Company Quick10K Filing
⚲
Varonis Systems
Financials
Price62.03 EPS-2
Shares30 P/E-29
MCap1,891 P/FCF-177
Net Debt-53 EBIT-60
TEV1,838 TEV/EBIT-30
TTM 2019-09-30, in MM, except price, ratios
Filings
10-Q 2021-03-31 Filed 2021-05-04
10-K 2020-12-31 Filed 2021-02-09
10-Q 2020-09-30 Filed 2020-10-27
10-Q 2020-06-30 Filed 2020-08-04
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-02-11
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-12
10-Q 2018-09-30 Filed 2018-10-30
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-13
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-09
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-05
10-K 2015-12-31 Filed 2016-02-12
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-19
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-08
Reports
8-K 2020-10-26
8-K 2020-08-03
8-K 2020-05-26
8-K 2020-05-06
8-K 2020-05-06
8-K 2020-05-04
8-K 2020-04-06
8-K 2020-02-10
8-K 2019-10-28
8-K 2019-07-29
8-K 2019-06-25
8-K 2019-05-02
8-K 2019-04-29
8-K 2019-02-11
8-K 2018-10-29
8-K 2018-08-27
8-K 2018-07-30
8-K 2018-04-30
8-K 2018-04-26
8-K 2018-02-12
8-K 2018-02-08

VRNS 10Q Quarterly Report

Content
Part I.Financial Information
Item 1.Financial Statements
Note 1: General
Note 2: Fair Value Measurements
Note 3: Leases
Note 5: Convertible Senior Notes and Capped Call Transactions
Note 6: Stockholders' Equity
Note 7: Geographic Information and Major Customer Data
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II.Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 6.Exhibits
Exhibits
EX-31.1 vrnsq12021exh311.htm
EX-31.2 vrnsq12021exh312.htm
EX-32.1 vrnsq12021exh321.htm
EX-32.2 vrnsq12021exh322.htm

