Company Quick10K Filing
Varonis Systems
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
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
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

Part I.Financial Information
Item 1.Financial Statements
Note 1: - General
Note 2: - Fair Value Measurements
Note 3: - Leases
Note 4: - Stockholders' Equity
Note 5: - Geographic Information and Major Customer and Product 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
EX-31.1 vrnsq12020exh311.htm
EX-31.2 vrnsq12020exh312.htm
EX-32.1 vrnsq12020exh321.htm
EX-32.2 vrnsq12020exh322.htm

Varonis Systems Earnings 2020-03-31

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

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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, 2020
 
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, 2020, there were 31,468,030 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, 2020December 31, 2019
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$77,533  $68,929  
Marketable securities33,737  41,531  
Short-term deposits15,000  10,000  
Trade receivables (net of allowance for doubtful accounts of $614 and $637 at March 31, 2020 and December 31, 2019, respectively)
38,265  75,050  
Prepaid expenses and other current assets12,764  13,047  
Total current assets177,299  208,557  
Long-term assets:  
Other assets19,026  18,360  
Operating lease right-of-use asset53,808  55,057  
Property and equipment, net36,849  36,338  
Total long-term assets109,683  109,755  
Total assets$286,982  $318,312  
Liabilities and stockholders’ equity  
Current liabilities:  
Trade payables$823  $997  
Accrued expenses and other short-term liabilities59,994  62,607  
Deferred revenues84,331  95,975  
Total current liabilities145,148  159,579  
Long-term liabilities:  
Deferred revenues4,501  5,460  
Operating lease liability54,580  57,040  
Other liabilities2,712  2,701  
Total long-term liabilities61,793  65,201  
Stockholders’ equity:  
Share capital  
Common stock of $0.001 par value - Authorized: 200,000,000 shares at March 31, 2020 and December 31, 2019; Issued and outstanding: 31,466,270 shares at March 31, 2020 and 30,583,311 shares at December 31, 2019
31  31  
Accumulated other comprehensive income (loss)291  (449) 
Additional paid-in capital327,881  310,682  
Accumulated deficit(248,162) (216,732) 
Total stockholders’ equity80,041  93,532  
Total liabilities and stockholders’ equity$286,982  $318,312  
 The accompanying notes are an integral part of these consolidated financial statements.
1


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

 Three Months Ended
March 31,
 20202019
Revenues:  
Subscriptions$20,365  $7,005  
Perpetual licenses388  15,521  
Maintenance and services33,423  33,834  
Total revenues54,176  56,360  
Cost of revenues10,180  8,326  
Gross profit43,996  48,034  
Operating costs and expenses:  
Research and development22,688  18,768  
Sales and marketing42,580  41,996  
General and administrative11,398  9,271  
Total operating expenses76,666  70,035  
Operating loss(32,670) (22,001) 
Financial income (expenses), net1,453  (128) 
Loss before income taxes(31,217) (22,129) 
Income taxes(213) (510) 
Net loss$(31,430) $(22,639) 
Net loss per share of common stock, basic and diluted$(1.02) $(0.76) 
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted30,893,000  29,827,927  
 
The accompanying notes are an integral part of these consolidated financial statements.
2


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
 Three Months Ended
March 31,
 20202019
Net loss$(31,430) $(22,639) 
Other comprehensive income:
Unrealized income on marketable securities, net of tax183  18  
Gains (losses) on marketable securities reclassified into earnings, net of tax12  (8) 
195  10  
Unrealized income on derivative instruments, net of tax602  2,484  
Losses (gains) on derivative instruments reclassified into earnings, net of tax(57) 451  
545  2,935  
Total other comprehensive income740  2,945  
Comprehensive loss$(30,690) $(19,693) 

The accompanying notes are an integral part of these consolidated financial statements.
3


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 loss
Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 201829,576,880  30  266,941  (3,633) (137,968) 125,370  
Stock-based compensation expense—  —  8,961  —  —  8,961  
Common stock issued under employee stock plans, net686,357    (4,642) —  —  (4,642) 
Unrealized gains on derivative instruments—  —  —  2,935  —  2,935  
Unrealized gains on available for sale securities—  —  —  10  —  10  
Net loss—  —  —  —  (22,639) (22,639) 
Balance as of March 31, 201930,263,237  30  271,260  (688) (160,607) 109,995  


