10-Q 1 vrns-20240331.htm 10-Q vrns-20240331
0001361113--12-312024Q1FALSEhttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrent2032-12-310.03256680.960.730.722.172.140.370.370.890.890.730.722.7227300013611132024-01-012024-03-3100013611132024-05-03xbrli:shares00013611132024-03-31iso4217:USD00013611132023-12-31iso4217:USDxbrli:shares0001361113us-gaap:SubscriptionAndCirculationMember2024-01-012024-03-310001361113us-gaap:SubscriptionAndCirculationMember2023-01-012023-03-310001361113vrns:SoftwareAsAServiceMember2024-01-012024-03-310001361113vrns:SoftwareAsAServiceMember2023-01-012023-03-310001361113us-gaap:MaintenanceMember2024-01-012024-03-310001361113us-gaap:MaintenanceMember2023-01-012023-03-3100013611132023-01-012023-03-310001361113us-gaap:CommonStockMember2022-12-310001361113us-gaap:AdditionalPaidInCapitalMember2022-12-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001361113us-gaap:RetainedEarningsMember2022-12-3100013611132022-12-310001361113us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001361113us-gaap:CommonStockMember2023-01-012023-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001361113us-gaap:RetainedEarningsMember2023-01-012023-03-310001361113us-gaap:CommonStockMember2023-03-310001361113us-gaap:AdditionalPaidInCapitalMember2023-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001361113us-gaap:RetainedEarningsMember2023-03-3100013611132023-03-310001361113us-gaap:CommonStockMember2023-12-310001361113us-gaap:AdditionalPaidInCapitalMember2023-12-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001361113us-gaap:RetainedEarningsMember2023-12-310001361113us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001361113us-gaap:CommonStockMember2024-01-012024-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001361113us-gaap:RetainedEarningsMember2024-01-012024-03-310001361113us-gaap:CommonStockMember2024-03-310001361113us-gaap:AdditionalPaidInCapitalMember2024-03-310001361113us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001361113us-gaap:RetainedEarningsMember2024-03-31vrns:subsidiary00013611132024-04-012024-03-31xbrli:pure0001361113vrns:OperatingExpensesIncludedInPrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:CashFlowHedgingMember2024-03-310001361113vrns:OperatingExpensesIncludedInPrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:CashFlowHedgingMember2023-12-310001361113vrns:AccruedExpensesAndOtherShortTermLiabilitiesMemberus-gaap:CashFlowHedgingMember2024-03-310001361113vrns:AccruedExpensesAndOtherShortTermLiabilitiesMemberus-gaap:CashFlowHedgingMember2023-12-310001361113us-gaap:CashFlowHedgingMemberus-gaap:OtherNoncurrentAssetsMember2024-03-310001361113us-gaap:CashFlowHedgingMemberus-gaap:OtherNoncurrentAssetsMember2023-12-310001361113us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:CashFlowHedgingMember2024-03-310001361113us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:CashFlowHedgingMember2023-12-310001361113vrns:RevenuesIncludedInPrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:CashFlowHedgingMember2024-03-310001361113vrns:RevenuesIncludedInPrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:CashFlowHedgingMember2023-12-310001361113us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:FairValueHedgingMember2024-03-310001361113us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:FairValueHedgingMember2023-12-310001361113us-gaap:FairValueHedgingMembervrns:AccruedExpensesAndOtherShortTermLiabilitiesMember2024-03-310001361113us-gaap:FairValueHedgingMembervrns:AccruedExpensesAndOtherShortTermLiabilitiesMember2023-12-310001361113us-gaap:ForeignExchangeContractMember2024-01-012024-03-310001361113us-gaap:ForeignExchangeContractMember2023-01-012023-03-310001361113us-gaap:MoneyMarketFundsMember2024-03-310001361113us-gaap:USTreasurySecuritiesMembervrns:MarketableSecuritiesCurrentMember2024-03-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMembervrns:MarketableSecuritiesCurrentMember2024-03-310001361113vrns:MarketableSecuritiesCurrentMemberus-gaap:DebtSecuritiesMember2024-03-310001361113vrns:TermBankDepositsMember2024-03-310001361113us-gaap:ShortTermInvestmentsMember2024-03-310001361113vrns:MarketableSecuritiesNoncurrentMemberus-gaap:USTreasurySecuritiesMember2024-03-310001361113vrns:MarketableSecuritiesNoncurrentMemberus-gaap:DebtSecuritiesMember2024-03-310001361113us-gaap:MoneyMarketFundsMember2023-12-310001361113us-gaap:USTreasurySecuritiesMembervrns:MarketableSecuritiesCurrentMember