Varonis Systems Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
0.40.30.20.20.10.02014201620182020
Assets, Equity
 0.10.10.0-0.0-0.1-0.12014201620182020
Rev, G Profit, Net Income
 0.20.10.10.0-0.0-0.12014201620182020
Ops, Inv, Fin
vrns-20210331
0001361113--12-312021Q1FALSEus-gaap:OtherLiabilitiesCurrent3.453.453.310.910.913.803.273.293.293.903.902.972.973.453.312.532.4900013611132021-01-012021-03-31xbrli:shares00013611132021-04-30iso4217:USD00013611132021-03-3100013611132020-12-31iso4217:USDxbrli:shares0001361113us-gaap:SubscriptionAndCirculationMember2021-01-012021-03-310001361113us-gaap:SubscriptionAndCirculationMember2020-01-012020-03-310001361113us-gaap:MaintenanceMember2021-01-012021-03-310001361113us-gaap:MaintenanceMember2020-01-012020-03-310001361113us-gaap:LicenseMember2021-01-012021-03-310001361113us-gaap:LicenseMember2020-01-012020-03-3100013611132020-01-012020-03-310001361113us-gaap:CommonStockMember2019-12-310001361113us-gaap:AdditionalPaidInCapitalMember2019-12-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001361113us-gaap:RetainedEarningsMember2019-12-3100013611132019-12-310001361113us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001361113us-gaap:CommonStockMember2020-01-012020-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001361113us-gaap:RetainedEarningsMember2020-01-012020-03-310001361113us-gaap:CommonStockMember2020-03-310001361113us-gaap:AdditionalPaidInCapitalMember2020-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001361113us-gaap:RetainedEarningsMember2020-03-3100013611132020-03-310001361113us-gaap:CommonStockMember2020-12-310001361113us-gaap:AdditionalPaidInCapitalMember2020-12-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001361113us-gaap:RetainedEarningsMember2020-12-310001361113us-gaap:CommonStockMember2021-01-012021-03-310001361113us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001361113us-gaap:RetainedEarningsMember2021-01-012021-03-310001361113us-gaap:CommonStockMember2021-03-310001361113us-gaap:AdditionalPaidInCapitalMember2021-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001361113us-gaap:RetainedEarningsMember2021-03-31vrns:subsidiaryxbrli:pure00013611132021-02-082021-02-0800013611132021-03-1500013611132020-01-012020-12-310001361113vrns:AccruedExpensesAndOtherShortTermLiabilitiesMemberus-gaap:CashFlowHedgingMember2021-03-310001361113us-gaap:CashFlowHedgingMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-12-310001361113vrns:AccruedExpensesAndOtherShortTermLiabilitiesMemberus-gaap:FairValueHedgingMember2021-03-310001361113us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:FairValueHedgingMember2020-12-310001361113us-gaap:ForeignExchangeContractMember2021-01-012021-03-310001361113us-gaap:ForeignExchangeContractMember2020-01-012020-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:CashAndCashEquivalentsMember2021-03-310001361113us-gaap:CashAndCashEquivalentsMember2021-03-310001361113us-gaap:DebtSecuritiesMemberus-gaap:USTreasurySecuritiesMember2021-03-310001361113us-gaap:DebtSecuritiesMember2021-03-310001361113vrns:TermBankDepositsMemberus-gaap:ShortTermInvestmentsMember2021-03-310001361113us-gaap:ShortTermInvestmentsMember2021-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:CashAndCashEquivalentsMember2020-12-310001361113us-gaap:CashAndCashEquivalentsMember2020-12-310001361113us-gaap:DebtSecuritiesMemberus-gaap:USTreasurySecuritiesMember2020-12-310001361113us-gaap:DebtSecuritiesMember2020-12-310001361113vrns:TermBankDepositsMemberus-gaap:ShortTermInvestmentsMember2020-12-310001361113us-gaap:ShortTermInvestmentsMember2020-12-310001361113us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2020-08-212020-08-210001361113us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2020-08-210001361113us-gaap:LineOfCreditMemberus-gaap:LetterOfCreditMember2020-08-210001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-05-110001361113vrns:RestrictedStockUnitsAndStockOptionsMember2021-01-012021-03-310001361113vrns:RestrictedStockUnitsAndStockOptionsMember2020-01-012020-03-310001361113us-gaap:ConvertibleDebtSecuritiesMembervrns:TwoThousandAndTwentyFiveSeniorNotesMember2021-01-012021-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-03-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueMeasurementsRecurringMember2021-03-310001361113us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113us-gaap:FairValueMeasurementsRecurringMember2020-12-310001361113vrns:DevelopedTechnologyRightsAndTrademarksMember2021-01-012021-03-310001361113vrns:DevelopedTechnologyRightsAndTrademarksMember2021-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-05-112020-05-110001361113us-gaap:ConvertibleDebtMember2020-05-112020-05-110001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-01-012021-03-31vrns:tradingDay0001361113vrns:DebtConversionOptionOneMembervrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-01-012021-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMembervrns:DebtConversionOptionTwoMember2021-01-012021-03-310001361113us-gaap:AdditionalPaidInCapitalMembervrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2021-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMember2021-03-310001361113vrns:The2005StockPlanMember2013-12-310001361113vrns:The2005StockPlanMemberus-gaap:EmployeeStockOptionMember2013-12-312013-12-310001361113vrns:The2005StockPlanMember2014-01-012021-03-310001361113vrns:The2005StockPlanMember2021-03-310001361113vrns:The2013OmnibusEquityAwardPlanMember2013-11-140001361113vrns:The2013OmnibusEquityAwardPlanMember2013-11-142013-11-140001361113vrns:The2013OmnibusEquityAwardPlanMember2021-03-310001361113vrns:PublicStockOfferingMember2021-02-162021-02-160001361113vrns:PublicStockOfferingAdditionalOptionalSharesMember2021-02-162021-02-160001361113vrns:PublicStockOfferingMember2021-02-160001361113vrns:RangeOneMember2021-03-310001361113vrns:RangeTwoMember2021-01-012021-03-310001361113vrns:RangeTwoMember2021-03-310001361113vrns:RangeThreeMember2021-01-012021-03-310001361113vrns:RangeThreeMember2021-03-310001361113vrns:RangeFourMember2021-03-310001361113vrns:RangeFiveMember2021-03-310001361113vrns:August2013Membervrns:ConsultantsMember2021-01-012021-03-310001361113vrns:March2014Membervrns:ConsultantsMember2021-01-012021-03-310001361113vrns:May2014Membervrns:ConsultantsMember2021-01-012021-03-310001361113vrns:November2014Membervrns:ConsultantsMember2021-01-012021-03-310001361113vrns:February2016Membervrns:ConsultantsMember2021-01-012021-03-310001361113vrns:ConsultantsMember2021-01-012021-03-310001361113us-gaap:RestrictedStockUnitsRSUMember2020-12-310001361113us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001361113us-gaap:RestrictedStockUnitsRSUMember2021-03-310001361113vrns:ESPP2015Member2015-06-300001361113vrns:ESPP2015Member2015-06-302015-06-300001361113vrns:ESPP2015Member2016-01-012021-03-310001361113us-gaap:CostOfSalesMember2021-01-012021-03-310001361113us-gaap:CostOfSalesMember2020-01-012020-03-310001361113us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001361113us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-03-310001361113us-gaap:SellingAndMarketingExpenseMember2021-01-012021-03-310001361113us-gaap:SellingAndMarketingExpenseMember2020-01-012020-03-310001361113us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-310001361113us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-03-310001361113vrns:RangeOneMember2021-01-012021-03-310001361113vrns:RangeFourMember2021-01-012021-03-310001361113vrns:RangeFiveMember2021-01-012021-03-310001361113us-gaap:RestrictedStockUnitsRSUMember2021-03-312021-03-310001361113us-gaap:EmployeeStockOptionMember2021-03-312021-03-31vrns:segment0001361113srt:NorthAmericaMember2021-01-012021-03-310001361113srt:NorthAmericaMember2020-01-012020-03-310001361113us-gaap:EMEAMember2021-01-012021-03-310001361113us-gaap:EMEAMember2020-01-012020-03-310001361113vrns:RestOfWorldMember2021-01-012021-03-310001361113vrns:RestOfWorldMember2020-01-012020-03-310001361113country:FR2021-01-012021-03-310001361113country:FR2020-01-012020-03-310001361113country:IL2021-03-310001361113country:IL2020-12-310001361113country:US2021-03-310001361113country:US2020-12-310001361113country:IE2021-03-310001361113country:IE2020-12-310001361113vrns:OtherMember2021-03-310001361113vrns:OtherMember2020-12-31



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
 
FORM 10-Q
____________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
 
or
 
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission File Number: 001-36324
____________________
VARONIS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
____________________
 
Delaware57-1222280
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
1250 Broadway, 29th FloorNew YorkNY10001
(Address of principal executive offices)(Zip Code)
(877) 292-8789
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareVRNSThe NASDAQ Stock Market LLC
____________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No




Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerýAccelerated filer¨
    
Non-accelerated filer¨ Smaller reporting company☐
    
  Emerging growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      ☐
Yes    ý  No
 
As of April 30, 2021, there were 106,152,171 shares of common stock, par value $0.001 per share, outstanding.