 Common stockAdditional
paid-in capital
Accumulated
other
comprehensive income (loss)
Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 201930,583,311  $31  $310,682  $(449) $(216,732) $93,532  
Stock-based compensation expense—  —  12,883  —  —  12,883  
Common stock issued under employee stock plans, net882,959    4,316  —  —  4,316  
Unrealized gains on derivative instruments—  —  —  545  —  545  
Unrealized gains on available for sale securities—  —  —  195  —  195  
Net loss—  —  —  —  (31,430) (31,430) 
Balance as of March 31, 202031,466,270  31  327,881  291  (248,162) 80,041  

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


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20202019
Cash flows from operating activities:  
Net loss$(31,430) $(22,639) 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation2,098  1,337  
Stock-based compensation12,883  8,961  
Amortization of deferred commissions3,249  3,626  
Amortization of operating lease right-of-use asset1,960  1,399  
Capital loss from sale of fixed assets  24  
Changes in assets and liabilities:  
Trade receivables36,785  41,427  
Prepaid expenses and other current assets342  (623) 
Deferred commissions(2,236) (4,870) 
Other long-term assets(82) (19) 
Trade payables(174) (1,996) 
Accrued expenses and other short-term liabilities(6,922) (7,358) 
Deferred revenues(12,603) (5,384) 
Other long-term liabilities4  170  
Net cash provided by operating activities3,874  14,055  
Cash flows from investing activities:  
Decrease (increase) in short-term deposits(4,805) 9,120  
Decrease in marketable securities7,794  1,928  
Decrease (increase) in long-term deposits34  (12) 
Purchase of property and equipment(2,609) (5,103) 
Net cash provided by investing activities414  5,933  
Cash flows from financing activities:  
Proceeds (withholdings) from employee stock plans, net4,316  (4,234) 
Net cash provided by (used in) financing activities4,316  (4,234) 
Increase in cash and cash equivalents8,604  15,754  
Cash and cash equivalents at beginning of period68,929  48,707  
Cash and cash equivalents at end of period$77,533  $64,461  
Supplemental disclosure of cash flow information:  
Cash paid for income taxes$502  $2,543  

The accompanying notes are an integral part of these consolidated financial statements.
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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”) was incorporated under the laws of the State of Delaware on November 3, 2004 and commenced operations on January 1, 2005.
 
VSI has ten wholly-owned subsidiaries: Varonis Systems Ltd. (“VSL”) incorporated under the laws of Israel on November 24, 2004; Varonis (UK) Limited (“VSUK”) incorporated under the laws of England on March 14, 2007; Varonis Systems (Deutschland) GmbH (“VSG”) incorporated under the laws of Germany on July 6, 2011; Varonis France SAS (“VSF”) incorporated under the laws of France on February 22, 2012; Varonis Systems Corp. (“VSC”) incorporated under the laws of British Columbia, Canada on February 19, 2013; Varonis Systems (Ireland) Limited ("VIRE") incorporated under the laws of Ireland on November 11, 2016; Varonis Systems (Australia) Pty Ltd (“VAUS”) incorporated under the laws of Victoria, Australia on February 28, 2017; Varonis Systems (Netherlands) B.V. ("VNL") incorporated under the laws of the Netherlands on March 13, 2018; Varonis U.S. Public Sector LLC ("VPS") incorporated under the laws of the State of Delaware on May 14, 2018; and Varonis Systems (Luxemburg) S.à r.l. (“VLUX”) incorporated under the laws of Luxembourg on August 5, 2019.

The Company’s software products and services allow enterprises to manage, analyze 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 software platform allows enterprises to protect sensitive data from insider threats and cyberattacks, and realize the value of their enterprise data in ways that are not resource-intensive and easy to implement.

VSI and VPS market and sell products and services mainly in the United States. VSUK, VSG, VSF, VSC, VIRE, VAUS, VNL and VLUX resell the Company’s products and services mainly in the United Kingdom, Germany, France, Canada, Ireland, Australia, the Netherlands and Belgium and Luxembourg, respectively. The Company primarily sells its products and services to a global network of distributors and Value Added Resellers (VARs), which sell the products to end user customers.
 