2023-12-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMembervrns:MarketableSecuritiesCurrentMember2023-12-310001361113vrns:MarketableSecuritiesCurrentMemberus-gaap:DebtSecuritiesMember2023-12-310001361113vrns:TermBankDepositsMember2023-12-310001361113us-gaap:ShortTermInvestmentsMember2023-12-310001361113vrns:MarketableSecuritiesNoncurrentMemberus-gaap:USTreasurySecuritiesMember2023-12-310001361113vrns:MarketableSecuritiesNoncurrentMemberus-gaap:DebtSecuritiesMember2023-12-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-05-110001361113vrns:RestrictedStockUnitsAndStockOptionsMember2024-01-012024-03-310001361113vrns:RestrictedStockUnitsAndStockOptionsMember2023-01-012023-03-310001361113us-gaap:ConvertibleDebtSecuritiesMembervrns:TwoThousandAndTwentyFiveSeniorNotesMember2023-01-012023-03-310001361113us-gaap:ConvertibleDebtSecuritiesMembervrns:TwoThousandAndTwentyFiveSeniorNotesMember2024-01-012024-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:ForeignExchangeForwardMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2024-03-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:FairValueMeasurementsRecurringMember2024-03-310001361113us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-12-310001361113us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113us-gaap:FairValueMeasurementsRecurringMember2023-12-310001361113vrns:DevelopedTechnologyRightsAndTrademarksMember2024-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-05-112020-05-110001361113us-gaap:ConvertibleDebtMember2020-05-112020-05-110001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2024-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMember2024-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMember2023-12-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMember2024-01-012024-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMember2023-01-012023-03-310001361113vrns:TwoThousandAndTwentyFiveSeniorNotesMemberus-gaap:ConvertibleDebtMember2024-01-012024-03-310001361113vrns:The2013OmnibusEquityAwardPlanMember2013-11-140001361113vrns:The2013OmnibusEquityAwardPlanMember2024-03-310001361113vrns:The2013OmnibusEquityAwardPlanMember2013-11-142013-11-140001361113vrns:The2013OmnibusEquityAwardPlanMember2023-06-052024-03-310001361113vrns:PolyrizePlanMember2024-03-310001361113vrns:A2023PlanMember2023-06-050001361113vrns:RangeOneMember2024-01-012024-03-310001361113vrns:RangeOneMember2024-03-310001361113vrns:RangeTwoMember2024-01-012024-03-310001361113vrns:RangeTwoMember2024-03-310001361113vrns:RangeThreeMember2024-03-310001361113vrns:ConsultantsMember2024-01-012024-03-310001361113vrns:ConsultantsMembersrt:MinimumMembervrns:November2014February2016Member2024-01-012024-03-310001361113srt:MaximumMembervrns:ConsultantsMembervrns:November2014February2016Member2024-01-012024-03-310001361113vrns:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-12-310001361113vrns:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-01-012024-03-310001361113vrns:RestrictedStockUnitsAndPerformanceStockUnitsMember2024-03-310001361113vrns:ESPP2015Member2015-06-300001361113vrns:ESPP2015Member2015-06-302015-06-300001361113vrns:ESPP2015Member2016-01-012024-03-310001361113us-gaap:CostOfSalesMember2024-01-012024-03-310001361113us-gaap:CostOfSalesMember2023-01-012023-03-310001361113us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-03-310001361113us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-03-310001361113us-gaap:SellingAndMarketingExpenseMember2024-01-012024-03-310001361113us-gaap:SellingAndMarketingExpenseMember2023-01-012023-03-310001361113us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001361113us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-3100013611132023-01-012023-06-300001361113vrns:RangeThreeMember2024-01-012024-03-31vrns:segment0001361113srt:NorthAmericaMember2024-01-012024-03-310001361113srt:NorthAmericaMember2023-01-012023-03-310001361113us-gaap:EMEAMember2024-01-012024-03-310001361113us-gaap:EMEAMember2023-01-012023-03-310001361113vrns:RestOfWorldMember2024-01-012024-03-310001361113vrns:RestOfWorldMember2023-01-012023-03-310001361113country:US2024-03-310001361113country:US2023-12-310001361113country:IL2024-03-310001361113country:IL2023-12-310001361113country:IE2024-03-310001361113country:IE2023-12-310001361113vrns:OtherMember2024-03-310001361113vrns:OtherMember2023-12-310001361113vrns:JamesOBoyleMember2024-01-012024-03-310001361113vrns:JamesOBoyleMember2024-03-31