 



TABLE OF CONTENTS
   
  
  
  
  
  
   
   
   
  
   
   
   
  
  




PART I.FINANCIAL INFORMATION


Item 1.Financial Statements

VARONIS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 March 31, 2021December 31, 2020
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$753,606 $234,092 
Marketable securities28,080 34,117 
Short-term deposits42,284 30,053 
Trade receivables (net of allowances of $1,527 and $1,250 at March 31, 2021 and December 31, 2020, respectively)
51,302 94,229 
Prepaid expenses and other current assets24,564 27,357 
Total current assets899,836 419,848 
Long-term assets:  
Operating lease right-of-use asset54,000 47,924 
Property and equipment, net35,930 37,163 
Intangible assets, net5,462 5,846 
Goodwill23,135 23,135 
Other assets19,444 21,566 
Total long-term assets137,971 135,634 
Total assets$1,037,807 $555,482 
Liabilities and stockholders’ equity  
Current liabilities:  
Trade payables$637 $850 
Accrued expenses and other short-term liabilities87,026 83,198 
Deferred revenues91,596 98,588 
Total current liabilities179,259 182,636 
Long-term liabilities:  
Convertible senior notes, net220,149 218,460 
Operating lease liability54,383 54,540 
Deferred revenues2,152 2,778 
Other liabilities3,274 2,997 
Total long-term liabilities279,958 278,775 
Stockholders’ equity:  
Share capital  
Common stock of $0.001 par value - Authorized: 200,000,000 shares at March 31, 2021 and December 31, 2020; Issued and outstanding: 106,147,395 shares at March 31, 2021 and 95,456,862 shares at December 31, 2020
106 95 
Accumulated other comprehensive income4,191 9,371 
Additional paid-in capital920,691 395,347 
1

Accumulated deficit(346,398)(310,742)
Total stockholders’ equity578,590 94,071 
Total liabilities and stockholders’ equity$1,037,807 $555,482 
The accompanying notes are an integral part of these consolidated financial statements.
2

VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data) 

 Three Months Ended
March 31,
 20212020
Revenues:  
Subscriptions$44,828 $20,365 
Maintenance and services29,671 33,423 
Perpetual licenses286 388 
Total revenues74,785 54,176 
Cost of revenues13,482 10,180 
Gross profit61,303 43,996 
Operating costs and expenses:  
Research and development30,062 22,688 
Sales and marketing51,493 42,580 
General and administrative13,823 11,398 
Total operating expenses95,378 76,666 
Operating loss(34,075)(32,670)
Financial income (expenses), net(1,022)1,453 
Loss before income taxes(35,097)(31,217)
Income taxes(559)(213)
Net loss$(35,656)$(31,430)
Net loss per share of common stock, basic and diluted$(0.36)$(0.34)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted100,246,972 92,679,000 
 
The accompanying notes are an integral part of these consolidated financial statements.
3

VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
 Three Months Ended
March 31,
 20212020
Net loss$(35,656)$(31,430)
Other comprehensive income (loss):
Unrealized income on marketable securities, net of tax4 183 
Income on marketable securities reclassified into earnings, net of tax1 12 
5 195 
Unrealized income (loss) on derivative instruments, net of tax(3,149)602 
Income on derivative instruments reclassified into earnings, net of tax(2,036)(57)
(5,185)545 
Total other comprehensive income (loss)(5,180)740 
Comprehensive loss$(40,836)$(30,690)

The accompanying notes are an integral part of these consolidated financial statements.
4

VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
 
 Common stockAdditional
paid-in capital		Accumulated
other
comprehensive income (loss)		Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 201991,749,933 92 $310,621 $(449)$(216,732)$93,532 
Stock-based compensation expense— — 12,883 — — 12,883 
Common stock issued under employee stock plans, net2,648,877 2 4,314 — — 4,316 
Unrealized income on derivative instruments— — — 545 — 545 
Unrealized income on available for sale securities— — — 195 — 195 
Net loss— — — — (31,430)(31,430)
Balance as of March 31, 202094,398,810 94 327,818 291 (248,162)80,041 


 Common stockAdditional
paid-in capital		Accumulated
other
comprehensive income		Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 202095,456,862 $95 $395,347 $9,371 $(310,742)$94,071 
Issuance of Common stock in connection with follow-on offering, net of issuance costs of $17,466
7,961,538 8 500,026 500,034 
Stock-based compensation expense— — 21,379 — — 21,379 
Common stock issued under employee stock plans, net2,728,995 3 3,939 — — 3,942 
Unrealized loss on derivative instruments— — — (5,185)— (5,185)
Unrealized income on available for sale securities— — — 5 — 5 
Net loss— — — — (35,656)(35,656)
Balance as of March 31, 2021106,147,395 106 920,691 4,191 (346,398)578,590 

The accompanying notes are an integral part of these consolidated financial statements.
5

VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20212020
Cash flows from operating activities:  
Net loss$(35,656)$(31,430)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation2,349 2,098 
Stock-based compensation21,379 12,883 
Amortization of deferred commissions4,157 3,249 
Noncash operating lease costs2,242 1,960 
Amortization of debt discount and issuance costs1,689 — 
Changes in assets and liabilities:  
Trade receivables42,927 36,785 
Prepaid expenses and other current assets(1,673)342 
Deferred commissions(3,873)(2,236)
Other long-term assets900 (82)
Trade payables(213)(174)
Accrued expenses and other short-term liabilities(5,029)(6,922)
Deferred revenues(7,618)(12,603)
Other long-term liabilities(1,198)4 
Net cash provided by operating activities20,383 3,874 
Cash flows from investing activities:  
Increase in short-term deposits(12,225)(4,805)
Decrease in marketable securities6,036 7,794 
Decrease in long-term deposits2,460 34 
Purchases of property and equipment(1,116)(2,609)
Net cash provided by (used in) investing activities(4,845)414 
Cash flows from financing activities:  
Proceeds from follow-on offering, net500,034 — 
Proceeds from employee stock plans, net3,942 4,316 
Net cash provided by financing activities503,976 4,316 
Increase in cash and cash equivalents519,514 8,604 
Cash and cash equivalents at beginning of period234,092 68,929 
Cash and cash equivalents at end of period$753,606 $77,533 
Supplemental disclosure of cash flow information:  
Cash paid for income taxes$2,822 $502 
Net lease liabilities arising from obtaining right-of-use assets$7,785 $— 

The accompanying notes are an integral part of these consolidated financial statements.
6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:     GENERAL
 
a.Description of Business:

Varonis Systems, Inc. ("VSI" and together with its subsidiaries, collectively, the “Company” or "Varonis") was incorporated under the laws of the State of Delaware on November 3, 2004, commenced operations on January 1, 2005 and has eleven wholly-owned subsidiaries.
 
The Company’s software products and services allow enterprises to manage, analyze, alert and secure enterprise data. Varonis focuses on protecting enterprise data: sensitive files and emails; confidential customer, patient and employee data; financial records; strategic and product plans; and other intellectual property. Through its products DatAdvantage (including the Automation Engine), DatAlert (including Varonis Edge), DataPrivilege, Data Classification Engine (including Policy Pack and Data Classification Labels), Data Transport Engine and DatAnswers, the Varonis Data Security Platform detects cyberthreats from both internal and external actors by analyzing data, account activity and user behavior; prevents and limits disaster by locking down sensitive and stale data; and efficiently sustains a secure state with automation. Varonis products address additional important use cases including data protection, data governance, zero trust, cybercrime, compliance, data privacy, classification and threat detection and response.
 
b.Basis of Presentation:

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain amounts in prior periods' financial statements have been recast and reclassified to conform to the current year's presentation. On February 8, 2021, the Company announced a three-for-one split of its common stock to stockholders of record as of the close of business on March 12, 2021. Trading of the Company’s common stock, par value $0.001 per share (the “common stock”), began on a split-adjusted basis on March 15, 2021. All common stock and per share data have been retroactively adjusted for the impact of the split.
 
In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2020 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2020 filed with the SEC on February 9, 2021 (the “2020 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2020 included in the 2020 Form 10-K, unless otherwise stated.

c.Revenue Recognition:

The Company generates revenues in the form of software license fees and related maintenance and services fees. Subscription revenues are comprised of time-based licenses whereby customers use the Company's software with related maintenance (including support and unspecified upgrades and enhancements when and if they are available) for a specified period. Subscriptions are sold on premises and are recognized from sales of subscription licenses to new and existing customers. When products are purchased as a subscription, the associated maintenance is included as part of the subscription revenues. Perpetual licenses have the same functionality as subscriptions. Maintenance and services primarily consist of fees for maintenance services of perpetual license sales (including support and unspecified upgrades and enhancements when and if they are available) and to a lesser extent professional services which focus on both operationalizing the software and training the Company’s customers to fully leverage the use of its products although the user can benefit from the software without the Company's assistance. The Company sells its products worldwide directly to a network of distributors and value-added resellers, and payment is typically due within 30 to 60 calendar days of the invoice date.

The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers”. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction
7

price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

Subscription software and perpetual license revenues are recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement and is included as part of the subscription revenues line item.

The Company recognizes revenues from maintenance of perpetual license sales ratably over the term of the underlying maintenance contract. The term of the maintenance contract is usually one year. Renewals of maintenance contracts create new performance obligations that are satisfied over the new term with the revenues recognized ratably over the period.

Revenues from professional services consist mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service term has expired.
 
The Company enters 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 license is distinct upon delivery as the customer can derive the economic benefit of the software without any professional services, updates or technical support. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. For maintenance, the Company determines the standalone selling prices based on the price at which the Company separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services. For software licenses, the Company uses the residual approach to determine the standalone selling prices due to the lack of history of selling software license on a standalone basis and the highly variable sales price.
 
Trade receivables are primarily comprised receivables that are recorded at the invoice amount mostly for a one year period, net of an allowance for credit losses.

Deferred revenues represent mostly unrecognized fees billed or collected for maintenance and professional services. Deferred revenues are recognized as (or when) the Company performs under the contract. Pursuant to these contracts, customers are not invoiced for subsequent years until the annual renewal occurs. The amount of revenues recognized in the period that was included in the opening deferred revenues balance was $36,750 for the three months ended March 31, 2021.
 
The Company does not grant a right of return to its customers, except for one of its resellers. In 2020 and for the three months ended March 31, 2021, there were no returns from this reseller.

For information regarding disaggregated revenues, refer to Note 7.

d.Contract Costs:

The Company pays sales commissions to sales and marketing and certain management personnel based on their attainment of certain predetermined sales goals. Sales commissions earned by its employees are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid for initial contracts, which are not commensurate with sales commissions paid for renewal contracts, are capitalized and amortized over an expected period of benefit. Based on its technology, customer contracts and other factors, the Company has determined the expected period of benefit to be approximately four years. Sales commissions for renewal contracts are capitalized and then amortized on a straight-line basis. Amortization expenses related to these costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

e.Accounting for Stock-Based Compensation:
 
The Company accounts for stock-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation.” ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The Company recognizes compensation expenses for the value of its equity awards granted based on the straight-line method over the requisite service period of each of the awards.

