10-Q 1 vrns-20220930.htm 10-Q vrns-20220930
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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 September 30, 2022
 
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, 28th FloorNew YorkNY10001
(Address of principal executive offices)(Zip Code)
(877) 292-8767
(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 October 28, 2022, there were 110,220,081 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)
 September 30, 2022December 31, 2021
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$754,245 $805,761 
Marketable securities25,235  
Short-term deposits10,871 1,850 
Trade receivables (net of allowances of $3,355 and $2,754 at September 30, 2022 and December 31, 2021, respectively)
91,685 117,179 
Prepaid expenses and other current assets34,557 34,417 
Total current assets916,593 959,207 
Long-term assets:  
Operating lease right-of-use asset58,757 63,749 
Property and equipment, net38,188 38,298 
Intangible assets, net3,169 4,313 
Goodwill23,135 23,135 
Other assets18,666 19,835 
Total long-term assets141,915 149,330 
Total assets$1,058,508 $1,108,537 
Liabilities and stockholders’ equity  
Current liabilities:  
Trade payables$5,989 $5,324 
Accrued expenses and other short-term liabilities109,250 102,226 
Deferred revenues94,190 104,221 
Total current liabilities209,429 211,771 
Long-term liabilities:  
Convertible senior notes, net248,589 225,330 
Operating lease liability58,867 68,694 
Deferred revenues2,125 2,566 
Other liabilities7,191 3,583 
Total long-term liabilities316,772 300,173 
Stockholders’ equity:  
Share capital  
Common stock of $0.001 par value - Authorized: 200,000,000 shares at September 30, 2022 and December 31, 2021; Issued and outstanding: 110,213,856 shares at September 30, 2022 and 107,509,096 shares at December 31, 2021
110 108 
1


Accumulated other comprehensive income (loss)(12,357)6,083 
Additional paid-in capital1,077,280 1,018,005 
Accumulated deficit(532,726)(427,603)
Total stockholders’ equity532,307 596,593 
Total liabilities and stockholders’ equity$1,058,508 $1,108,537 
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
September 30,
Nine Months Ended
September 30,
 2022202120222021
Revenues:    
Subscriptions$96,052 $70,350 $249,417 $173,867 
Maintenance and services27,256 30,003 81,600 89,689 
Total revenues123,308 100,353 331,017 263,556 
Cost of revenues17,198 14,338 52,806 42,021 
Gross profit106,110 86,015 278,211 221,535 
Operating expenses:  
Research and development44,478 34,344 132,863 97,739 
Sales and marketing69,810 56,229 203,311 162,641 
General and administrative17,404 13,997 53,272 42,016 
Total operating expenses131,692 104,570 389,446 302,396 
Operating loss(25,582)(18,555)(111,235)(80,861)
Financial income (expenses), net2,431 (3,234)6,143 (8,058)
Loss before income taxes(23,151)(21,789)(105,092)(88,919)
Income taxes(5,566)(1,525)(8,678)(2,999)
Net loss$(28,717)$(23,314)$(113,770)$(91,918)
Net loss per share of common stock, basic and diluted$(0.26)$(0.22)$(1.04)$(0.88)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted109,996,589 107,028,201 109,303,835 104,595,650 
 
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
September 30,
Nine Months Ended
September 30,
 2022202120222021
Net loss$(28,717)$(23,314)$(113,770)$(91,918)
Other comprehensive loss:
Unrealized loss on marketable securities, net of tax(11)(3)(33)(6)
Income on marketable securities reclassified into earnings, net of tax13 1 16 3 
2 (2)(17)(3)
Unrealized income (loss) on derivative instruments, net of tax(5,952)2,100 (19,808)608 
Loss (income) on derivative instruments reclassified into earnings, net of tax1,512 (2,663)1,385 (7,448)
(4,440)(563)(18,423)(6,840)
Total other comprehensive loss(4,438)(565)(18,440)(6,843)
Comprehensive loss$(33,155)$(23,879)$(132,210)$(98,761)

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, 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 plans2,728,995 3 4,670 — — 4,673 
Taxes paid related to net share settlement of equity awards— — (731)— — (731)
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 
Stock-based compensation expense— — 25,868 — — 25,868 
Common stock issued under employee stock plans766,636 1 37 — — 38 
Taxes paid related to net share settlement of equity awards— — (64)— — (64)
Unrealized loss on derivative instruments— — — (1,092)— (1,092)
Unrealized loss on available for sale securities— — — (6)— (6)
Net loss— — — — (32,948)(32,948)
Balance as of June 30, 2021106,914,031 107 946,532 3,093 (379,346)570,386 
Stock-based compensation expense— — 24,422 — — 24,422 
Common stock issued under employee stock plans407,032  6,289 — — 6,289 
Taxes paid related to net share settlement of equity awards— — (248)— — (248)
Unrealized loss on derivative instruments— — — (563)— (563)
Unrealized loss on available for sale securities— — — (2)— (2)
Net loss— — — — (23,314)(23,314)
Balance as of September 30, 2021107,321,063 $107 $976,995 $2,528 $(402,660)$576,970 