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, 2024
 
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 May 3, 2024, there were 111,503,210 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 March 31, 2024December 31, 2023
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$147,051 $230,740 
Marketable securities355,743 253,175 
Short-term deposits45,280 49,800 
Trade receivables (net of allowances of $1,135 and $1,487 at March 31, 2024 and December 31, 2023, respectively)
100,441 169,116 
Prepaid expenses and other current assets59,244 64,326 
Total current assets707,759 767,157 
Long-term assets:  
Long-term marketable securities226,366 211,063 
Operating lease right-of-use assets49,220 51,838 
Property and equipment, net31,733 33,964 
Intangible assets, net881 1,263 
Goodwill23,135 23,135 
Other assets14,560 15,490 
Total long-term assets345,895 336,753 
Total assets$1,053,654 $1,103,910 
Liabilities and stockholders’ equity  
Current liabilities:  
Trade payables$2,899 $672 
Accrued expenses and other short-term liabilities109,202 125,057 
Deferred revenues185,086 181,049 
Total current liabilities297,187 306,778 
Long-term liabilities:  
Convertible senior notes, net250,860 250,477 
Operating lease liabilities48,009 51,313 
Deferred revenues403 886 
Other liabilities4,846 4,808 
Total long-term liabilities304,118 307,484 
Stockholders’ equity:  
Share capital  
1


Common stock of $0.001 par value - Authorized: 200,000,000 shares at March 31, 2024 and December 31, 2023; Issued and outstanding: 111,589,110 shares at March 31, 2024 and 109,103,721 shares at December 31, 2023
112 109 
Accumulated other comprehensive loss(9,105)(8,649)
Additional paid-in capital1,146,222 1,142,578 
Accumulated deficit(684,880)(644,390)
Total stockholders’ equity452,349 489,648 
Total liabilities and stockholders’ equity$1,053,654 $1,103,910 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data) 
 Three Months Ended
March 31,
 20242023
Revenues:  
Term license subscriptions$55,980 $80,906 
SaaS33,985 2,068 
Maintenance and services24,057 24,361 
Total revenues114,022 107,335 
Cost of revenues21,349 17,637 
Gross profit92,673 89,698 
Operating expenses:  
Research and development47,827 44,732 
Sales and marketing71,227 68,393 
General and administrative21,252 19,689 
Total operating expenses140,306 132,814 
Operating loss(47,633)(43,116)
Financial income, net8,545 7,773 
Loss before income taxes(39,088)(35,343)
Income taxes(1,402)(2,961)
Net loss$(40,490)$(38,304)
Net loss per share of common stock, basic and diluted$(0.37)$(0.35)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted109,990,177 108,387,402 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
 Three Months Ended
March 31,
 20242023
Net loss$(40,490)$(38,304)
Other comprehensive income (loss):
Unrealized income (loss) on marketable securities, net of tax(2,252)150 
Income (loss) on marketable securities reclassified into earnings, net of tax(1)6 
(2,253)156 
Unrealized income (loss) on derivative instruments, net of tax5,040 (2,332)
Income on derivative instruments reclassified into earnings, net of tax(3,243)(2,648)
1,797 (4,980)
Total other comprehensive loss(456)(4,824)
Comprehensive loss$(40,946)$(43,128)

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


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED 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, 2022107,673,052 $108 $1,055,048 $(9,557)$(543,474)$502,125 
Stock-based compensation expense— — 35,811 — — 35,811 
Common stock issued under employee stock plans2,218,811 2 5,851 — — 5,853 
Taxes paid related to net share settlement of equity awards— — (16,864)— — (16,864)
Repurchase of common stock(100,000)— (2,519)— — (2,519)
Unrealized loss on derivative instruments, net of tax— — — (4,980)— (4,980)
Unrealized income on available for sale securities, net of tax— — — 156 — 156 
Net loss— — — — (38,304)(38,304)
Balance as of March 31, 2023109,791,863 $110 $1,077,327 $(14,381)$(581,778)$481,278 


 Common stockAdditional
paid-in capital
Accumulated
other
comprehensive income (loss)
Accumulated deficitTotal
stockholders’ equity
 NumberAmount
Balance as of December 31, 2023109,103,721 $109 $1,142,578 $(8,649)$(644,390)$489,648 
Stock-based compensation expense— — 32,093 — — 32,093 
Common stock issued under employee stock plans2,485,389 3 6,411 — — 6,414 
Taxes paid related to net share settlement of equity awards— — (34,860)— — (34,860)
Unrealized income on derivative instruments, net of tax— — — 1,797 — 1,797 
Unrealized loss on available for sale securities, net of tax— — — (2,253)— (2,253)
Net loss— — — — (40,490)(40,490)
Balance as of March 31, 2024111,589,110 $112 $1,146,222 $(9,105)$(684,880)$452,349 