8

f.Derivative Instruments:
 
The Company’s primary objective for holding derivative instruments is to reduce its exposure to foreign currency rate changes. The Company reduces its exposure by entering into forward foreign exchange contracts with respect to operating expenses that are forecasted to be incurred in currencies other than the U.S. dollar. A majority of the Company’s revenues and operating expenditures are transacted in U.S. dollars. However, certain operating expenditures are incurred in or exposed to other currencies, primarily the New Israeli Shekel (“NIS”).

The Company has established forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in exchange rates. The Company’s currency risk management program includes forward foreign exchange contracts designated as cash flow hedges. These forward foreign exchange contracts generally mature within 12 months. In addition, the Company enters into forward contracts to hedge a portion of its monetary items in the balance sheet, such as trade receivables and payables, denominated in Pound Sterling and Euro for short-term periods (the “Fair Value Hedging Program”). The purpose of the Fair Value Hedging Program is to protect the fair value of the monetary assets from foreign exchange rate fluctuations. Gains and losses from derivatives related to the Fair Value Hedging Program are not designated as hedging instruments. The Company does not enter into derivative financial instruments for trading or speculative purposes.

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following table (in thousands):
 
 Liabilities as of March 31, 2021 (unaudited)Assets as of December 31, 2020
 Notional
Amount		Fair
Value		Notional
Amount		Fair
Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in prepaid expenses and other current assets and accrued expenses and other short-term liabilities$72,612 $(381)$90,452 $3,315 
Foreign exchange forward contract derivatives for monetary items included in prepaid expenses and other current assets and accrued expenses and other short-term liabilities$26,765 $(72)$33,977 $17 
 
For the three months ended March 31, 2021 and 2020, the unaudited consolidated statements of operations reflect a gain of $547 and $57, respectively, related to the effective portion of the cash flow hedges. For the three months ended March 31, 2021, the realized gains from these derivatives was $1,489. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. No material ineffective hedges were recognized for the three months ended March 31, 2021 and 2020 in operating expenses in the consolidated statement of operations.

For the three months ended March 31, 2021 and 2020, the unaudited consolidated statements of operations reflect a gain of $771 and $828, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program.

9

g.
Cash, Cash Equivalents, Marketable Securities and Short-Term Investments:   
 
The Company accounts for investments in marketable securities in accordance with ASC No. 320, “Investments—Debt and Equity Securities” and ASC No. 326, “Financial Instruments—Credit Losses”. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash on hand, highly liquid investments in money market funds and various deposit accounts.

The Company considers all high quality investments purchased with original maturities at the date of purchase greater than three but less than twelve months to be short-term deposits. Cash equivalents, marketable securities and short-term deposits are classified as available for sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of financial income (expenses), net in the consolidated statement of operations. Cash, cash equivalents, marketable securities and short-term deposits consist of the following (in thousands):
 
 As of March 31, 2021
(unaudited)
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized Losses		Fair
Value
Cash and cash equivalents    
Money market funds$16,772 $— $— $16,772 
Total$16,772 $— $— $16,772 
Marketable securities
US Treasury securities$28,072 $8 $— $28,080 
Total$28,072 $8 $— $28,080 
Short-term deposits
Term bank deposits$42,284 $— $— $42,284 
Total$42,284 $— $— $42,284 
 
10

 As of December 31, 2020
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized Losses		Fair
Value
Cash and cash equivalents    
Money market funds$10,712 $— $— $10,712 
Total$10,712 $— $— $10,712 
Marketable securities
US Treasury securities$34,113 $4 *)$34,117 
Total$34,113 $4 *)$34,117 
Short-term deposits
Term bank deposits$30,053 $— $— $30,053 
Total$30,053 $— $— $30,053 

*) Represents an amount lower than $1

All the US Treasury securities in marketable securities have a stated effective maturity of less than 12 months as of March 31, 2021 and December 31, 2020.
 
The gross unrealized gains and losses related to these short-term investments was due primarily to changes in interest rates. Available for sale debt securities with an amortized cost basis in excess of estimated fair value are assessed using the Current Expected Credit losses model to determine what portion of that difference, if any, is caused by expected credit losses. Expected credit losses on available for sale debt securities are recognized in financial income (expenses), net on the consolidated statements of operations. As of March 31, 2021, the Company did not recognize an allowance for credit losses on available for sale marketable securities as any expected credit losses are not material to the consolidated financial statements.

h.Business Combinations:

The Company accounts for its business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, the Company makes estimates and assumptions, especially with respect to intangible assets. The Company's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.

i.Goodwill and Other Long-Lived Assets, including Acquired Intangible Assets and Right-of-Use-Asset:

Goodwill represents the excess of the fair value of purchase consideration in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable. No indications of impairment of goodwill were noted during the periods presented.

Acquired intangible assets consist of identifiable intangible assets, including developed technology and trademarks, resulting from business combinations. Acquired finite-lived intangible assets are initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives. Amortization expense of developed technology and trademarks are recorded within cost of revenues and sales and marketing, respectively, in the consolidated statements of operations.

11

The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment” whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets (or asset group) to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the three months ended March 31, 2021, no impairment losses have been recorded.

j.Revolving Credit Facility:

On August 21, 2020, the Company entered into a credit and security agreement with KeyBank National Association (the “Credit and Security Agreement”), for a three-year secured revolving credit facility of $70,000, with a letter of credit sublimit of $15,000 and an accordion feature under which the Company can increase the credit facility to up to $90,000 (the “Credit Facility”). Borrowings and repayments may occur through the maturity date, which is the earlier of August 21, 2023 or 90 days prior to the scheduled maturity of any convertible debt securities, at which time any amounts outstanding are to be paid in full. The fees incurred in connection with entering into the Credit and Security Agreement were recorded in prepaid expenses and other current assets on the consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement. Ongoing fees and interest paid on the used and unused portions of the Credit Facility are expensed as incurred and included within financial income (expenses), net on the consolidated statement of operations. The Credit Facility is secured and the Credit and Security Agreement contains customary covenants and customary events of default provisions.