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.
 
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 2019 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2019 filed with the SEC on February 11, 2020 (the “2019 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, 2019 included in the 2019 Form 10-K, unless otherwise stated.

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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 with the same functionality as the perpetual license 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 license revenues consist of the revenues recognized from sales of perpetual licenses to new and existing customers. 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 VARs, 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 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 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 and other receivables are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for doubtful accounts.
 
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 $35,421 for the three months ended March 31, 2020.
 
The Company does not grant a right of return to its customers, except for one of its resellers. In 2019 and for the three months ended March 31, 2020, there were no returns from this reseller.
 
For information regarding disaggregated revenues, please refer to Note 5.

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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 mostly included in sales and marketing expenses in the accompanying consolidated statements of operations.

e.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 March 2020, due to the market volatility that resulted from the novel coronavirus COVID-19 ("COVID-19") outbreak, the Company entered into additional forward foreign exchange contracts expected to mature within 18 months at more favorable rates. The Company does not enter into derivative financial instruments for trading purposes. 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.

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following table (in thousands):
 
 Assets (liabilities) as of March 31, 2020 (unaudited)Assets (liabilities) as of December 31, 2019
 Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in accrued expenses and other short-term liabilities
$80,192  $(1,609) $84,968  $(470) 
Foreign exchange forward contract derivatives in cash flow hedging relationships included in other long-term assets
$32,927  $1,683  $  $  
Foreign exchange forward contract derivatives for monetary items included in prepaid expenses and other current assets and accrued expenses and other short-term liabilities
$29,028  $(14) $26,995  $5  
 
For the three months ended March 31, 2020 and 2019, the unaudited consolidated statements of operations reflect a gain of $57 and a loss of $451, respectively, related to the effective portion of the cash flow hedges. Effective with our January 1, 2019 adoption of ASU No. 2017-12, ineffectiveness of cash flow hedges is no longer recognized in financial income (expenses), net in the consolidated statement of operations. No material ineffective hedges were recognized for the three months ended March 31, 2020 and 2019 in operating expenses in the consolidated statement of operations.

For the three months ended March 31, 2020 and 2019, the unaudited consolidated statements of operations reflect gains of $828 and $471, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program.

8


 
f.
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”. 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, 2020
(unaudited)
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Loss
Fair
Value
Cash and cash equivalents    
Money market funds$10,998  $  $  $10,998  
Total$10,998  $  $  $10,998  
Marketable securities
US Treasury securities$33,520  $217  $  $33,737  
Total$33,520  $217  $  $33,737  
Short-term deposits
Term bank deposits$15,000  $  $  $15,000  
Total$15,000  $  $  $15,000  
 
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 As of December 31, 2019
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Loss
Fair
Value
Cash and cash equivalents    
Money market funds$4,789  $  $  $4,789  
Total$4,789  $  $  $4,789  
Marketable securities
US Treasury securities$41,510  $23  $(2) $41,531  
Total$41,510  $23  $(2) $41,531  
Short-term deposits
Term bank deposits$10,000  $  $  $10,000  
Total$10,000  $  $  $10,000  


All the US Treasury securities in marketable securities have a stated effective maturity of less than 12 months as of March 31, 2020 and December 31, 2019.
 
The gross unrealized gains and losses related to these short-term investments was due primarily to changes in interest rates. The Company reviews its short-term investments on a regular basis to evaluate whether or not any security has experienced an other than temporary decline in fair value. The Company considers factors such as length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer and its intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. If the Company believes that an other than temporary decline exists in one of these securities, the Company writes down these investments to fair value. For debt securities, the portion of the write-down related to credit loss would be recorded to other income (expenses), net in the Company’s consolidated statements of operations. Any portion not related to credit loss would be recorded to accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity in the Company’s condensed consolidated balance sheets. During the three months ended March 31, 2020, the Company did not consider any of its investments to be other-than-temporarily impaired.