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


VARONIS SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months Ended
March 31,
 20242023
Cash flows from operating activities:  
Net loss$(40,490)$(38,304)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization2,909 2,891 
Stock-based compensation32,093 35,811 
Amortization of deferred commissions7,932 3,462 
Non-cash operating lease costs2,394 2,367 
Amortization of debt issuance costs383 376 
Amortization of premium and accretion of discount on marketable securities (3,743)(1,293)
Changes in assets and liabilities:  
Trade receivables68,675 60,586 
Prepaid expenses and other current assets4,951 (7,236)
Deferred commissions(7,359)(3,033)
Other long-term assets(136)(589)
Trade payables2,227 (2,254)
Accrued expenses and other short-term liabilities(16,840)(15,794)
Deferred revenues3,554 (1,374)
Other long-term liabilities173 1,214 
Net cash provided by operating activities56,723 36,830 
Cash flows from investing activities:  
Proceeds from sales and maturities of marketable securities15,100 16,650 
Investment in marketable securities(131,482)(59,555)
Proceeds from short-term and long-term deposits6,299 4,000 
Investment in short-term and long-term deposits(1,586)(102,500)
Purchases of property and equipment(297)(1,110)
Net cash used in investing activities(111,966)(142,515)
Cash flows from financing activities:  
Proceeds from employee stock plans6,414 5,853 
Taxes paid related to net share settlement of equity awards(34,860)(16,864)
Repurchase of common stock (2,519)
Net cash used in financing activities(28,446)(13,530)
Decrease in cash and cash equivalents(83,689)(119,215)
Cash and cash equivalents at beginning of period230,740 367,800 
Cash and cash equivalents at end of period$147,051 $248,585 
Supplemental disclosure of cash flow information:  
Cash paid for income taxes$420 $351 
Cash paid for interest$1,584 $1,608 
6


Supplemental disclosure of non-cash activities:
Lease liabilities arising from obtaining right-of-use assets$144 $997 

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


NOTES TO UNAUDITED CONDENSED 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 specializes in data security, threat detection and response and data privacy and compliance. Varonis software enables enterprises of all sizes and industries to protect data stored in the cloud and on-premises including: sensitive files and emails; confidential personal data belonging to customers, patients and employees; financial records; source code, strategic and product plans; and other intellectual property. Recognizing the challenge of protecting data with growing volume, velocity, and variety, the Company has built an integrated platform to simplify and streamline data security, threat detection and response, and data privacy and compliance.

The Company offers coverage for more than 40 of the most mission-critical cloud and on-premises data stores, SaaS applications and cloud infrastructures. In 2022, Varonis announced the availability of its flagship Varonis Data Security Platform as a SaaS, which offers simpler deployment, faster time-to-value, and groundbreaking new automation capabilities that help customers prevent data breaches.

The Varonis Data Security Platform helps enterprises protect data against cyberattacks from both external and internal threats. The Company's products enable enterprises to analyze data, application and account activity and user behavior to detect and prevent attacks. Its software platform prevents or limits unauthorized use of sensitive information, detects and prevents potential cyberattacks and limits potential damage by automatically locking down data, allowing access to only those who need it and automating the removal of stale data when it is no longer useful.

The broad applicability of the Company's technology has resulted in its customers deploying its software for numerous use cases. These use cases include: automatic discovery and classification of high-risk, sensitive data; data security posture management; SaaS security posture management; automated remediation of over-exposed data; centralized visibility and risk analysis of enterprise data and monitoring of user behavior and file activity; security monitoring and risk reduction; data breach, insider threat, malware and ransomware detection; automatic response to ransomware and other severe incidents to limit exposure and reduce recovery times; data ownership identification, assignment, and automatic involvement; forensics, reporting and auditing with searchable logs; meeting security policy and compliance regulation; automatic data migration; cloud migration; automation of retention and disposition policies; automatic data quarantine; intelligent archiving; and automated indexing for data subject requests related to privacy and compliance requirements.

b.Basis of Presentation:

The accompanying unaudited condensed 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 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 condensed 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 condensed financial statements and accompanying notes should be read in conjunction with the 2023 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023 filed with the SEC on February 6, 2024 (the “2023 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, 2023 included in the 2023 Form 10-K, unless otherwise stated.

c.Revenue Recognition:
8



The Company generates revenues primarily in the form of term license subscriptions, SaaS revenues and maintenance and services fees. Term license 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. SaaS revenues are provided on a subscription basis and allow customers to use hosted software. Over the last few years, the Company has introduced new products and support for cloud applications and infrastructure, including the Varonis Data Security Platform delivered as a SaaS, which was previously only sold as a self-hosted solution. Maintenance and services primarily consist of fees for maintenance of past 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 its customers to fully leverage the use of the Company's products, although the user can benefit from the software without its assistance. The 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.