As of March 31, 2021, the Company had no balance outstanding on the Credit Facility and was in compliance with all financial covenants and non-financial covenants.

k.Basic and Diluted Net Loss Per Share:
 
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock unit and the impact of the conversion spread of the 1.25% Convertible Senior Notes issued by the Company on May 11, 2020 and due August 2025 in an aggregate principal amount of $253,000 (the "2025 Notes")), to the extent dilutive.
 
Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. There were 8,913,594 and 9,487,929 potentially dilutive shares from the conversion of outstanding stock options and restricted stock units that were not included in the calculation of diluted net loss per share as of March 31, 2021 and 2020, respectively. Additionally, 8,239,254 shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net income per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash and therefore will use the treasury stock method for calculating any potential dilutive effect on diluted net income per share, if applicable. The conversion will have a dilutive impact on diluted net income per share when the average market price of a common stock for a given period exceeds the conversion price of $30.71 per share.

12

l.COVID-19:

In March 2020, the World Health Organization (”WHO”) declared the novel coronavirus COVID-19 ("COVID-19") a global pandemic. The pandemic, which has continued to spread, has adversely affected workforces, economies, and financial markets globally and is expected to continue to disrupt general business operations until the disease is contained. The COVID-19 pandemic and the measures taken by many governments around the world in response could in the future meaningfully impact our business, results of operations and financial condition. The Company is currently unable to predict the duration of that impact but has updated its accounting estimates of the carrying value of certain assets and liabilities relating to its leases and will continue to monitor these estimates as new events occur and additional information is obtained. Actual results could differ from our estimates and judgments, and any such differences may be material to our financial statements.

m.Recently Issued Accounting Pronouncements Not Yet Adopted:

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements and will adopt on January 1, 2022.

NOTE 2:     FAIR VALUE MEASUREMENTS

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. There have been no transfers between fair value measurements levels during the three months ended March 31, 2021.
 
The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
 
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2021 and December 31, 2020 by level within the fair value hierarchy (in thousands):
 
As of March 31, 2021
 (unaudited)As of December 31, 2020
 Level ILevel
II		Level IIIFair
Value		Level ILevel
II		Level IIIFair
Value
Financial assets:
Cash equivalents:
Money market funds16,772 — — 16,772 10,712 — — 10,712 
Marketable securities:
US Treasury securities28,080 — — 28,080 34,117 — — 34,117 
13

Prepaid expenses and other current assets:
Forward foreign exchange contracts— — — — — 3,332 — 3,332 
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts— (453)— (453)— — — — 
Total financial assets (liabilities)$44,852 $(453)$— $44,399 $44,829 $3,332 $— $48,161 

See Note 5 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of the Company's 2025 Notes as of March 31, 2021.

NOTE 3:    LEASES

The Company has various operating leases for office space, vehicles and office equipment that expire through 2030. The lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Below is a summary of our operating right-of-use assets and operating lease liabilities as of March 31, 2021 (in thousands):

March 31, 2021
(unaudited)
Operating right-of-use assets$54,000 
Operating lease liabilities, current$13,223 
Operating lease liabilities long-term54,383 
Total operating lease liabilities$67,606 

Operating lease liabilities, current are included within accrued expenses and other short-term liabilities in the consolidated balance sheet.

Some leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in remeasurement of the right-of-use asset and lease liability.

Some of the real estate leases contain variable lease payments, including payments based on a Consumer Price Index ("CPI"). Variable lease payments based on a CPI are initially measured using the index in effect at lease adoption. Additional payments based on the change in a CPI are recorded as a period expense when incurred.

The Company has liens granted to a financial institution mainly to secure various operating lease agreements in connection with its office space.

Minimum lease payments for our right-of-use assets over the remaining lease periods as of March 31, 2021, are as follows (in thousands):
March 31, 2021
 (unaudited)
2021$8,315 
202215,839 
20238,587 
20247,241 
20257,278 
Thereafter28,561 
 
14

Total undiscounted lease payments$75,821 
Less: Imputed interest(8,215)
Present value of lease liabilities$67,606 

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of March 31, 2021:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)7.40
Weighted average discount rate3.01 %

Total operating lease cost for the three months ended March 31, 2021 and 2020 was $1,440 and $2,012, respectively.

NOTE 4:    GOODWILL AND INTANGIBLE ASSETS

On October 29, 2020, the Company completed the acquisition of the share capital of Polyrize Security Ltd. ("Polyrize"), a provider of software that maps and analyzes relationships between users and data across a number of cloud applications and services.
 
Goodwill

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired less liabilities assumed arising from business combinations. The Company believes the goodwill represents the synergies expected from expanded market opportunities when integrating with its offerings.

The following table reflects goodwill activity for the three months ended March 31, 2021 (in thousands):

 Amount
(unaudited)
Balance at December 31, 2020
$23,135 
Goodwill acquired— 
Balance at March 31, 2021
$23,135 

All goodwill balances are subject to annual goodwill impairment testing. As of March 31, 2021, there were no impairments for goodwill.