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g.Credit Facility:

On March 31, 2014, the Company entered into a promissory note and related security documents with Bank Leumi USA, which the Company has extended a number of times. The Company may borrow up to $7,000 against certain of its accounts receivable outstanding amount, based on several conditions, at an annual interest rate of the Wall Street Journal Prime Rate plus 0.05%, provided that the annual interest rate applicable to advances will not be lower than 4.10%. As of March 31, 2020, that borrowing rate was 4.10%. This promissory note enables the Company, among other things, to engage in foreign currency hedging transactions with Bank Leumi USA to manage exposure to foreign currency risk without restricted cash requirements. The Company may borrow under the promissory note until November 15, 2020 at which time the principal sum of each such loan, together with accrued and unpaid interest payable, will become due and payable. As of March 31, 2020, the Company had no balance outstanding under the promissory note. As part of the transaction, the Company granted the lender a security interest in its personal property, excluding intellectual property and other intangible assets. The promissory note also contains customary events of default.

h.COVID-19:
The worldwide spread of COVID-19 has resulted in a global economic slowdown and is expected to continue to disrupt general business operations until the disease is contained. This has already had a negative impact on the Company's sales and results of operations, and the Company expects that it will continue to negatively affect its sales and results of operations. The Company is currently unable to predict the scale and duration of that impact. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update of its accounting estimates or judgments or revision of the carrying value of its assets or liabilities. This determination may change 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.


i.Recently Adopted Accounting Pronouncements:

In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard requires capitalized costs to be amortized on a straight-line basis generally over the term of the arrangement, and the financial statement presentation for these capitalized costs would be the same as that of the fees related to the hosting arrangements. This new standard was adopted for our interim and annual periods beginning January 1, 2020. Adoption of this standard had an immaterial impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses on Financial Instruments”, which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available for sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available for sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard was adopted for interim and annual periods beginning after January 1, 2020. Adoption of this standard had an immaterial impact on the Company's consolidated financial statements.

j.Recently Issued Accounting Pronouncements Not Yet Adopted:

The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on the consolidated financial statements as a result of their future adoption.


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, 2020.
 
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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, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands):
 
As of March 31, 2020
 (unaudited)As of December 31, 2019
 Level ILevel
II
Level IIIFair
Value
Level ILevel
II
Level IIIFair
Value
Financial assets:
Cash equivalents:
Money market funds10,998      10,998  4,789      4,789  
Marketable securities:
US Treasury securities33,737      33,737  41,531      41,531  
Prepaid expenses and other current assets:
Forward foreign exchange contracts          5    5  
Other long-term assets:
Forward foreign exchange contracts  1,683    1,683          
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts  (1,623)   (1,623)   (470)   (470) 
Total financial assets (liabilities)$44,735  $60  $  $44,795  $46,320  $(465) $  $45,855  

NOTE 3:- LEASES

In February 2016, the FASB issued ASU 2016-02, “Leases”, on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
The Company has elected the short-term lease exception for leases with a term of 12 months or less. As part of this election it will not recognize right-of-use assets and lease liabilities on the balance sheet for leases with terms less than 12 months. The Company also elected the practical expedient to not separate lease and non-lease components for all its leases. This will result in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability being greater than if the policy election was not applied.

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
12


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.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The Company's incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

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 granted several liens to financial institutions mainly to secure various operating lease agreements in connection with its office space.

The Company has various operating leases for office space, vehicles and office equipment that expire through 2030. Its 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, 2020:

March 31, 2020
(unaudited)
Operating right-of-use assets$53,808  
Operating lease liabilities, current$8,196  
Operating lease liabilities long-term54,580  
Total operating lease liabilities$62,776  

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

Minimum lease payments for our right-of-use assets over the remaining lease periods as of March 31, 2020, are as follows:
March 31, 2020
 (unaudited)
2020$8,365  
20219,679  
20229,061  
20238,861  
20248,470  
Thereafter29,949  
 
Total undiscounted lease payments$74,385  
Less: Imputed interest(11,609) 
Present value of lease liabilities$62,776  
 
As of March 31, 2020, the Company had an additional operating lease that had not yet commenced of $5,509. This operating lease will commence in the third quarter of 2020 with a lease term through 2030.

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The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of March 31, 2020:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)5.59
Weighted average discount rate4.03 %

Total operating lease cost for the three months ended March 31, 2020 and 2019 was $2,012 and $1,701, respectively.

NOTE 4:– 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 4,713,319 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 1,904,633 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 5,530,555 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.

A summary of employees’ stock options activities during the three months ended March 31, 2020 is as follows: