • our ability to enter into new markets and to acquire new customers; • an increase in bad debt reserves as customers face economic hardship and collectability becomes more uncertain, including the risk of bankruptcies; • variability with forward-looking guidance and financial results, including management’s accounting estimates and assumptions; and • our ability to raise capital.
Overall economic uncertainty may in the future give rise to a number of risks, including, but not limited to, the following: • reduced economic activity could lead to a prolonged recession, which could negatively impact spending by our customers or the ability of customers to pay for our services; • not meeting expectations with respect to certain key performance metrics, such as renewal rates and annual recurring revenues; • our ability to enter into new markets and to acquire new customers; • an increase in bad debt reserves as customers face economic hardship and collectability becomes more uncertain, including the risk of bankruptcies; • variability with forward-looking guidance and financial results, including management’s accounting estimates and assumptions; and • our ability to raise capital. 10 The challenges posed by and the full impact of negative conditions in the general economy on our business and our future performance are difficult to predict and there is a risk that any guidance we provide to the market may turn out to be incorrect.
The inability to successfully integrate the business, technologies, products, personnel or operations of any acquired business, or any significant delay in achieving integration, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The inability to successfully integrate the business, technologies, products, personnel or operations of any acquired business, or any significant delay in achieving integration, could have a material adverse effect on our business, results of operations, financial condition and cash flows. 19 We are exposed to collection and credit risks, which could impact our operating results.
As of December 31, 2024, we had 89 issued patents in the United States and 31 pending U.S. patent applications. We also had 76 patents issued and 34 applications pending for examination in non-U.S. jurisdictions, and 18 pending PCT patent applications, all of which are counterparts of our U.S. patent applications. We may file additional patent applications in the future.
As of December 31, 2025, we have 116 issued patents in the United States and 63 pending U.S. patent applications. We also had 95 patents issued and 79 applications pending for examination in non-U.S. jurisdictions, and 31 pending PCT patent applications, all of which are counterparts of our U.S. patent applications. We may file additional patent applications in the future.
Any on-going or future armed conflicts, terrorist activities, tension along the Israeli borders or with other countries in the region, including Lebanon, Syria, Iran or Yemen, or political instability in the region could disrupt international trading activities in Israel and may materially and negatively affect our business and could harm our results of operations. 30 Certain countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli companies, companies with large Israeli operations and others doing business with Israel and Israeli companies.
Any on-going or future armed conflicts, terrorist activities, tension along the Israeli borders or with other countries in the region, including Lebanon, Syria, Iran or Yemen, or political instability in the region could disrupt international trading activities in Israel and may materially and negatively affect our business and could harm our results of operations.
As a result, we may present reduced revenues as compared to prior periods, and comparing our revenues and results of operations on a period-to-period basis may not be meaningful, and should not be relied on for any particular period.
However, there are still a number of term license subscriptions remaining to be converted and, as a result, we may present reduced revenues as compared to prior periods, and comparing our revenues and results of operations on a period-to-period basis may not be meaningful and should not be relied on for any particular period.
In addition, our software involves transmission and processing of our customers’ confidential, proprietary and sensitive information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. As a leader in the cyber industry, we may be an attractive target for cyber attackers or other data thieves.
We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. As a leader in the cyber industry, we may be an attractive target for cyber attackers or other data thieves.
As of the fourth quarter of 2024, we have accounted for an estimate of the effects of the R&E capitalization, based on interpretation of the law as currently enacted.
As of the fourth quarter of 2025, we have accounted for an estimate of the effects of the research and development capitalization, based on interpretation of the law as currently enacted.
A U.S. corporation’s ability to utilize its federal and state net operating loss (“NOL”) and tax credit carryforwards to offset its taxable income is limited under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if the corporation undergoes an ownership change (within the meaning of Code Section 382).
A U.S. corporation’s ability to utilize its federal and state net operating loss (“NOL”) and tax credit carryforwards to offset its taxable income is limited under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if the corporation undergoes an ownership change (within the meaning of Code Section 382). 25 As of December 31, 2025, we have accumulated $211.5 million of federal NOL, $182.0 million of state NOL and $10.5 million of federal research credit carryforwards since inception.
We are exposed to collection and credit risks, which could impact our operating results. Our trade receivables are subject to collection and credit risks. These agreements may include purchase commitments for multiple years of term license subscriptions and SaaS, which may be invoiced over multiple reporting periods increasing these risks.
Our trade receivables are subject to collection and credit risks. These agreements may include purchase commitments for multiple years of SaaS and term license subscriptions, which may be invoiced over multiple reporting periods increasing these risks. For example, our operating results may be impacted by significant bankruptcies among customers and resellers, which could negatively impact our revenues and cash flows.
The occurrence of any of the foregoing could cause public sector customers to delay or refrain from purchasing licenses of our software in the future or otherwise have an adverse effect on our business, operations and financial results.
The occurrence of any of the foregoing could cause public sector customers to delay or refrain from purchasing licenses of our software in the future or otherwise have an adverse effect on our business, operations and financial results. Risks Related to Human Capital Talent acquisition and retention challenges could adversely affect our growth and operational performance.
Nevertheless, we do compete against a select group of software vendors that provide standalone solutions, similar to those found in our comprehensive software suite, in the specific markets in which we operate. We also face direct competition with respect to certain use cases, specifically DSPM, data discovery and classification, privacy, data migration, data subject access requests and Active Directory security.
However, we do face competition from a select group of software vendors that provide standalone solutions similar to those features embedded in our comprehensive platform, particularly in the markets we serve. We also face direct competition in specific use cases, specifically DSPM, data discovery and classification, privacy, data migration, data subject access requests and Active Directory security.
We have a history of losses, and we may not be profitable in the future. 18 We have incurred net losses in each year since our inception, including a net loss of $95.8 million, $100.9 million and $124.5 million in each of the years ended December 31, 2024, 2023 and 2022, respectively.
We have incurred net losses in each year since our inception, including a net loss of $129.3 million, $95.8 million and $100.9 million in each of the years ended December 31, 2025, 2024 and 2023, respectively.
If we fail to attract new customers and maintain and expand those customer relationships, our revenues may be adversely affected, and our business will be harmed.
If we fail to attract new customers and maintain and expand those customer relationships, our revenues may be adversely affected, and our business will be harmed. We have a history of losses, and we may not be profitable in the future.
Our obligation to repurchase the Notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders. 29 The Capped Call Transactions may affect the value of the Notes and our common stock.
Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase the 2029 Notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.
We believe that enhancing the “Varonis” brand identity and maintaining our reputation in the IT industry is critical to our relationships with our customers and to our ability to attract new customers.
Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation may adversely affect our business. We believe that enhancing the “Varonis” brand identity and maintaining our reputation in the IT industry is critical to our relationships with our customers and to our ability to attract new customers.
In connection with the issuance of the Notes, we entered into Capped Call Transactions with certain financial institutions.
The Capped Call Transactions may affect the value of the 2029 Notes and our common stock. In connection with the issuance of the 2029 Notes, we entered into Capped Call Transactions with certain financial institutions.
While there are some companies which offer certain features similar to those embedded in our solutions, as well as others with whom we compete in certain tactical use cases, we believe that we do not currently compete with a company that offers the same breadth of functionalities on the number of platforms and applications that we cover.
While there are some companies which offer certain features similar to those embedded in our solutions, and others with whom we compete in certain tactical use cases, we believe that no single competitor delivers the same automated outcomes on the number of platforms and applications that we support.
We may not be able to grow our business in an efficient or timely manner, or at all. Moreover, if we do not effectively manage the growth of our business and operations, the quality of our software could suffer, which could negatively affect our brand, results of operations and overall business.
Moreover, if we do not effectively manage the growth of our business and operations, the quality of our software could suffer, which could negatively affect our brand, results of operations and overall business.
The adoption of the U.S. tax reform and the enactment of additional legislation changes could materially impact our financial position and results of operations. On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted.
The adoption of the U.S. tax reform and the enactment of additional legislation changes could materially impact our financial position and results of operations. On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted.
Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations.
However, if our business partners were to provide our products to certain countries, governments, or sanctioned persons in violation of these laws, such provision could have negative consequences, including government investigations, penalties and reputational harm. 18 Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations.
We intend to continue to grow our business and plan to continue to hire new sales employees either for expansion or replacement of existing sales personnel.
If we fail to manage this growth effectively, our business and results of operations will be adversely affected. 15 We intend to continue to grow our business and plan to continue to hire new sales employees either for expansion or replacement of existing sales personnel.
A significant natural disaster, such as a fire, flood or an earthquake, an outbreak of a pandemic disease or a significant power outage could have a material adverse impact on our business, results of operations and financial condition.
Our business is subject to the risks of fire, power outages, floods, earthquakes, pandemics and other catastrophic events, and to interruption by manmade problems such as terrorism and war. 31 A significant natural disaster, such as a fire, flood or an earthquake, an outbreak of a pandemic disease or a significant power outage could have a material adverse impact on our business, results of operations and financial condition.
Historically, the fluctuation was partially due to the front-loaded revenue recognition nature of our business. Additionally, the Company is currently transitioning to a SaaS delivery model that recognizes revenue ratably and we do not front-load revenue with respect to those purchases.
Historically, the fluctuation was partially due to the front-loaded revenue recognition nature of our business. Additionally, the Company has converted the significant majority of its customers to a SaaS delivery model that recognizes revenue ratably and not up front.
Effective in 2022, the TCJA requires all U.S. companies to capitalize, and subsequently amortize R&E expenses that fall within the scope of Section 174 over five years for research activities conducted in the United States and over fifteen years for research activities conducted outside of the United States, rather than deducting such costs in the year incurred for tax purposes.
Effective in July 2025, the TCJA, as revised by the OBBBA, requires all U.S. companies to capitalize and subsequently amortize research and development expenses that fall within the scope of Section 174 over fifteen years for research and development activities conducted outside of the U.S.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeHe has worked over the last twenty years in the security industry, and prior to working with us, he was CISO of Tata Consultancy Services, Deputy Chief Information Security Officer of Traiana, Information Security Manager of Logic Industries, Senior Information Security Specialist of Migdal Group and Information Security and System Administrator at Matrix.
Biggest changeHe has worked over the last fifteen years in the security industry, and prior to working with us, he was the Senior Director of Information Security of CyberArk, Global Information Security Manager of Playtech, Information Security Expert of 888holdings, Infrastructure Security Engineer of Bank Hapoalim, Support Team Leader of Perion Network and Support Engineer at Microsoft.
Depending on the environment, we implement and maintain various technical, physical and administrative processes, measures, standards and policies designed to manage and mitigate risks from cybersecurity threats to our Information Systems and Data, including, among other things, incident detection and response plan and procedures, a vulnerability management policy, disaster recovery/business continuity plans, risk assessments, cryptography, network security controls, secured remote access, access controls, change management, physical security, asset management, secured software development lifecycle, logging and monitoring, third-party risk management programs, security awareness trainings, third-party and company penetration testing, cybersecurity insurance and dedicated cybersecurity staff.
Depending on the environment, we implement and maintain various technical, physical and administrative processes, measures, standards and policies designed to manage and mitigate risks from cybersecurity threats to our Information Systems and Data, including, among other things, incident detection and response plan and procedures, a vulnerability management policy, disaster recovery/business continuity plans, risk assessments, recovery tests, cryptography, network security controls, secured remote access, access controls, change management, physical security, asset management, secured software development lifecycle, logging and monitoring, third-party risk management programs, security awareness trainings, third-party and company penetration testing, cybersecurity insurance and dedicated cybersecurity staff.
Risk Factors in this Annual Report on Form 10-K, including “Security breaches, cyberattacks or other cyber-risks of our IT and production systems could expose us to significant liability and cause our business and reputation to suffer and harm our competitive position.” Governance Our board of directors addresses our cybersecurity risk management as part of its general oversight function.
Risk Factors in this Annual Report on Form 10-K, including “Security breaches, cyberattacks or other cyber-risks of 33 our IT and production systems could expose us to significant liability and cause our business and reputation to suffer and harm our competitive position.” Governance Our board of directors addresses our cybersecurity risk management as part of its general oversight function.
The CISO and the information security team identify and assess risks from cybersecurity threats by monitoring and evaluating our networks, data and our risk profile using various methods including, among other things, manual tools, automated tools, analyzing reports of threats and actors, conducting scans of the computer networks, internal and/or external audits (including compliance audits with respect to ISO (27001, 27017, 27018, and 27701), SOC 2, PCI DSS and HIPAA for our corporate and cloud based software solutions), conducting assessments for potential internal and external threats, third-party-conducted risk assessments, conducting vulnerability assessments, third-party-conducted red/blue team testing and tabletop incident response exercises and subscribing to reports and services providing cybersecurity threat intelligence.
The CISO and the information security team identify and assess risks from cybersecurity threats by monitoring and evaluating our networks, data and our risk profile using various methods including, among other things, manual tools, automated tools, analyzing reports of threats and actors, conducting scans of the computer networks, internal and/or external audits (including compliance audits with respect to FedRamp, ISO (27001, 27017, 27018, and 27701), SOC 2, PCI DSS, HDS and HIPAA for our corporate and cloud based software solutions), conducting assessments for potential internal and external threats, third-party-conducted risk assessments, conducting vulnerability assessments, third-party-conducted red/blue team testing and tabletop incident response exercises and subscribing to reports and services providing cybersecurity threat intelligence.
Depending on the nature of the 35 services provided, the sensitivity of the information systems and data at issue, and the identity of the provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity and privacy on the provider.
Depending on the nature of the services provided, the sensitivity of the information systems and data at issue, and the identity of the provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity and privacy on the provider.
The technology committee meets quarterly with members of management, including our CISO, Chief Information Officer ("CIO"), Chief Technology Officer or VP of Cybersecurity Engineering, as applicable, to discuss cybersecurity developments, significant cybersecurity threats and risks and the processes we have implemented to address them.
The technology committee meets quarterly with members of management, including our CISO, Chief Information Officer ("CIO") and Chief Technology Officer, as applicable, to discuss cybersecurity developments, significant cybersecurity threats and risks and the processes we have implemented to address them.
Guy Shamilov, our CISO for the last eight years, has been a chief information security officer for nine years and is certified by Certified Information Systems Security Professional (CISSP), among other technical certifications he holds with respect to cybersecurity.
Dror Shemesh, our CISO beginning in August 2025, is certified by Certified Information Systems Security Professional (CISSP), among other technical certifications he holds with respect to cybersecurity.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, we have offices in New York and Florida and smaller offices in Arizona, France, the United Kingdom, Oregon, Australia, Germany, the Netherlands, Singapore and Luxembourg which serve as regional sales offices and some of which are customer support centers. Our office space is primarily leased, the majority of which is under long-term leases with varying expiration dates.
Biggest changeAdditionally, we have offices in New York and Florida and smaller offices in the United Kingdom, Arizona, France, Oregon, Australia, Germany, the Netherlands, Singapore and Luxembourg which serve as regional sales offices and some of which are customer support centers. Our office space is primarily leased, the majority of which is under long-term leases with varying expiration dates.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStockholders As of January 12, 2025 there were five stockholders of record of our common stock, including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. 38 STOCK PERFORMANCE GRAPH The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
Biggest changeStockholders As of January 21, 2026, there were five stockholders of record of our common stock, including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. 35 STOCK PERFORMANCE GRAPH The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Computer Index. The chart assumes $100 was invested at the close of market on December 31, 2019 in our common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Computer Index. The chart assumes $100 was invested at the close of market on December 31, 2020 in our common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. The closing price of our common stock on December 31, 2024, the last trading day of our 2024 fiscal year, was $44.43 per share.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. The closing price of our common stock on December 31, 2025, the last trading day of our 2025 fiscal year, was $32.80 per share.
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Company/Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Varonis Systems, Inc. $ 100.00 $ 210.54 $ 188.32 $ 92.42 $ 174.80 $ 171.52 NASDAQ Composite $ 100.00 $ 143.64 $ 174.36 $ 116.65 $ 167.30 $ 215.22 NASDAQ Computer $ 100.00 $ 149.98 $ 206.76 $ 132.79 $ 221.06 $ 301.44 39
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Company/Index 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/30/2024 12/31/2025 Varonis Systems, Inc. $ 100.00 $ 89.44 $ 43.90 $ 83.03 $ 81.47 $ 60.14 NASDAQ Composite $ 100.00 $ 121.39 $ 81.21 $ 116.47 $ 149.83 $ 108.33 NASDAQ Computer $ 100.00 $ 137.86 $ 88.54 $ 147.39 $ 200.98 $ 258.44 Purchase of Equity Securities by Issuer and Affiliated Purchasers In October 2025, our board of directors authorized a share repurchase program of up to $150.0 million of our common stock (the “October 2025 Share Repurchase Program”).
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Under the October 2025 Share Repurchase Program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The October 2025 Share Repurchase Program will expire in October 2026.
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The number of shares to be purchased and the 36 timing of purchases will be based on the Company's trading windows, available liquidity, and general business and market conditions.
Added
The following table summarizes the share repurchase activity during the quarter ended December 31, 2025: Period Total Number of Shares Purchased (in thousands) Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) October 1 - October 31 — $ — — 150,000 November 1 - November 30 — $ — — 150,000 December 1 - December 31 448 $ 33.45 448 135,000 (1) Average price paid per share includes costs associated with the repurchases.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

92 edited+46 added−36 removed32 unchanged
Biggest changeYear Ended December 31, 2024 2023 2022 (in thousands) Statement of Operations Data: Revenues: Term license subscriptions $ 254,241 $ 356,490 $ 363,898 SaaS 208,781 44,417 2,246 Maintenance and services 87,928 98,253 107,490 Total revenues 550,950 499,160 473,634 Cost of revenues 93,847 71,751 69,836 Gross profit 457,103 427,409 403,798 Operating expenses: Research and development 196,765 183,838 177,881 Sales and marketing 288,769 277,893 275,090 General and administrative 89,220 82,901 72,055 Total operating expenses 574,754 544,632 525,026 Operating loss (117,651) (117,223) (121,228) Financial income, net 34,644 30,305 10,413 Loss before income taxes (83,007) (86,918) (110,815) Income taxes (12,758) (13,998) (13,703) Net loss $ (95,765) $ (100,916) $ (124,518) 45 Year Ended December 31, 2024 2023 2022 (as a percentage of total revenues) Statement of Operations Data: Revenues: Term license subscriptions 46.1 % 71.4 % 76.8 % SaaS 37.9 8.9 0.5 Maintenance and services 16.0 19.7 22.7 Total revenues 100.0 100.0 100.0 Cost of revenues 17.0 14.4 14.7 Gross profit 83.0 85.6 85.3 Operating expenses: Research and development 35.8 36.8 37.6 Sales and marketing 52.4 55.7 58.1 General and administrative 16.2 16.6 15.2 Total operating expenses 104.4 109.1 110.9 Operating loss (21.4) (23.5) (25.6) Financial income, net 6.3 6.1 2.2 Loss before income taxes (15.1) (17.4) (23.4) Income taxes (2.3) (2.8) (2.9) Net loss (17.4) % (20.2) % (26.3) % Comparison of Years Ended December 31, 2024 and 2023 Revenues Year Ended December 31, 2024 2023 % Change (in thousands) Revenues: Term license subscriptions $ 254,241 $ 356,490 (28.7) % SaaS 208,781 44,417 370.0 % Maintenance and services 87,928 98,253 (10.5) % Total revenues $ 550,950 $ 499,160 10.4 % Year Ended December 31, 2024 2023 (as a percentage of total revenues) Revenues: Term license subscriptions 46.1 % 71.4 % SaaS 37.9 8.9 Maintenance and services 16.0 19.7 Total revenues 100.0 % 100.0 % 46 For the year ended December 31, 2024, our revenues increased 10% compared to the year ended December 31, 2023 despite increased SaaS sales and existing customer conversions to SaaS which cause variations due to accounting treatment differences in revenue recognition for sales within the respective periods.
Biggest changeResults of Operations The following tables are a summary of our consolidated statements of operations in dollars and as a percentage of our total revenues. 42 Year Ended December 31, 2025 2024 2023 (in thousands) Statement of Operations Data: Revenues: SaaS $ 462,595 $ 208,781 $ 44,417 Term license subscriptions 109,635 254,241 356,490 Maintenance and services 51,302 87,928 98,253 Total revenues 623,532 550,950 499,160 Cost of revenues 131,974 93,847 71,751 Gross profit 491,558 457,103 427,409 Operating expenses: Research and development 237,814 196,765 183,838 Sales and marketing 301,342 288,769 277,893 General and administrative 98,916 89,220 82,901 Total operating expenses 638,072 574,754 544,632 Operating loss (146,514) (117,651) (117,223) Financial income, net 30,194 34,644 30,305 Loss before income taxes (116,320) (83,007) (86,918) Income taxes (13,004) (12,758) (13,998) Net loss $ (129,324) $ (95,765) $ (100,916) Year Ended December 31, 2025 2024 2023 (as a percentage of total revenues) Statement of Operations Data: Revenues: SaaS 74.2 % 37.9 % 8.9 % Term license subscriptions 17.6 46.1 71.4 Maintenance and services 8.2 16.0 19.7 Total revenues 100.0 100.0 100.0 Cost of revenues 21.2 17.0 14.4 Gross profit 78.8 83.0 85.6 Operating expenses: Research and development 38.1 35.8 36.8 Sales and marketing 48.3 52.4 55.7 General and administrative 15.9 16.2 16.6 Total operating expenses 102.3 104.4 109.1 Operating loss (23.5) (21.4) (23.5) Financial income, net 4.8 6.3 6.1 Loss before income taxes (18.7) (15.1) (17.4) Income taxes (2.0) (2.3) (2.8) Net loss (20.7) % (17.4) % (20.2) % Comparison of Years Ended December 31, 2025 and 2024 43 Revenues Year Ended December 31, 2025 2024 % Change (in thousands) Revenues: SaaS $ 462,595 $ 208,781 121.6 % Term license subscriptions 109,635 254,241 (56.9) % Maintenance and services 51,302 87,928 (41.7) % Total revenues $ 623,532 $ 550,950 13.2 % Year Ended December 31, 2025 2024 (as a percentage of total revenues) Revenues: SaaS 74.2 % 37.9 % Term license subscriptions 17.6 46.1 Maintenance and services 8.2 16.0 Total revenues 100.0 % 100.0 % For the year ended December 31, 2025, our revenues increased 13% compared to the year ended December 31, 2024, despite increased SaaS sales and existing customer conversions to SaaS which cause variations due to accounting treatment differences in revenue recognition for sales within the respective periods.
In the second half of 2021, we launched our first SaaS offering, introducing new products and support for cloud infrastructure environments and applications. At the end of 2022, we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which was previously only sold as a self-hosted solution.
In the second half of 2021, we launched our first SaaS offering, introducing new products and support for cloud infrastructure environments and applications. At the end of 2022, we announced the availability of our flagship Varonis Data Security Platform as a SaaS solution, which was previously only sold as a self-hosted solution.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, energy and utilities, technology, consumer and retail, education and construction and engineering sectors. We believe our existing customer base serves as a strong source of future incremental revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, 38 energy and utilities, technology, construction and engineering, education and consumer and retail sectors. We believe our existing customer base serves as a strong source of future incremental revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns.
Cost of Revenues, Gross Profit and Gross Margin Cost of revenues consist primarily of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation for our customer support, customer success, MDDR and services employees; third-party hosting fees; amortization of acquired intangible assets; travel expenses; and allocated overhead costs for facilities, IT and depreciation.
Cost of Revenues, Gross Profit and Gross Margin Cost of revenues consist primarily of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation for our customer support, customer success, MDDR and services employees; third-party hosting fees; amortization of certain acquired intangible assets; travel expenses; and allocated overhead costs for facilities, IT and depreciation.
During 2024, net cash used in investing activities of $532.3 million was primarily attributable to net investments of $529.4 million in marketable securities, $6.7 million for in-process research and development and $6.7 million in capital expenditures to support our growth including hardware, office equipment and leasehold improvements mainly in connection with existing office space.
For 2024, net cash used in investing activities of $532.3 million was primarily attributable to net investments of $529.4 million in marketable securities, $6.7 million for in-process research and development and $6.7 million in capital expenditures to support our growth including hardware, office equipment and leasehold improvements mainly in connection with existing office space.
ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating the effect of adopting the ASU on our disclosures. 53
ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating the effect of adopting the ASU on our disclosures.
Our expenses, which do not vary directly with revenues, and the seasonal pattern described above have an impact on the cost of revenues, research and development expenses, sales and marketing expenses and general and administrative expenses as a percentage of revenues in 48 each calendar quarter during the year.
Our expenses, which do not vary directly with revenues, and the seasonal pattern described above have an impact on the cost of revenues, research and development expenses, sales and marketing expenses and general and administrative expenses as a percentage of revenues in each calendar quarter during the year.
We expect that our research and development expenses will continue to increase in absolute dollars as we further strengthen our technology platform and invest in the development of both existing and new products through the hiring of talented and capable employees. Sales and Marketing .
We expect that our research and development expenses will continue to increase in absolute dollars as we further strengthen our technology platform and invest in the development of both existing and new products through the hiring of talented and capable employees. 41 Sales and Marketing .
We sell substantially all of our products and services to channel partners, including distributors and resellers, which sell to end-user customers, which we refer to in this report as our customers.
We sell substantially all of our products and services through channel partners, including distributors and resellers, which sell to end-user customers, which we refer to in this report as our customers.
Financing Activities In 2024, net cash provided by financing activities of $371.9 million was attributable to $449.6 million of net proceeds from the issuance of convertible senior notes and $16.1 million of proceeds from employee stock plans, partially offset by $55.5 million related to purchases of capped calls associated with the convertible senior notes and $38.3 million in taxes paid related to net share settlement of equity awards.
For 2024, net cash provided by financing activities of $371.9 million was attributable to $449.6 million of net proceeds from the issuance of convertible senior notes and $16.1 million of proceeds from employee stock plans, partially offset by $55.5 million related to purchases of capped calls associated with the issued convertible senior notes and $38.3 million in taxes paid related to net share settlement of equity awards.
Enterprises now use many different combinations of on-premises and cloud data stores, SaaS applications and IaaS environments and this complexity requires a greater level of automated protection. We believe our offering provides comprehensive data coverage and our ability to address this demand has and will continue to be a key driver of our growth.
Enterprises now use many different combinations of on-premises and cloud data stores, SaaS applications and IaaS environments and this complexity requires a greater level of automated security. We believe our offering provides comprehensive data coverage and our ability to address this demand has and will continue to be a key driver of our growth.
Since inception, we have continued to scale our business and execute on strategic initiatives which we believe have positioned us for durable long-term growth. During 2024, we have continued to grow our revenues despite revenue recognition accounting treatment variations associated with the increase in SaaS sales and existing customer conversions to SaaS.
Since inception, we have continued to scale our business and execute on strategic initiatives which we believe have positioned us for durable long-term growth. During 2025, we have continued to grow our revenues despite revenue recognition accounting treatment variations associated with the increase in SaaS sales and existing customer conversions to SaaS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 6, 2024, which comparative information is herein incorporated by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 6, 2025, which comparative information is herein incorporated by reference.
Our future capital requirements will depend on many factors, including our rate of revenue growth, timing of renewals and renewal rates, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products and enhancements to existing software products, the continuing market acceptance of our software offerings and our use of cash to pay for acquisitions or share repurchases, if any.
Our future capital requirements will depend on many factors, including our rate of revenue growth, timing of renewals and renewal rates, the amount and timing of conversions, the expansion of our sales and marketing 46 activities, the timing and extent of spending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products and enhancements to existing software products, the continuing market acceptance of our software offerings and our use of cash to pay for acquisitions or share repurchases, if any.
This transition is driven by the increased importance of an automated, data-centric approach to security and the demand for comprehensive protection in the face of heightened cyber risks, collaboration across multiple platforms, the adoption of generative AI tools and the necessity for compliance.
This transition was driven by the increased importance of an automated, data-centric approach to security and the demand for comprehensive protection in the face of heightened cyber risks, collaboration across multiple platforms, the adoption of generative AI tools and the necessity for compliance.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 6, 2024, which discussion is herein incorporated by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 6, 2025, which discussion is herein incorporated by reference.
We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the years ended December 31, 2024, 2023 and 2022 continued to be over 90%.
Our renewal rate for each of the years ended December 31, 2025, 2024 and 2023 continued to be over 90%. We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period.
Our inability or failure to do so could harm our business, financial condition and results of operations. Comparison of Years Ended December 31, 2023 and 2022 For a comparison of our results of operations for the years ended December 31, 2023 and 2022, see “ Part II, Item 7.
Our inability or failure to do so could harm our business, financial condition and results of operations. Comparison of Years Ended December 31, 2024 and 2023 For a comparison of our results of operations for the years ended December 31, 2024 and 2023, see “ Part II, Item 7.
We expect to fund these obligations with cash flows from operations and cash on our balance sheet. Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States.
We expect to fund these obligations with cash flows from operations and cash on our balance sheet. Off-Balance Sheet Arrangements 48 As of December 31, 2025, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States.