Intangible Assets

Total cost and amortization of intangible assets comprised of the following (in thousands):

Estimated Useful LifeMarch 31, 2021
Intangible assets, net(in years)(unaudited)
Developed technology & trademarks4$6,110 
Total intangible assets6,110 
Less: Accumulated amortization648 
Total intangible assets, net$5,462 

Intangible assets are expensed on a straight-line basis over the useful life of the asset. The Company recorded amortization expense of $384 for the three months ended March 31, 2021.

15

The following table summarizes estimated future amortization expense of our intangible assets as of March 31, 2021 (in thousands):
Years ending December 31,Amount
(unaudited)
2021$1,149 
20221,525 
20231,525 
20241,263 
Total future amortization expense$5,462 

NOTE 5:    CONVERTIBLE SENIOR NOTES AND CAPPED CALL TRANSACTIONS

On May 11, 2020, the Company issued the 2025 Notes pursuant to an Indenture dated May 11, 2020 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The offering consisted of $220,000 aggregate principal amount plus the full exercise of the initial purchasers’ option to purchase up to an additional $33,000 aggregate principal amount. The net proceeds to the Company after the initial purchaser discount and issuance costs were approximately $245,158. The Company used $29,348 of the net proceeds from the offering to pay the cost of the capped call transactions described below.

The 2025 Notes will mature on August 15, 2025, unless earlier converted, redeemed or repurchased. Interest will be payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020, at a rate of 1.25% per year.

The initial conversion rate for the 2025 Notes is 32.5668 shares of the Company’s common stock for each $1,000 principal amount of the 2025 Notes which is equivalent to an initial conversion price of approximately $30.71 per share. The conversion rate is subject to adjustment in specified events. The 2025 Notes are convertible into shares of the Company’s common stock, at the option of a holder, prior to the close of business on the business day immediately preceding February 15, 2025, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2) during the five consecutive business day period immediately after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of the 2025 Notes, as determined following a request by a holder of the 2025 Notes in the manner described in the Indenture, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

(3) if the Company calls any or all of the 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

(4) upon the occurrence of certain corporate events specified in the Indenture.

In addition, regardless of the foregoing circumstances, on or after February 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2025 Notes at any time. During the three months ended March 31, 2021, the conversion feature of the 2025 Notes was triggered as the last reported price of our common stock was more than or equal to 130% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and therefore the 2025 Notes are currently convertible, in whole or in part, at the option of the holders from April 1, 2021 through June 30, 2021. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition. The Company has not received any conversion notices through the issuance date of our consolidated financial statements. Since the Company may elect to repay the 2025 Notes in cash, shares of our common stock, or a combination of both, it has continued to classify the 2025 Notes as long-term debt on its consolidated balance sheet as of March 31, 2021. Upon conversion, the 2025 Notes may be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock in the manner and subject to the terms and conditions provided in the Indenture.

16

The 2025 Notes are not redeemable at the Company’s option prior to August 20, 2023. The Company may redeem the 2025 Notes for cash, at its option, on a redemption date occurring on or after August 20, 2023, and on or prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a “fundamental change” (as defined in the Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or part of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Indenture includes customary terms, including certain events of default after which the 2025 Notes may be due and payable immediately. The 2025 Notes are the Company’s unsecured obligations and rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 Notes.

The Company accounted for the 2025 Notes in accordance with ASC 470-20 "Debt with Conversion and Other Options" and separated the 2025 Notes into liability and equity components. The carrying amounts of the liability components of the 2025 Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the 2025 Notes. This difference represents the debt discount that is amortized to interest expense over the terms of the 2025 Notes using the effective interest rate method. The carrying amount of the equity components representing the conversion option was approximately $31,779 for the 2025 Notes and is recorded in additional paid-in capital and are not remeasured as long as they continue to meet the conditions for equity classification.

The Company allocates transaction costs related to the issuance of the 2025 Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were approximately $6,857 and are being amortized to interest expense at an effective interest method rate of 4.51% over the term of the 2025 Notes. Transaction costs attributable to the equity component were approximately $985 and are netted with the equity component of the 2025 Notes in additional paid-in capital.

The net carrying amount of the liability and equity components of the 2025 Notes as of March 31, 2021 was as follows (in thousands):

As of
March 31, 2021
(unaudited)
Liability component
Principal$253,000 
Unamortized discount(27,021)
Unamortized issuance costs(5,830)
Net carrying amount$220,149 
Equity component, net of discount and issuance costs$30,794 

The interest expense recognized related to the 2025 Notes for the three months ended March 31, 2021 was as follows (in thousands):

17

Three Months Ended
March 31, 2021
(unaudited)
Contractual interest expense$790 
Amortization of debt discount1,389 
Amortization of debt issuance costs300 
Total$2,479 

As of March 31, 2021, the total estimated fair value of the 2025 Notes was approximately $452,286. The fair value was determined based on the closing trading price per $100 of the 2025 Notes as of the last day of trading for the period. The fair value of the 2025 Notes is primarily affected by the trading price of our common stock and market interest rates. The fair value of the 2025 Notes is considered a Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the 2025 Notes in an over-the-counter market.

Capped Call Transactions

On May 6, 2020, in connection with the pricing of the 2025 Notes, the Company entered into privately negotiated capped call transactions (the “Initial Capped Call Transactions”). In addition, in connection with initial purchasers’ exercise in full of their option to purchase additional 2025 Notes, on May 8, 2020, the Company entered into additional privately negotiated capped call transactions (the “Additional Capped Call Transactions,” and, together with the Initial Capped Call Transactions, the “Capped Call Transactions”) with the initial purchasers or their respective affiliates and other financial institutions. The capped call transactions are generally expected to reduce the potential dilution to the Company’s common stock upon any conversion of the 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2025 Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $47.24 (the "Cap Price") which represents a premium of 100% over the last reported sale price of the Company’s common stock on May 6, 2020, subject to certain adjustments.