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







5


 Common stockAdditional
paid-in capital
Accumulated
other
comprehensive income (loss)
Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 2021107,509,096 $108 $1,018,005 $6,083 $(427,603)$596,593 
Effect of adoption of ASU 2020-06— — (30,794)— 8,647 (22,147)
Stock-based compensation expense— — 35,998 — — 35,998 
Common stock issued under employee stock plans2,057,101 2 6,109 — — 6,111 
Taxes paid related to net share settlement of equity awards— — (28,825)— — (28,825)
Unrealized loss on derivative instruments— — — (3,179)— (3,179)
Unrealized loss on available for sale securities— — — (10)— (10)
Net loss— — — — (48,763)(48,763)
Balance as of March 31, 2022109,566,197 110 1,000,493 2,894 (467,719)535,778 
Stock-based compensation expense— — 37,758 — — 37,758 
Common stock issued under employee stock plans320,000  5 — — 5 
Taxes paid related to net share settlement of equity awards— — (6)— — (6)
Unrealized loss on derivative instruments— — — (10,804)— (10,804)
Unrealized loss on available for sale securities— — — (9)— (9)
Net loss— — — — (36,290)(36,290)
Balance as of June 30, 2022109,886,197 110 1,038,250 (7,919)(504,009)526,432 
Stock-based compensation expense— — 34,300 — — 34,300 
Common stock issued under employee stock plans327,659  5,393 — — 5,393 
Taxes paid related to net share settlement of equity awards— — (663)— — (663)
Unrealized loss on derivative instruments— — — (4,440)— (4,440)
Unrealized income on available for sale securities— — — 2 — 2 
Net loss— — — — (28,717)(28,717)
Balance as of September 30, 2022110,213,856 $110 $1,077,280 $(12,357)$(532,726)$532,307 

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


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months Ended
September 30,
 20222021
Cash flows from operating activities:  
Net loss$(113,770)$(91,918)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization8,125 8,271 
Stock-based compensation108,056 71,669 
Amortization of deferred commissions17,198 11,511 
Noncash operating lease costs6,974 6,201 
Amortization of debt discount and issuance costs1,113 5,124 
Gain from sale of property and equipment(21) 
Changes in assets and liabilities:  
Trade receivables25,494 22,847 
Prepaid expenses and other current assets(5,236)568 
Deferred commissions(17,510)(13,652)
Other long-term assets1,338 819 
Trade payables665 2,596 
Accrued expenses and other short-term liabilities(17,125)(5,057)
Deferred revenues(10,472)(13,241)
Other long-term liabilities3,608 1,102 
Net cash provided by operating activities8,437 6,840 
Cash flows from investing activities:  
Proceeds from sales and maturities of marketable securities32,800 26,106 
Investment in marketable securities(58,052) 
Proceeds from short-term and long-term deposits6,882 80,236 
Investment in short-term and long-term deposits(15,985)(50,000)
Proceeds from sale of property and equipment21  
Purchases of property and equipment(7,634)(4,120)
Net cash provided by (used in) investing activities(41,968)52,222 
Cash flows from financing activities:  
Proceeds from employee stock plans11,509 10,999 
Taxes paid related to net share settlement of equity awards(29,494)(1,043)
Proceeds from follow-on offering, net 500,034 
Net cash provided by (used in) financing activities(17,985)509,990 
Increase (decrease) in cash and cash equivalents(51,516)569,052 
Cash and cash equivalents at beginning of period805,761 234,092 
Cash and cash equivalents at end of period$754,245 $803,144 
Supplemental disclosure of cash flow information:  
Cash paid for income taxes$2,267 $3,646 
Cash paid for interest$3,166 $3,168 
Lease liabilities arising from obtaining right-of-use assets$1,614 $22,098 

The accompanying notes are an integral part of these consolidated financial statements.
7


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 twelve wholly-owned subsidiaries.
 
The Company’s software products and services allow enterprises to manage, analyze, alert and secure enterprise data across the most common on-premises and cloud data stores and applications. Varonis focuses on protecting enterprise data including: 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, DatAnswers, DatAdvantage Cloud, Data Classification Cloud and DatAlert Cloud, 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. On October 31, 2022, the Company announced the availability of its Data Security Platform under a Software-as-a-Service ("SaaS") delivery model.

