Second Round of Layoffs Since 2022 Follows $150 Million Email Security Acquisition
Varonis has announced a reduction of its workforce by 5%, translating to approximately 120 employees, amid concerns over declining renewal rates in its on-premise subscription model. This decision comes less than two months after the company acquired email security firm SlashNext for up to $150 million, a strategic move aimed at fortifying its defenses against phishing and social engineering attacks.
The Miami-based data security company revealed its layoffs on Tuesday, aligning operational costs more closely with projected revenue, particularly after experiencing underperformance in its federal vertical. Despite this sector only contributing 5% to its annual recurring revenue, it significantly influenced Varonis’ recent financial challenges, leading to a recalibration of its federal sales strategy.
“Reducing our headcount by 5% and streamlining expenses are proactive steps intended to ensure future stability. We’re committed to identifying and addressing each factor impacting our performance,” stated CFO and COO Guy Melamed during an investor meeting.
Dramatic Stock Decline
The stock price of Varonis fell by $30.66, or 48.7%, closing at $32.34 per share on Wednesday. This drop marks the company’s lowest trading level since October 27, 2023, reducing its market valuation from over $6 billion to around $3.63 billion. As of December 31, 2024, Varonis employed 2,406 individuals, indicating that the recent layoffs predominantly affect the US and Israeli offices, where most employees are based.
With engineering personnel comprising nearly half of the workforce and 40% engaged in sales, this round of layoffs illustrates a broader trend within the organization—efforts to alleviate costs amid uncertainties linked to its federal division. CEO Yaki Faitelson highlighted ongoing challenges in this sector, emphasizing the need for a strategic reassessment of the federal team’s size and approach.
The unexpected decline in renewal rates began surfacing in late September, affecting both federal and non-federal clients. Varonis is now forced to adopt a conservative outlook, anticipating possible continued downturns in renewal activity, which could necessitate further adjustments in operational strategy. Melamed noted that ongoing budget scrutiny from clients might have contributed to this decline, although the precise impact remains unclear.
Transitioning to SaaS
In a bid to modernize its offerings, Varonis is officially concluding its support for self-hosted solutions by December 31, 2026, a decision that introduces further uncertainty for existing customers. This shift coincides with the company’s expectation for continued fluctuations in on-premise renewal rates.”We operate with a mindset that anticipates challenges before they become apparent,” Melamed explained, indicating a cautious approach to future guidance.
The timing of these layoffs closely follows Varonis’ significant investment in an advanced email security solution, suggesting a dual focus on innovation and cost management at a time when market performance is under scrutiny. Forrester recently recognized Varonis as a leading data security platform, commending its product capabilities, despite customer concerns over pricing and user experience inadequacies.