The Capped Call Transactions are separate transactions, in each case, entered into by the Company with the option counterparties, and are not part of the terms of the 2025 Notes and will not change the holders’ rights under the 2025 Notes. As the Capped Call Transactions are considered indexed to the Company's stock and are considered equity classified, they are recorded in stockholders’ equity on the consolidated balance sheet and are not accounted for as derivatives. The cost of the Capped Call Transactions was approximately $29,348 and was recorded as a reduction to additional paid-in capital. Based on our common stock price as of March 31, 2021, the Cap Price under the Capped Call Transactions was exceeded, hence as of March 31, 2021, and as long as our Common Stock price shall be higher than $47.24, the incremental amount by which the stock price exceeds the Cap Price is not protected under the Capped Call Transactions.

NOTE 6:    STOCKHOLDERS’ EQUITY

a. On December 30, 2005, the Company’s board of directors adopted the Varonis Systems, Inc. 2005 Stock Plan (the “2005 Stock Plan”). As of December 31, 2013, the Company had reserved 14,139,957 shares of common stock available for issuance to employees, directors, officers and consultants of the Company and its subsidiaries. The options generally vest over four years. No awards were granted under the 2005 Stock Plan subsequent to December 31, 2013, and no further awards will be granted under the 2005 Stock Plan.

On November 14, 2013, the Company’s board of directors adopted the Varonis Systems, Inc. 2013 Omnibus Equity Incentive Plan (the “2013 Plan”) which was subsequently approved by the Company’s stockholders. The Company initially reserved 5,713,899 shares of common stock for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2013 Plan was increased on January 1, 2016 and has been, and will be, increased on each January 1 thereafter by four percent (4%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase (rounded down to the nearest whole share), but the amount of each increase will be limited to the number of shares of common stock necessary to bring the total number of shares of Common Stock available for grant and issuance under the 2013 Plan to five percent (5%) of the number of shares of common stock issued and outstanding on each December 31. Since January 1, 2016, the share reserve under the 2013 Plan has been automatically increased by an aggregate of 20,388,450 shares. Awards granted under the 2013 Plan generally vest over four years. Any award that is forfeited or canceled before expiration becomes available for future grants under the 2013 Plan.
18


On October 22, 2020, and as part of the acquisition, the Company’s board of directors approved the assumption of a certain portion of Polyrize Options pursuant to the terms and conditions of the Polyrize 2019 Share Incentive (“Polyrize Plan”) as part of the acquisition.

On February 16, 2021, the Company completed a registered public offering of 7,961,538 shares of the Company's common stock, which includes 1,038,459 additional optional shares, at a price of $65.00 per share, before underwriting discounts and commissions. The common stock offering generated net proceeds to the Company of approximately $500,034, after deducting $17,466 in underwriting discounts and commissions and offering costs, which have been recorded against the proceeds received from the offering.

A summary of employees’ stock options activities during the three months ended March 31, 2021 is as follows:
 
 Three Months Ended
March 31, 2021 (unaudited)
 NumberWeighted
average
exercise price		Aggregate
intrinsic value
(in thousands)		Weighted average
remaining
contractual life
(years)
Options outstanding as of January 1, 20211,022,763 $6.862 $47,417 3.452
Granted— $— 
Exercised(65,004)$4.941 
Forfeited and expired(3,000)$2.077 
Options outstanding as of March 31, 2021954,759 $7.008 $42,327 3.453
Options exercisable as of March 31, 2021929,880 $7.043 $41,191 3.308
 
The aggregate intrinsic value in the table above represents the total intrinsic value that would have been received by the option holders had all option holders exercised their options on the last date of the period. Total intrinsic value of options exercised for the three months ended March 31, 2021 was $4,064. As of March 31, 2021, there was $732 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005 Stock Plan, 2013 Plan and Polyrize Plan. This cost is expected to be recognized over a weighted-average period of approximately 2.488 years.

b. The options outstanding as of March 31, 2021 (unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price
Options outstanding
as of
March 31, 2021
Weighted average remaining contractual life (years)Weighted average exercise price of options outstanding
Options exercisable as of
March 31, 2021
Weighted average remaining contractual life (years)Weighted average exercise price of options exercisable
$2.93322,068 0.912 $2.933 22,068 0.912 $2.933 
$4.157 —5.682261,174 3.801 $4.977 236,295 3.268 $4.889 
$6.503 —8.077504,651 3.287 $7.147 504,651 3.287 $7.147 
 $9.960139,644 3.896 $9.960 139,644 3.896 $9.960 
 $13.28727,222 2.975 $13.287 27,222 2.975 $13.287 
   954,759 3.453 $7.008 929,880 3.308 $7.043 
19


c.Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of March 31, 2021 (unaudited) were as follows:
 
Number of options outstanding and exercisable as of March 31, 2021
Exercise price
per share		Exercisable
through
August 20137,500 $7.047 August 2023
March 20144,950 $13.287 March 2024
May 20146,000 $7.337 May 2024
November 201410,335 $7.220 November 2024
February 20163,000 $5.623 February 2026
 31,785   
 
d.Restricted stock units:

A summary of restricted stock units and performance stock units for employees, consultants and non-employee directors of the Company for the three months ended March 31, 2021 (unaudited) is as follows:
 
 Number of
shares underlying
outstanding
restricted stock units		Weighted-
average
grant date
fair value
Unvested balance - January 1, 20218,388,963 $23.00 
Granted2,201,865 $67.56 
Vested(2,552,277)$19.77 
Forfeited(