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 2021 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021 filed with the SEC on February 8, 2022 (the “2021 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, 2021 included in the 2021 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 sold on-premises and are comprised of time-based licenses whereby customers use the Company's software (including support and unspecified upgrades and enhancements when and if they are available) for a specified period. In the second half of 2021, the Company launched its first SaaS offering, introducing products and support for cloud applications and infrastructure, including AWS, Box, GitHub, Google Drive, Jira, Okta, Salesforce, Slack and Zoom. On October 31, 2022 the Company announced the availability of the Varonis Data Security Platform under a SaaS delivery model, which was previously only sold as an on-premises solution. Maintenance and services primarily consist of fees for maintenance and 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
8


Company sells its products worldwide 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 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 that is sold on-premises 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. As we have successfully transitioned to a subscription model which has resulted in an immaterial amount of perpetual license revenues, these revenues are included within the subscriptions line of the consolidated statements of operations. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement and are included within the subscriptions line of the consolidated statements of operations. The Company's SaaS offerings allow customers to use hosted software, and its revenue is recognized ratably over the associated contract period. As these solutions were only recently offered to customers, the total associated revenues have not yet been material.

The Company recognizes revenues from maintenance agreements 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 generally 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. 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 $91,124 for the nine months ended September 30, 2022.
 
The Company does not grant a right of return to its customers, except for one of its resellers. In 2021 and for the nine months ended September 30, 2022, 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 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.
9


Amortization expenses related to these costs are 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. Over the last several quarters, the Company has closed forward foreign exchange contracts beyond 12 months to capitalize on more favorable rates. 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 September 30, 2022 (unaudited)Assets (liabilities) as of December 31, 2021
 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$132,754 $(8,620)$115,710 $6,083 
Foreign exchange forward contract derivatives in cash flow hedging relationships included in long-term other liabilities$108,207 $(3,721)$ $ 
Foreign exchange forward contract derivatives for monetary items included in accrued expenses and other short-term liabilities$16,761 $(138)$42,056 $(62)
 
The unaudited consolidated statements of operations reflect a loss of $1,512 and $1,385 for the three and nine months ended September 30, 2022, respectively, related to the effective portion of the cash flow hedges and a gain of $439 and $1,396 for the three and nine months ended September 30, 2021, respectively. No material ineffective hedges were recognized for the three and nine months ended September 30, 2022 and 2021 in operating expenses in the consolidated statement of operations.

For the three and nine months ended September 30, 2022, the unaudited consolidated statements of operations reflect a gain of $928 and $3,488, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program. For the three and nine months ended September 30, 2021, the unaudited consolidated statements of operations reflect a gain of $371 and $905, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program.

f.Income Taxes:
 
The Company operates in the U.S. and in foreign jurisdictions and is subject to taxes in each country or jurisdiction in which it conducts business. Earnings from its non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.

Because of its history of U.S. net operating losses, the Company has established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards, in that jurisdiction.
10



In some foreign tax jurisdictions, the Company bases its interim tax accruals on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for items which are considered discrete to the period. In each quarter, the Company updates its calculation and makes a year-to-date adjustment to its tax provision as necessary.

The Company's fiscal 2022 annual effective rate differs from the U.S. statutory rate primarily due to R&D capitalization under the terms of Section 174 and utilization of carry forward net operating loss (“NOL”). For the three months ended September 30, 2022 and 2021, the Company recorded income tax expense of $5,566 and $1,525, respectively, and $8,678 and $2,999 for the nine months ended September 30, 2022 and 2021, respectively.

The Company's income tax provision could be significantly impacted by estimates surrounding its uncertain tax positions and changes to its valuation allowance in future periods. The Company reevaluates the judgments surrounding its estimates and make adjustments as appropriate each reporting period.

The Company remains open to federal and state examination to the extent net carry-over unused operating losses and tax credit attributable to those years remain unutilized. As of September 30, 2022, the Company's federal tax returns for the years 2010 through the current period, excluding the 2016 tax year which was audited by the Internal Revenue Service, and most state tax returns for the years 2009 through the current period, are still open to examination.

In addition, the Company is subject to the regular examinations of its income tax returns by different tax authorities. The Company regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.

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 other securities.
11



The Company considers all high-quality investments purchased with original maturities at the date of purchase greater than three months but less than one year to be short-term. Cash equivalents, marketable securities and 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, 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 deposits consist of the following (in thousands):
 
 As of September 30, 2022
(unaudited)
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Cash and cash equivalents    
Money market funds$561,945 $— $— $561,945 
Commercial paper2,388 — — 2,388 
Total$564,333 $— $— $564,333 
Marketable securities
US Treasury securities$7,539 $ $(7)$7,532 
Commercial paper13,127   13,127 
Corporate bonds4,586  (10)4,576 
Total$25,252 $ $(17)$25,235 
Short-term deposits
Term bank deposits$10,871 $ $ $10,871 
Total$10,871 $ $ $10,871 



 As of December 31, 2021
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Cash and cash equivalents    
Money market funds$414,942 $— $— $414,942 
Total$414,942 $— $— $414,942 
Short-term deposits
Term bank deposits$1,850 $ $ $1,850 
Total$1,850 $ $ $1,850 

All the marketable securities have a stated effective maturity of less than 12 months as of September 30, 2022.
 
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 September 30, 2022 and December 31, 2021, the Company did not recognize an allowance for credit losses on available for sale marketable securities.
12



h.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 (the “Credit Facility”). The Credit Facility maturity date is the earlier of August 21, 2023 or 90 days prior to the scheduled maturity of any convertible debt securities. The fees incurred in connection with entering into the Credit and Security Agreement 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 September 30, 2022, the Company had no balance outstanding on the Credit Facility and was in compliance with all financial covenants and non-financial covenants.

i.Basic and Diluted Net Loss Per Share:
 
Basic net loss per share is computed by dividing 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 units, performance stock units and the shares related to the conversion 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 8,815,124 and 7,843,510 potentially dilutive shares from the conversion of outstanding stock options, restricted stock units and performance stock units that were not included in the calculation of diluted net loss per share for the period ending September 30, 2022 and 2021, respectively. Additionally, 8,239,254 shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash, shares or a combination thereof. As a result of the adoption of ASU 2020-06, the Company uses the if-converted method for calculating any potential dilutive effect on diluted net income per share, if applicable.

j.Recently Adopted Accounting Pronouncements:

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 simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on earnings per share. The Company adopted this standard on January 1, 2022 using a modified retrospective basis which resulted in a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. For more information, refer to Note 5.

n.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 September 30, 2022.
 
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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 September 30, 2022 and December 31, 2021 by level within the fair value hierarchy (in thousands):
 
As of September 30, 2022
 (unaudited)As of December 31, 2021
 Level ILevel
II
Level IIITotalLevel ILevel
II
Level IIITotal
Financial assets:
Cash equivalents:
Money market funds$561,945 $ $ $561,945 $414,942 $ $ $414,942 
Commercial paper 2,388  2,388     
Marketable securities:
US Treasury securities7,532   7,532     
Commercial paper 13,127  13,127     
Corporate bonds 4,576  4,576     
Prepaid expenses and other current assets:
Forward foreign exchange contracts     6,083  6,083 
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts (8,758) (8,758) (62) (62)
Long-term other liabilities:
Forward foreign exchange contracts (3,721) (3,721)    
Total financial assets (liabilities)$569,477 $7,612 $ $577,089 $414,942 $6,021 $ $420,963 

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 September 30, 2022.

NOTE 3:    LEASES

The Company has various operating leases for office space, vehicles and office equipment that expire through 2032. The lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Below is a summary of the Company's operating right-of-use assets and operating lease liabilities (in thousands):
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September 30, 2022
(unaudited)
Operating right-of-use assets$58,757 
Operating lease liabilities, current$(9,721)
Operating lease liabilities, long-term(58,867)
Total operating lease liabilities$(68,588)

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 deposit guarantees issued by a financial institution to secure various operating lease agreements in connection with its office space.

Minimum lease payments for the Company's right-of-use assets over the remaining lease periods as of September 30, 2022, are as follows (in thousands):
September 30, 2022
 (unaudited)
2022$2,889 
202311,862 
20249,476 
20259,477 
20269,279 
Thereafter32,796 
Total undiscounted lease payments$75,779 
Less: Imputed interest(7,191)
Present value of lease liabilities$68,588 

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of September 30, 2022:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)7.56
Weighted average discount rate2.84 %

As of September 30, 2022, the Company entered into an additional agreement to sublease a portion of its office space in New York. The sublease is expected to commence in the fourth quarter of 2022 and has a lease term through 2028 with an option to extend.

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Total operating lease cost for the three and nine months ended September 30, 2022 was $2,386 and $6,986, respectively, inclusive of sublease income of $184 and $482. Total operating lease cost for the three and nine months ended September 30, 2021 was $1,738 and $4,905, 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.

There were no additions, impairments or any other changes to the carrying amount of goodwill during the three and nine months ended September 30, 2022 or during prior periods.

Intangible Assets

Total cost and amortization of intangible assets is comprised of the following (in thousands, except useful life):
Estimated Useful LifeSeptember 30, 2022
Intangible assets, net(in years)(unaudited)
Developed technology & trademarks4$6,110 
Total intangible assets