The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the years ended December 31, 2024 and 2023. We continue to expect less associated maintenance and services revenues in the future.
The anticipated decrease in maintenance and services revenues was due to the conversion of existing customers to SaaS and churn, despite our renewal rate continuing to be over 90% for each of the years ended December 31, 2025 and 2024. We continue to expect less maintenance and services revenues in the future.
The increase in SaaS revenues was driven by (i) new customer acquisitions, which are happening due to the simplicity of our SaaS platform and MDDR offering, as well as customer interest in Gen AI, (ii) existing customer conversions and (iii) our high renewal rates.
The increase in SaaS revenues was driven by (i) new customer acquisitions, which are happening due to the simplicity and automated outcomes of our SaaS platform and MDDR offering, as well as customer interest in Gen AI, (ii) existing customer conversions and upselling and (iii) our high renewal rates.
For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended December 31, 2022, see “ Part II, Item 7.
For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended December 31, 2023, see “ Part II, Item 7.
Our product offering 41 currently contains coverage for most mission-critical cloud and on-premises data stores and cloud infrastructure environments, and many critical SaaS applications. Our renewal rate continued to be over 90% for the year ended December 31, 2024.
Our product offering currently contains coverage for most mission-critical cloud and on-premises data stores and cloud infrastructure environments, and many critical SaaS applications. Our renewal rate continued to be over 90% for the year ended December 31, 2025.
Liquidity and Capital Resources The following table shows our liquidity and capital resources and our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2024 and 2023.
Liquidity and Capital Resources The following table shows our liquidity and capital resources and our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2025 and 2024.
Operating Activities Our operating activities are driven by sales of our products less costs and expenses, primarily payroll and related expenses, and adjusted for certain non-cash items, mainly depreciation and amortization, stock-based compensation, amortization of deferred commissions, non-cash operating lease costs, amortization of debt issuance costs, amortization of premium and accretion of discount on marketable securities, acquired in-process research and development costs, and changes in operating assets and liabilities.
Operating Activities Our operating activities are driven by sales of our products less costs and expenses, primarily payroll and related expenses, and adjusted for certain non-cash items, mainly depreciation and amortization, stock-based compensation, amortization of deferred commissions, non-cash operating lease costs, amortization of debt issuance costs, amortization of premium and accretion of discount on marketable securities and changes in operating assets and liabilities.
Additionally, despite the revenue recognition variations from the accounting treatment associated with the positive trend of our increase in SaaS sales and existing customer conversions to SaaS, total revenues still grew approximately 10% for the year ended December 31, 2024 compared with the year ended December 31, 2023.
Additionally, despite the revenue recognition variations from the accounting treatment associated with the positive trend of our increase in SaaS sales and existing customer conversions to SaaS, total revenues still grew approximately 13% for the year ended December 31, 2025, compared with the year ended December 31, 2024.
ARR 42 is not a forecast of future revenues and can be impacted by contract start and end dates and renewal rates. We expect ARR to continue to increase in absolute dollars.
ARR and SaaS ARR is not a forecast of future revenues and can be 39 impacted by contract start and end dates and renewal rates. We expect ARR and SaaS ARR to continue to increase in absolute dollars.
We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Additionally, as of December 31, 2024, we held $658.9 million in long-term marketable securities.
We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Additionally, as of December 31, 2025, we held $187.2 million in long-term marketable securities.
Income Taxes: We account for income taxes in accordance with ASC No. 740, using the asset and liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis 52 for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Income Taxes: We account for income taxes using the asset and liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, as well as marketing and business development costs, travel expenses, third-party hosting fees, training and education and allocated overhead costs.
Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, as well as marketing and business development costs, travel expenses, third-party hosting fees, training and education, allocated overhead costs and amortization of certain acquired intangible assets.
As the majority of our expenses are relatively fixed quarter over quarter and due to the seasonality of our business, the first quarter typically results in the lowest gross margin as our first quarter revenues have historically been the lowest for the year.
Gross margin is gross profit expressed as a percentage of total revenues. As the majority of our expenses are relatively fixed quarter over quarter and due to the seasonality of our business, the first quarter typically results in the lowest gross margin as our first quarter revenues have historically been the lowest for the year.
In addition, our Managed Data Detection and Response ("MDDR") offering further reduces both the likelihood of a breach and its potential impact by enabling automated 24x7x365 monitoring with a service level agreement (SLA) that requires Varonis to respond to alerts within a specified time frame.
In addition, our MDDR offering further reduces both the likelihood of a breach and its potential impact through agentic AI, enabling automated 24x7x365 monitoring with a service level agreement (SLA) that requires Varonis to respond to alerts within a specified time frame.
For the years ended December 31, 2024, 2023 and 2022, SaaS revenues were $208.8 million, $44.4 million and $2.2 million, respectively. For the years ended December 31, 2024, 2023 and 2022, our total revenues were $551.0 million, $499.2 million and $473.6 million, respectively.
For the years ended December 31, 2025, 2024 and 2023, SaaS revenues were $462.6 million, $208.8 million and $44.4 million, respectively. For the years ended December 31, 2025, 2024 and 2023, our total revenues were $623.5 million, $551.0 million and $499.2 million, respectively.
Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that our accounting policies described in Note 2.
The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of these contracts is not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period.
As of December 31, 2025, SaaS ARR is $638.5 million. The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of these contracts is not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period.
For the years ended December 31, 2024, 2023 and 2022, we had operating losses of $117.7 million, $117.2 million and $121.2 million and net losses of $95.8 million, $100.9 million and $124.5 million, respectively.
For the years ended December 31, 2025, 2024 and 2023, we had operating losses of $146.5 million, $117.7 million and $117.2 million and net losses of $129.3 million, $95.8 million and $100.9 million, respectively.
The increase in sales and marketing expenses was primarily related to an increase of $9.7 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model and a $1.8 million increase in salaries and benefits and stock-based compensation expense primarily due to increased headcount.
The increase in sales and marketing expenses was primarily related to an increase of $5.2 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model, a $5.0 million increase in salaries, benefits and stock-based compensation expense and an increase of $2.1 million in facilities and allocated overhead costs.
Transition to SaaS Delivery Model and SaaS as a Percentage of ARR Over the last three years, we have strategically expanded our offering to be delivered as SaaS solutions. Since that time, we have seen SaaS deployments grow significantly and expect them to continue to increase and become the primary driver of our revenues.
Transition to SaaS Delivery Model, SaaS as a Percentage of ARR and SaaS renewal rate Over the last several years, we strategically expanded our offering to be delivered as SaaS solutions. During that time, we have seen SaaS deployments grow significantly and expect them to continue to increase.
For the year ended December 31, 2024, approximately 73% of our revenues were derived from the United States, while approximately 21% of our revenues were derived from EMEA and approximately 6% from ROW.
For the year ended December 31, 2025, approximately 71% of our revenues were derived from the United States, while approximately 21% of our revenues were derived from EMEA and approximately 8% from ROW.
Investing Activities Our investing activities consist primarily of capital expenditures to purchase property and equipment, including leasehold improvements, purchase in-process research and development, purchase and sale of deposits and changes in our marketable securities. In the future, we expect to continue to incur capital expenditures to support our expanding operations.
Investing Activities Our investing activities consist primarily of acquisitions, capital expenditures to purchase property and equipment, including leasehold improvements, capitalized internal-use software, purchase and sale of deposits and marketable securities. In the future, we expect to continue to incur capital expenditures to support our expanding operations.
We recognize expenses related to these costs as they are incurred and expect that these costs will increase in absolute dollars as we continue to invest in our customer success, support and MDDR teams, move to a SaaS delivery model and support the underlying programs that play a critical role in maintaining our high renewal rate.
We recognize expenses related to these costs as they are incurred and expect that these costs will increase in absolute dollars as we continue to invest in our customer success, support and MDDR teams and support the underlying programs that play a critical role in maintaining our high renewal rate. Gross profit is total revenues less total cost of revenues.
Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the coming years. ARR was $641.9 million and $543.0 million as of December 31, 2024 and 2023, respectively, representing an increase of 18%.
Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the near future. ARR was $745.4 million and $641.9 million as of December 31, 2025 and 2024, respectively, representing an increase of 16%.
This was partially offset by net proceeds of $78.6 million in deposits.
This was partially offset by net proceeds of $10.5 million in deposits.
This was partially offset by a $95.2 million increase in prepaid expenses and other short-term assets (including deferred commissions) and a $23.7 million increase in accounts receivable. Our days’ sales outstanding (“DSO”) for the three months and year ended December 31, 2024 was 77 and 74, respectively. 49 For 2023, cash provided by operating activities were $59.4 million.
This was partially offset by a $95.2 million increase in prepaid expenses and other short-term assets (including deferred commissions) and a $23.7 million increase in accounts receivable. Our DSO for the three months and year ended December 31, 2024 was 77 and 74, respectively.
Income Taxes Year Ended December 31, 2024 2023 % Change (in thousands) Income taxes $ (12,758) $ (13,998) (8.9) % Income taxes for the year ended December 31, 2024, including the decrease in income taxes, were comprised of foreign and U.S. income taxes.
Income Taxes Year Ended December 31, 2025 2024 % Change (in thousands) Income taxes $ (13,004) $ (12,758) 1.9 % 45 Income taxes for the year ended December 31, 2025, including the increase in income taxes, were comprised of foreign and U.S. income taxes.
Aggregate minimum rental commitments under non-cancelable leases as of December 31, 2024 for the upcoming years were as follows: Payments Due by Period 2025 2026 2027 2028 2029 Thereafter Total (in thousands) Operating lease obligations $ 12,305 $ 12,029 $ 12,084 $ 12,088 $ 8,015 $ 10,012 $ 66,533 50 We have obligations related to unrecognized tax benefit liabilities totaling $33.3 million and others related to severance pay, which have been excluded from the table above as we do not believe it is practicable to make reliable estimates of the periods in which payments for these obligations will be made.
Aggregate minimum rental commitments under non-cancelable leases as of December 31, 2025 for the upcoming years were as follows: Payments Due by Period 2026 2027 2028 2029 2030 Thereafter Total (in thousands) Operating lease obligations $ 13,639 $ 14,929 $ 11,809 $ 13,440 $ 12,364 $ 24,808 $ 90,989 We have obligations related to unrecognized tax benefit liabilities totaling $50.5 million and others related to severance pay, which have been excluded from the table above as we do not believe it is practicable to make reliable estimates of the periods in which payments for these obligations will be made.
General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel. Other expenses are comprised of legal, accounting and other consultant fees and other corporate expenses and allocated overhead.
General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel. Other expenses are comprised of legal, accounting and other consultant fees and other corporate expenses and allocated overhead. We expect that general and administrative expenses will increase in absolute dollars as we expand our operations.
We provide a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized. ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions.
We provide a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized. We account for unrecognized tax positions under a two-step approach.
Components of Operating Results Revenues Term License Subscription Revenues . Term license subscription revenues relate to subscription license revenues which are sold on-premises and are recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred.
Term license subscription revenues relate to subscription license revenues which are sold on-premises and are recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with a term license subscription is recognized ratably over the term of the agreement. Maintenance and Services Revenues.
Each of these products allow customers to use hosted software, and the related revenue from these products is recognized ratably over the associated contract period. We expect SaaS revenues to continue to grow considerably and become the primary driver of our revenues in 2025, which is when we believe our transition to a SaaS delivery model will be complete.
Each of these products allow customers to use hosted software, and the related revenue from these products is recognized ratably over the associated contract period. Our SaaS solutions are the primary driver of our revenues and we expect SaaS revenues to continue to grow considerably.
The net proceeds from the offering, after deducting issuance costs, were approximately $449.6 million. In connection with the issuance of the 2029 Notes, we used $55.5 million of the net proceeds to enter into Capped Call Transactions. On May 11, 2020, we issued the 2025 Notes. The net proceeds from the offering, after deducting issuance costs, were approximately $245.2 million.
Convertible Notes On September 10, 2024, we issued $460.0 million aggregate principal amount of Notes (the "2029 Notes"). The net proceeds from the offering, after deducting issuance costs, were approximately $449.6 million. In connection with the issuance of the 2029 Notes, we used $55.5 million of the net proceeds to enter into Capped Call Transactions.
The following table sets forth the percentage of our revenues that have been derived from term license subscriptions, SaaS and maintenance and services revenues for the periods presented. 43 Year Ended December 31, 2024 2023 2022 (as a percentage of total revenues) Revenues: Term license subscriptions 46.1 % 71.4 % 76.8 % SaaS 37.9 % 8.9 % 0.5 % Maintenance and services 16.0 % 19.7 % 22.7 % Total revenues 100.0 % 100.0 % 100.0 % Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses.
Year Ended December 31, 2025 2024 2023 (as a percentage of total revenues) Revenues: SaaS 74.2 % 37.9 % 8.9 % Term license subscriptions 17.6 % 46.1 % 71.4 % Maintenance and services 8.2 % 16.0 % 19.7 % Total revenues 100.0 % 100.0 % 100.0 % Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses.
Operating Expenses Year Ended December 31, 2024 2023 % Change (in thousands) Operating expenses: Research and development $ 196,765 $ 183,838 7.0 % Sales and marketing 288,769 277,893 3.9 % General and administrative 89,220 82,901 7.6 % Total operating expenses $ 574,754 $ 544,632 5.5 % Year Ended December 31, 2024 2023 (as a percentage of total revenues) Operating expenses: Research and development 35.8 % 36.8 % Sales and marketing 52.4 % 55.7 % General and administrative 16.2 % 16.6 % Total operating expenses 104.4 % 109.1 % The increase in research and development expenses was primarily related to a $6.7 million increase in acquired in-process research and development costs associated with our asset acquisition, a $3.2 million increase in salaries and benefits 47 and stock-based compensation expense primarily due to increased headcount, an increase of $1.9 million in facilities and allocated overhead costs and a $0.8 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.
Operating Expenses 44 Year Ended December 31, 2025 2024 % Change (in thousands) Operating expenses: Research and development $ 237,814 $ 196,765 20.9 % Sales and marketing 301,342 288,769 4.4 % General and administrative 98,916 89,220 10.9 % Total operating expenses $ 638,072 $ 574,754 11.0 % Year Ended December 31, 2025 2024 (as a percentage of total revenues) Operating expenses: Research and development 38.1 % 35.8 % Sales and marketing 48.3 % 52.4 % General and administrative 15.9 % 16.2 % Total operating expenses 102.3 % 104.4 % The increase in research and development expenses was primarily related to a $35.5 million increase in salaries, benefits and stock-based compensation expense primarily due to increased headcount and conditional consideration related to the business acquisitions, an increase of $5.7 million in facilities and allocated overhead costs, a $4.3 million increase in third-party hosting costs associated with our transition to a SaaS delivery model and a $1.5 million increase in acquisition-related costs associated with the business acquisitions, partially offset by a $6.7 million decrease in acquired in-process research and development costs associated with a prior period asset acquisition.