Term license subscription software sold on-premises is recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with term license subscription software is recognized ratably over the term of the agreement.

SaaS revenue is recognized ratably over the associated contract period, beginning when access is provided and the benefit of the service is available. Conversions from a license sold on-premises to the Company’s SaaS offering during the original subscription period are accounted for on a pro-rata prospective basis.

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 contract 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 included in term license subscriptions, the Company determines the standalone selling prices based on the price at which it separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the price at which it separately sells those services. For software licenses included in term license subscriptions, 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 SaaS and maintenance contracts. Deferred revenues are recognized as (or when) the Company performs under the contract. Pursuant to these contracts, customers are generally 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 $67,806 for the three months ended March 31, 2024.

Revenues allocated to remaining performance obligations represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future. The Company's remaining performance obligations were $426,168 as of March 31, 2024, of which it expects to recognize approximately 55% as revenue over the next 12 months and the remainder thereafter.

For information regarding disaggregated revenues, refer to Note 7.
9



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. Amortization expenses related to these costs are included in sales and marketing expenses in the accompanying condensed 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 revenues and 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 revenues and operating expenditures are incurred in or exposed to other currencies, specifically, Euro and Pound Sterling for revenues and the New Israeli Shekel, Euro and Pound Sterling for operating expenses.

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. 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 Euro and Pound Sterling 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 condensed consolidated balance sheets are presented in the following table (in thousands):
10


 
 Assets (liabilities) as of March 31, 2024 (unaudited)Assets (liabilities) as of December 31, 2023
 Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Foreign exchange forward contract derivatives in cash flow hedging relationships for operating expenses included in prepaid expenses and other current assets$95,715 $2,375 $128,411 $3,372 
Foreign exchange forward contract derivatives in cash flow hedging relationships for operating expenses included in accrued expenses and other short-term liabilities$81,269 $(1,570)$ $ 
Foreign exchange forward contract derivatives in cash flow hedging relationships for operating expenses included in long-term other assets$33,233 $164 $33,233 $519 
Foreign exchange forward contract derivatives in cash flow hedging relationships for operating expenses included in long-term other liabilities$68,032 $(1,487)$102,216 $(1,624)
Foreign exchange forward contract derivatives in cash flow hedging relationships for revenues included in prepaid expenses and other current assets$107,494 $917 $ $ 
Foreign exchange forward contract derivatives for monetary items included in prepaid expenses and other current assets$12,240 $31 $39,155 $36 
Foreign exchange forward contract derivatives for monetary items included in accrued expenses and other short-term liabilities$3,532 $(3)$5,213 $(7)
 
The unaudited condensed consolidated statements of operations reflect a net loss of $3,243 and $2,648 for the three months ended March 31, 2024 and 2023, respectively, related to the cash flow hedges.

For the three months ended March 31, 2024 and 2023, the unaudited condensed consolidated statements of operations reflect a gain of $793 and a loss of $300, respectively, in financial income, 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 operating losses, the Company has established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards.

Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. For the three months ended March 31, 2024 a discrete effective tax rate method was used in jurisdictions where a small change in estimated ordinary income has a significant impact on the annual effective tax rate.

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 2024 annual effective rate differs from the U.S. statutory rate primarily due to R&D capitalization under the terms of Section 174, tax deduction for stock based compensation, and generation or utilization of carry forward net operating loss (“NOL”) and research and development tax credits resulting in a current provision expense without an offset to deferred expense as the Company remains in a valuation allowance on its U.S. deferred tax assets. For the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $1,402 and $2,961, respectively.

11


The Company's income tax provision could be significantly impacted by estimates surrounding its uncertain tax positions and changes to its valuation allowance. 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 March 31, 2024, 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.

