Shares of Varonis Systems Inc. (NASDAQ: VRNS) plunged nearly 6% in pre-market trading on Tuesday, despite the company reporting solid third-quarter results and raising its full-year guidance. The data security and analytics software provider's stock seemed to be impacted by a mixed reaction to its outlook and potential concerns about the impact of generative AI on its business.

In the third quarter, Varonis reported revenue of $148.1 million, up 21% year-over-year, driven by strong growth in its Annual Recurring Revenue (ARR), which grew 18% to $610 million. The company's SaaS offerings, including its MDDR (Metadata-Driven Data Risk) platform, were key drivers of this growth, contributing to a 43% share of total ARR.

However, Varonis' gross margin declined to 85% from 87.3% a year ago, due to a higher mix of SaaS sales and increased hosting costs. Additionally, the company's federal business underperformed expectations, prompting changes in its management team for that segment.