The increase in general and administrative expenses was primarily related to an increase of $4.9 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business and an increase of $0.5 million in facilities and allocated overhead costs.
The increase in general and administrative expenses was primarily related to an increase of $4.8 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business, a $2.5 million increase in consulting and services fees and a $2.1 million increase in acquisition-related costs associated with the business acquisitions.
Year Ended December 31, 2024 2023 (in thousands) Net cash provided by operating activities $ 115,200 $ 59,416 Net cash used in investing activities (532,255) (143,076) Net cash provided by (used in) financing activities 371,900 (53,400) Decrease in cash and cash equivalents $ (45,155) $ (137,060) As of December 31, 2024, our cash and cash equivalents, short-term marketable securities and short-term deposits of $568.4 million were held for working capital purposes.
Year Ended December 31, 2025 2024 (in thousands) Net cash provided by operating activities $ 147,431 $ 115,200 Net cash used in investing activities (837) (532,255) Net cash provided by (used in) financing activities (129,697) 371,900 Increase (decrease) in cash and cash equivalents $ 16,897 $ (45,155) As of December 31, 2025, our cash and cash equivalents, short-term marketable securities and short-term deposits of $921.0 million were held for working capital purposes.
SaaS revenues increased 370% from $44.4 million for the year ended December 31, 2023 to $208.8 million for the year ended December 31, 2024 as we continue to progress through our transition to a SaaS delivery model.
SaaS revenues increased 122% from $208.8 million for the year ended December 31, 2024, to $462.6 million for the year ended December 31, 2025, as we completed our transition to a SaaS delivery model.
This was partially offset by a $75.0 million increase in prepaid expenses and other short-term assets (including deferred commissions) and a $33.1 million increase in accounts receivable. Our DSO for the three months and year ended December 31, 2023 was 82 and 72, respectively.
This was partially offset by a $83.6 million increase in prepaid expenses and other short-term assets (including deferred commissions), a $52.6 million increase in accounts receivable and a $1.1 million increase in other long-term assets. Our days’ sales outstanding (“DSO”) for the three months and year ended December 31, 2025 was 81 and 77, respectively.
As a result of our business activities in foreign countries, we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business. Amortization of debt issuance costs relate to the Notes we issued in May 2020 and September 2024.
Foreign exchange gains or losses relate to our business activities in foreign countries with different operational reporting currencies. As a result of our business activities in foreign countries, we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business.
Interest income represents interest received on our cash, cash equivalents, marketable securities, deposits and amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities. Foreign exchange gains or losses relate to our business activities in foreign countries with different operational reporting currencies.
Financial Income (Expenses), Net Financial income (expenses), net consists primarily of interest income, amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities, foreign exchange gains or losses, amortization of debt issuance costs and interest expense. Interest income represents interest received on our cash, cash equivalents, marketable securities and deposits.
Research and development expenses primarily consist of personnel costs attributable to our research and development personnel, as well as allocated overhead costs and acquired in-process research and development. We expense research and development costs as incurred.
Research and development expenses primarily consist of personnel costs attributable to our research and development personnel, as well as allocated overhead costs. We expense research and development costs as incurred, except for certain internal use software development costs that are capitalized.
The Transition to a SaaS Delivery Model In response to the evolving needs of our customers and the growing threat landscape, we are strategically transitioning to a SaaS delivery model.
The Transition to a SaaS Delivery Model In response to the evolving needs of our customers and the growing threat landscape, we strategically transitioned to a SaaS delivery model. As of December 31, 2025, SaaS as a percentage of total ARR was approximately 86%.
Consequently, we end the fourth quarter with our highest accounts receivable balance of any quarter which in turn generates the greatest amount of collections in the following quarter. In addition, there is negative sequential sales in the first quarter, which results in a relatively lower amount collected during the second quarter.
Second, the highest dollar amount of sales of our products and services occurs in the fourth quarter. Consequently, we end the fourth quarter with our highest accounts receivable balance of any quarter which in turn generates the greatest amount of collections in the following quarter.
We enter into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The term license software is distinct upon delivery as the customer can derive the economic benefit of the software without any additional services, updates or technical support.
Maintenance associated with term license subscription software is recognized ratably over the term of the agreement. We enter into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.
Due to differences in the revenue recognition accounting treatment, the transition to a SaaS delivery model may cause significant variation in the reported revenues for a given period compared to the same period in the previous year.
Due to differences in the revenue recognition accounting treatment and the conversion of existing term license subscription customers to SaaS, there may be significant variations in the reported revenues for a given period compared to the same period in the previous year.
Conversions from a license sold on-premises to the Company’s SaaS offering during the original subscription period are accounted for on a prospective basis. 51 We recognize revenues from maintenance agreements ratably over the term of the underlying maintenance contract. The term of the maintenance contract is usually one year.
Conversions from a license sold on-premises to our SaaS offering during the original subscription period are accounted for on a prospective basis. Term License Subscription Revenues .
Term license subscription software sold on-premises is recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred.
Revenue Recognition: We generate revenues primarily in the form of SaaS revenues, term license subscriptions and maintenance and services fees. SaaS revenue is recognized ratably over the associated contract period. Term license subscription software sold on-premises is recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred.
We reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period. In addition, we are subject to the regular examinations of our income tax returns by different tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
Our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods. We reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period. In addition, we are subject to the regular examinations of our income tax returns by different tax authorities.
We expect the impact of these seasonal patterns to decline as we sell more of our SaaS offering to new customers and transition our existing customers to our SaaS platform, due to the ratable revenue recognition of SaaS.
We have seen the impact of these seasonal patterns, due to the ratable revenue recognition of SaaS, decline in 2025 and we expect it to continue to decline, as we seek to sell more of our SaaS offering to customers and complete the end-of-life of our self-hosted business.
We allocate the transaction price to each performance obligation based on our relative standalone selling price out of the total consideration of the contract. For software licenses and maintenance included in term license subscriptions, we determine the standalone selling prices based on the price at which we separately sell a renewal contract.
For software licenses and maintenance included in term license subscriptions, we determine the standalone selling prices based on the price at which we separately sell maintenance renewals for past perpetual licenses.
Because of our history of operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards. Our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods.
Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. Because of our history of operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards.
Recently Issued Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold.
The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation, as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid.
For 2024, cash inflows from our operating activities were $115.2 million. We have observed two seasonal patterns that impact our net cash provided by operating activities. First, a majority of our sales are made during the last three weeks of the quarter. Second, the highest dollar amount of sales of our products and services occurs in the fourth quarter.
For 2025, net cash provided by operating activities were $147.4 million. We have historically observed two seasonal patterns that impact our net cash provided by operating activities, which we continue to expect under a SaaS delivery model. First, a majority of our sales are made during the last three weeks of the quarter.
Financial Income, Net Year Ended December 31, 2024 2023 % Change (in thousands) Financial income, net $ 34,644 $ 30,305 14.3 % The increase in financial income, net was primarily due to higher interest income, partially offset by foreign currency losses.