The Company considers all investments purchased with maturities at the date of purchase greater than three months but less than one year to be short-term. Investments purchased with maturities at the date of purchase greater than one year are classified as long-term assets. Marketable securities are classified as available for sale and are, therefore, recorded at fair value on the condensed 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 condensed consolidated balance sheets, until realized. 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, net in the condensed consolidated statement of operations. Cash, cash equivalents, marketable securities and deposits consist of the following (in thousands):

 
 As of March 31, 2024
(unaudited)
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Cash equivalents    
Money market funds$42,890 $— $— $42,890 
Total$42,890 $— $— $42,890 
Marketable securities
US Treasury securities$345,858 $41 $(137)$345,762 
US Government Agency securities9,980 1  9,981 
Total$355,838 $42 $(137)$355,743 
Short-term deposits
Term bank deposits$45,280 $ $ $45,280 
Total$45,280 $ $ $45,280 
Long-term marketable securities
US Treasury securities$226,853 $69 $(556)$226,366 
Total$226,853 $69 $(556)$226,366 

12



 As of December 31, 2023
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Cash equivalents    
Money market funds$164,848 $— $— $164,848 
Total$164,848 $— $— $164,848 
Marketable securities
US Treasury securities$242,633 $530 $(1)$243,162 
US Government Agency securities9,972 41  10,013 
Total$252,605 $571 $(1)$253,175 
Short-term deposits
Term bank deposits$49,800 $ $ $49,800 
Total$49,800 $ $ $49,800 
Long-term marketable securities
US Treasury securities$209,961 $1,102 $ $211,063 
Total$209,961 $1,102 $ $211,063 
 
Unrealized losses associated with investments in available for sale securities have all been in a continuous unrealized loss position of less than one year as of March 31, 2024 and December 31, 2023.

The gross unrealized gains and losses related to these investments were 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 credit losses model for marketable securities 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, net on the condensed consolidated statements of operations. As of March 31, 2024 and December 31, 2023, the Company did not recognize an allowance for credit losses on available for sale marketable securities.

h.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 9,021,775 and 9,561,916 potentially dilutive shares from 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 March 31, 2024 and 2023, 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 for the period ending March 31, 2024 and 2023, respectively.

i.Recently Issued Accounting Pronouncements Not Yet Adopted:

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment
13


disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company is currently evaluating the effect of adopting the ASU on its disclosures.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. The Company is currently evaluating the effect of adopting the ASU on its disclosures.

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, 2024. The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, short-term deposits and trade payables approximate their fair value due to the short-term maturity of such instruments.
 
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.
14



The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2024 and December 31, 2023 by level within the fair value hierarchy (in thousands):
 
As of March 31, 2024
 (unaudited)As of December 31, 2023
 Level ILevel
II
Level IIITotalLevel ILevel
II
Level IIITotal
Financial assets:
Cash equivalents:
Money market funds$42,890 $ $ $42,890 $164,848 $ $ $164,848 
Marketable securities:
US Treasury securities 345,762  345,762  243,162  243,162 
US Government Agency securities 9,981  9,981  10,013  10,013 
Prepaid expenses and other current assets:
Forward foreign exchange contracts 3,323  3,323  3,408  3,408 
Long-term marketable securities:
US Treasury securities 226,366  226,366  211,063  211,063 
Long-term other assets:
Forward foreign exchange contracts 164  164  519  519 
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts (1,573) (1,573) (7) (7)
Long-term other liabilities:
Forward foreign exchange contracts (1,487) (1,487) (1,624) (1,624)
Total financial assets (liabilities), net$42,890 $582,536 $ $625,426 $164,848 $466,534 $ $631,382 

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, 2024.

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):

March 31, 2024
(unaudited)
Operating lease right-of-use assets$49,220 
Operating lease liabilities, current$(10,122)
Operating lease liabilities, long-term(48,009)
Total operating lease liabilities$(58,131)

15


Operating lease liabilities, current are included within accrued expenses and other short-term liabilities in the condensed 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. Lease modifications result in remeasurement of the right-of-use assets and lease liabilities.

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 March 31, 2024, are as follows (in thousands):
March 31, 2024
 (unaudited)
2024$8,773 
202511,357 
20269,687 
20279,576 
20289,523 
Thereafter14,001 
Total undiscounted lease payments$62,917 
Less: Imputed interest(4,786)
Present value of lease liabilities$58,131 

As of March 31, 2024, the Company had an additional operating lease that had not yet commenced of $2,454. This operating lease will commence in the fourth quarter of 2024 with a lease term through 2028.

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31, 2024:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)6.13
Weighted average discount rate2.88 %

Total operating lease cost for the three months ended March 31, 2024 and 2023 was $2,586 and $2,292, inclusive of sublease income of $430 and $463, respectively.

NOTE 4:    GOODWILL AND INTANGIBLE ASSETS
 
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 months ended March 31, 2024 or during prior periods.
16



Intangible Assets

Total cost and amortization of intangible assets is comprised of the following (in thousands, except useful life):
Estimated Useful LifeMarch 31, 2024
Intangible assets, net(in years)(unaudited)
Developed technology & trademarks4$6,110 
Total intangible assets6,110 
Less: Accumulated amortization5,229 
Total intangible assets, net$881 

Intangible assets are expensed on a straight-line basis over the useful life of the asset. The Company recorded amortization expense of $381 for the three months ended March 31, 2024 and 2023, respectively.

The following table summarizes estimated future amortization expense of our intangible assets as of March 31, 2024 (in thousands):
Years ending December 31,Amount
(unaudited)
2024881 
Total future amortization expense$881 

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”). The offering totaled $253,000 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, 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, under certain conditions.

In addition, on or after February 15, 2025, a holder may convert all or any portion of its 2025 Notes at any time. During the three months ended March 31, 2024, the conversion feature of the 2025 Notes was triggered and therefore the 2025 Notes are currently convertible, in whole or in part, at the option of the holders from April 1, 2024 through June 30, 2024. 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 its condensed consolidated financial statements. Since the Company may elect to repay the 2025 Notes in cash, shares of common stock, or a combination of both, it has continued to classify the 2025 Notes as long-term debt on its condensed consolidated balance sheet as of March 31, 2024.

Effective August 20, 2023, the Company may redeem the 2025 Notes for cash, at its option, subject to the terms and conditions provided in the Indenture.

The net carrying amount of the 2025 Notes was as follows (in thousands):
17


March 31, 2024December 31, 2023
(unaudited)
Principal$253,000 $253,000 
Unamortized issuance costs(2,140)(2,523)
Net carrying amount$250,860 $250,477 

The interest expense recognized related to the 2025 Notes for the three months ended March 31, 2024 and 2023 was as follows (in thousands):
Three Months Ended
March 31,
20242023
(unaudited)
Contractual interest expense$791 $791 
Amortization of debt issuance costs383 376 
Total$1,174 $1,167 

As of March 31, 2024 and December 31, 2023, the total estimated fair value of the 2025 Notes was approximately $403,095 and $386,201, respectively. 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

In May 2020, in connection with the pricing of the 2025 Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”). 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").

The Capped Call Transactions are separate transactions 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 condensed 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 in 2020.

NOTE 6:    STOCKHOLDERS’ EQUITY

a. Stock plans:

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. Since January 1, 2016, the share reserve under the 2013 Plan has been automatically increased by an aggregate of 27,579,672 shares. Awards granted under the 2013 Plan generally vest over four years. No awards were granted under the 2013 Plan subsequent to June 5, 2023, and no further awards will be granted under the 2013 Plan.

18


On October 22, 2020, and as part of the Polyrize Security Ltd. ("Polyrize") 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”). No further awards were or will be granted under the Polyrize Plan.

On April 20, 2023, the Company’s board of directors adopted the Varonis Systems, Inc. 2023 Omnibus Equity Incentive Plan (the “2023 Plan”), subject to approval by our stockholders. On June 5, 2023, the Company’s stockholders approved the 2023 Plan which became effective and replaced the 2013 Plan. The Company initially reserved 5,500,000 shares of common stock for issuance under the 2023 Plan to employees, directors, officers and consultants of the Company and its subsidiaries.

A summary of employees’ stock options activities during the three months ended March 31, 2024 is as follows:
 
 Three Months Ended
March 31, 2024 (unaudited)
 NumberWeighted
average
exercise price
Aggregate
intrinsic value
(in thousands)
Weighted average
remaining
contractual life
(years)
Options outstanding as of January 1, 2024573,430 $7.564 $21,627 0.962
Granted $ 
Exercised(86,113)$7.774 
Forfeited and expired $ 
Options outstanding as of March 31, 2024
487,317 $7.527 $19,319 0.729
Options exercisable as of March 31, 2024
486,840 $7.529 $19,299 0.724
 
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, 2024 was $3,685.

b. The options outstanding as of March 31, 2024 (unaudited) have been separated into ranges of exercise price as follows:
Range of exercise price
Options outstanding
as of
March 31, 2024
Weighted average remaining contractual life (years)Weighted average exercise price of options outstanding
Options exercisable as of
March 31, 2024
Weighted average remaining contractual life (years)Weighted average exercise price of options exercisable
$5.623 $5.682 64,498 2.166 $5.627 64,021 2.138 $5.627 
$7.000 $7.337 308,819 0.368 $7.026 308,819 0.368 $7.026 
 $9.960114,000 0.893 $9.960 114,000 0.893 $9.960 
   487,317 0.729 $7.527 486,840 0.724 $7.529 

c.Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of March 31, 2024 (unaudited) were as follows:
 
