2nd Round of Layoffs Since 2022 Comes 2 Months After $150M Email Security Purchase
Varonis cut 5% of its workforce and saw its stock price nosedive after disclosing a sharp drop in renewal rates for its on-premise subscription business.
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The Miami-based data security vendor late Tuesday announced plans to reduce its staff by 5% – or roughly 120 employees – to better align expenses with revenue expectations. The underperformance of the federal vertical caused a notable headwind for Varonis despite its accounting for just 5% of annual recurring revenue, prompting the company to downsize its federal team and revisit its strategy.
“When we look at the actions that we have taken, including the reduction of 5% of our headcount and adjusting some of the costs to better adjust to the top line…we’re trying to do everything right and be active in addressing that and making sure that we uncover every stone to identify how to address this going forward,” CFO and Chief Operating Officer Guy Melamed told investors late Tuesday.
Varonis’ Stock Price Falls to Lowest Level Since October 2023
Varonis’ stock fell $30.66 – or 48.7% – to $32.34-per-share in trading Wednesday, which is the lowest the company’s stock has traded since Oct. 27, 2023. As a result, Varonis’ valuation fell from more than $6 billion at the end of trading Tuesday to just $3.63 billion at the end of trading Wednesday (see: Varonis Acquires SlashNext to Combat Phishing, Email Attacks).
The company employed 2,406 people as of Dec. 31, 2024, meaning that laying off 5% of the workforce would impact approximately 120 employees. Nearly 45% of Varonis’ employees are based in the United States, more than 35% are based in Israel, with the remaining 20% based in countries including the United Kingdom and France, according to IT-Harvest.
Roughly half of Varonis’ workforce is involved in engineering, 40% work with sales, with the remaining 10% involved in operations and human resources. This week’s layoffs come almost exactly three years after Varonis also cut 5% of its staff to manage costs amid federal and EMEA struggles. The company sought to tie its level of investment to the revenues it expects to achieve amid short-term uncertainty.
CEO Yaki Faitelson said the federal vertical has historically underperformed for Varonis and had an outsized impact in the company’s struggles last quarter due to renewal shortfalls. Since Varonis lacks clarity on why its federal business is behaving differently than its non-federal business, Faitelson said Varonis will reduce the footprint of its federal team and reevaluate its federal go-to-market strategy.
“We have FedRAMP moderate, but we just don’t have just the empirical evidence that, in terms of when we’re looking at all of the investment, this is the place that we need to invest in,” he said. “It doesn’t behave like the enterprise business. We haven’t figured out why the federal continued to underperform. We are reducing the footprint of our federal team, grouping and reevaluating the strategy there.”
The renewal rate decline in the on-prem subscription business was unexpected since renewals had improved earlier in the year. The drop happened abruptly in the final two weeks of September and affected both federal and nonfederal sectors. Varonis could not identify a clear pattern among non-renewing customers, and is therefore revising guidance conservatively assuming the trend may persist.
Did Additional Budget Scrutiny Drive Downtick in Renewals?
Varonis identified and is seeing some additional budgetary scrutiny from customers since the start of October, but Melamed said it’s hard to say for certain if that was a factor in September since the downturn happened so late in the company’s fiscal quarter. Varonis didn’t see a change in competitive win rates, and Melamed said the company is still in discussions with some customers that didn’t renew.
“Since it is unclear if this reduction is specific to the customers that were up for renewal in Q3 or will be applicable to the population of remaining on-prem subscription customers, we have assumed a lower renewal rate in the fourth quarter and expect continued variability in our on-prem renewal rate going forward,” Melamed told investors.
Now that Varonis has completed its SaaS transition, it is officially ending support for its self-hosted solutions as of Dec. 31, 2026, which Faitelson said introduces renewal risk and uncertainty for remaining on-prem subscription customers. The end-of-life announcement also contributed to Varonis’ conservative posture for the quarter ending Dec. 31, 2025.
“We never bake in positivity before we see it come to fruition,” Melamed said. “We always assume either the trend continues or gets worse, which is what we did in this case of the guidance. In our Q4 guidance, we assumed lower renewal rates that would take into consideration not just what we saw in Q3, but some of the impact of the announcement of end-of-life for our on-prem subscription business.”
The layoffs come less than two months after Varonis bought Pleasanton, California-based email security provider SlashNext for up to $150 million to halt sophisticated phishing and social engineering attacks. SlashNext employed nearly 100 people and was founded by Atif Mushtaq, who spent nearly nine years at FireEye and helped architect the company’s core malware sandbox technology.
Forrester recognized Varonis in March as the best data security platform out of the 10 evaluated by the technology analyst firm, scoring higher than the likes of Google, Thales or IBM. Forrester praised Varonis for bringing the expertise and outcomes it had mastered for on-prem deployments into the cloud, and for excelling in data discovery, classification, access controls, and data threat and risk visibility.
Customers told Forrester they didn’t like Varonis’ high cost and wished for minor user experience improvements to dashboard navigation. Forrester also said Varonis is merely on par for enabling use cases around privacy, information governance, and AI security and governance.