Financial Income, Net Year Ended December 31, 2025 2024 % Change (in thousands) Financial income, net $ 30,194 $ 34,644 (12.8) % The decrease in financial income, net was primarily due to amortization of premiums on marketable securities, foreign currency losses and higher interest and issuance cost amortization expense related to the 2029 convertible note, partially offset by higher interest income.
Our MDDR offering is only available for our SaaS customers because of the automation and visibility that’s built into our SaaS platform. Since launching our SaaS offerings, we have seen SaaS deployments grow significantly and expect them to continue to increase and become the primary driver of our revenues.
Since launching our SaaS offerings, we have seen SaaS deployments grow significantly and they are now the primary driver of our revenues. We expect SaaS revenues to continue to increase.
This was partially offset by net proceeds of $10.5 million in deposits. During 2023, net cash used in investing activities of $143.1 million was primarily attributable to net investments of $216.6 million in marketable securities and $5.1 million in capital expenditures to support our growth including hardware, software, office equipment and leasehold improvements mainly in connection with existing office space.
For 2025, net cash used in investing activities of $0.8 million was primarily attributable to $123.5 million of cash paid for acquisitions, net of cash acquired, $12.6 million in capital expenditures to support our growth including hardware, software, office equipment and leasehold improvements mainly in connection with existing office space and $2.9 million for capitalized internal-use software expenditures.
The ASU requires, among other items, additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the Statements of Operations.
Recently Issued Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) - Disaggregation of Income Statement Expenses . The ASU requires, among other items, additional disaggregated disclosures in the notes to the financial statements for certain categories of expenses that are included in the statements of operations.
SaaS contracts, term-based subscription license contracts and maintenance contracts are annualized by dividing the total contract value by the number of days in the term and multiplying the result by 365. As of December 31, 2024, 2023 and 2022, ARR was $641.9 million, $543.0 million and $465.1 million, respectively, an increase of 18% and 17% period over period, respectively.
SaaS contracts, term-based subscription license contracts and maintenance contracts are annualized by dividing the total contract value by the number of days in the term and multiplying the result by 365.
Conversely, the fourth quarter typically results in the highest gross margin as our fourth quarter revenues have historically been the highest for the year. As we complete the transition to a SaaS delivery model, we expect this seasonality to decrease due to differences in the revenue recognition accounting treatment.
Conversely, the fourth quarter typically results in the highest gross margin as our fourth quarter revenues have historically been the highest for the year.
Cost of Revenues and Gross Margin Year Ended December 31, 2024 2023 % Change (in thousands) Cost of revenues $ 93,847 $ 71,751 30.8 % Year Ended December 31, 2024 2023 (as a percentage of total revenues) Total gross margin 83.0 % 85.6 % The increase in cost of revenues was primarily related to a $11.3 million increase in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, including our recently introduced MDDR offering, and ensure high customer satisfaction and maintain our strong renewal rates.
The increase is also due to a $15.0 million increase in salaries, benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the completion of our SaaS transition, including our MDDR offering, to ensure high customer satisfaction and to maintain our strong renewal rates.
Remaining Performance Obligations Remaining performance obligations ("RPO") represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future. Our RPO was $729.7 million as of December 31, 2024. We expect RPO to increase in absolute dollars as we continue to transition to a SaaS delivery model.
This performance metric aligns with our new business model and how management views the business. Remaining Performance Obligations Remaining performance obligations ("RPO") represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe effect of a hypothetical 100 basis point change in interest rates would not have a material impact on our consolidated financial statements.
Biggest changeThe effect of a hypothetical 100 basis point change in interest rates would not have a material impact on our consolidated financial statements. 51 In September 2024 we issued the 2029 Notes, which have a fixed annual interest rate of 1.00%, and therefore, we do not have economic interest rate exposure on the 2029 Notes.
We do not enter into marketable security investments for trading or speculative purposes. 54 Our cash and cash equivalents, marketable securities and short-term deposits are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our marketable securities.
We do not enter into marketable security investments for trading or speculative purposes. Our cash and cash equivalents, marketable securities and short-term deposits are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our marketable securities.
A majority of our revenues and operating expenditures are transacted in U.S. dollars; however, certain revenues and operating expenditures are incurred in or exposed to other currencies, specifically, Euro and Pound Sterling for revenues, and the New Israeli Shekel, Euro and Pound Sterling for operating expenses.
A majority of our revenues and operating expenses are transacted in U.S. dollars; however, certain revenues and operating expenses are incurred in or exposed to other currencies, specifically, the Euro and Pound Sterling for revenues and the New Israeli Shekel, Euro and Pound Sterling for operating expenses.
To the extent we enter into other long-term debt arrangements in the future, we would be subject to fluctuations in interest rates which could have a material impact on our future financial condition and results of operation. 55
To the extent we enter into other long-term debt arrangements in the future, we would be subject to fluctuations in interest rates which could have a material impact on our future financial condition and results of operation. 52
Foreign Currency Exchange Risk Approximately one quarter of our revenues for the years ended December 31, 2024 and 2023 were earned in non-U.S. dollar denominated currencies, mainly in the Euro and Pound Sterling.
Foreign Currency Exchange Risk Approximately one quarter of our revenues for the years ended December 31, 2025 and 2024 were earned in non-U.S. dollar denominated currencies, mainly in the Euro and Pound Sterling.
During 2024, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business, after considering foreign currency hedges, would not have had a material impact on our consolidated financial statements.
During 2025, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business, after considering foreign currency hedges, would not have had a material impact on our consolidated financial statements.
We use derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks, by hedging a portion of our forecasted revenues and expenses generally expected to occur within 12 to 24 months.
We use derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks, by hedging a portion of our forecasted revenues and expenses generally expected to occur within periods of up to 24 months.
The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. Additionally, we carry the Notes at face value less unamortized costs on our balance sheet, and we present the fair value for required disclosure purposes only.
The fair value of the 2029 Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. Additionally, we carry the 2029 Notes at face value less unamortized costs in our consolidated balance sheets, and we present the fair value for required disclosure purposes only.
The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes in the underlying hedged item which impacts financial income, net. We do not use derivative financial instruments for trading or speculative purposes.
The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes on the underlying hedged item. We do not use derivative financial instruments for trading or speculative purposes.
Generally, the fair market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair values of the Notes are affected by our stock price.
However, the value of the 2029 Notes is exposed to interest rate risk. Generally, the fair market value of our fixed interest rate 2029 Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2029 Notes is affected by our stock price.
Interest Rate Risk As of December 31, 2024, we had cash and cash equivalents, short-term marketable securities and short-term deposits of $568.4 million and investments in long-term marketable securities of $658.9 million. We hold our cash and cash equivalents, short-term marketable securities and short-term deposits for working capital purposes.
Interest Rate Risk As of December 31, 2025, we have cash and cash equivalents, short-term marketable securities and short-term deposits of $921.0 million and investments in long-term marketable securities of $187.2 million. We hold our cash and cash equivalents, short-term marketable securities and short-term deposits for working capital purposes.
Removed
The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes on the underlying hedged item.
Removed
We have also previously entered into forward contracts to hedge a portion of our monetary items in the balance sheet, such as trade receivables and payables, denominated in Pound Sterling and Euro for short-term periods to protect the fair value of the monetary assets and liabilities from foreign exchange rate fluctuations.
Removed
In May 2020 we issued the 2025 Notes and in September 2024 we issued the 2029 Notes, which have fixed annual interest rates at 1.25% and 1.00%, respectively, and therefore, we do not have economic interest rate exposure on the Notes. However, the values of the Notes are exposed to interest rate risk.

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