Number of options outstanding and exercisable as of March 31, 2024
Range of exercise price
per share
Exercisable through
November 2014 - February 201610,500 $5.623 $7.220 November 2024 - February 2026

d.Restricted stock units ("RSUs") and performance stock units ("PSUs"):
19



A summary of RSUs and PSUs for employees, consultants and non-employee directors of the Company for the three months ended March 31, 2024 (unaudited) is as follows:
 
 Number of
shares underlying
outstanding
RSUs and PSUs
Weighted-
average
grant date
fair value
Unvested balance - January 1, 20248,234,171 $36.83 
Granted3,403,509 $42.53 
Vested(2,871,810)$40.79 
Forfeited(241,912)$35.96 
Unvested balance – March 31, 2024
8,523,958 $37.80 
 
As of March 31, 2024, there was $278,884 of total unrecognized compensation cost related to employees and non-employees unvested restricted stock units and performance stock units which is expected to be recognized over a weighted-average period of 2.716 years.

e.2015 Employee Stock Purchase Plan:

On May 5, 2015, the Company’s stockholders approved the Varonis Systems, Inc. 2015 Employee Stock Purchase Plan (the “ESPP”), which the Company’s board of directors had adopted on March 19, 2015. The ESPP became effective as of June 30, 2015. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value of the Company’s common stock on the first day or last trading day in the offering period, subject to any plan limitations. The Company initially reserved 1,500,000 shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP was increased on January 1, 2016 and has been, and will be, increased each January 1 thereafter, by an amount equal to the lesser of (i) one percent (1%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase, except that the amount of each such 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 issuance under the ESPP to two percent (2%) of the number of shares of common stock issued and outstanding on each such December 31, or (ii) 1,200,000 shares of common stock. Since January 1, 2016, the share reserve under the ESPP has been automatically increased by an aggregate of 3,908,910 shares. The ESPP will continue in effect until the earlier of (i) the date when no shares of common stock are available for issuance thereunder or (ii) June 30, 2025; unless terminated prior thereto by the Company’s board of directors or compensation committee, each of which has the right to terminate the ESPP at any time.

f.Stock-based compensation expense for employees and consultants:
 
The Company recognized stock-based compensation expense in the condensed consolidated statements of operations as follows (in thousands):
 
 Three Months Ended
March 31,
 20242023
(unaudited)
Cost of revenues$1,362 $2,500 
Research and development11,759 12,523 
Sales and marketing10,470 12,762 
General and administrative8,502 8,026 
Total$32,093 $35,811 


20


NOTE 7:    GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA

Summary information about geographic areas:
 
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment and unit and derives revenues mainly from subscription licensing, SaaS revenues and maintenance and services fees (see Note 1 for a brief description of the Company’s business). The following is a summary of revenues within geographic areas (in thousands):
 
 Three Months Ended
March 31,
 20242023
 (unaudited)
Revenues based on customer’s location:  
North America$86,156 $81,249 
EMEA
24,153 22,918 
Rest of World3,713 3,168 
Total revenues$114,022 $107,335 

For the three months ended March 31, 2024 and 2023, respectively, there were no sales to a single customer exceeding 10% of total revenues.

The following is a summary of long-lived assets, including property and equipment, net and operating lease right-of-use assets, within geographic areas (in thousands):
As ofAs of
 March 31, 2024December 31, 2023
 (unaudited) 
Long-lived assets by geographic region:  
United States$34,394 $35,791 
Israel32,061 34,755 
Ireland12,737 13,240 
Other1,761 2,016 
 $80,953 $85,802 
21


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for our fiscal year ended December 31, 2023.

Special Note Regarding Forward-Looking Statements
 
This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

The Transition to a SaaS-Based Business Model

In response to the evolving needs of our customers and the growing threat landscape, we are strategically transitioning to a SaaS delivery model. This transition is driven by the increased importance of a data-centric approach to security and the demand for comprehensive protection in the face of heightened cyber risks, collaboration across multiple platforms, the adoption of generative AI tools and the necessity for compliance. Enterprises now use many different combinations of on-premises and cloud data stores, SaaS applications and IaaS environments and this complexity requires a greater level of automated protection. We believe our offering provides comprehensive data coverage and our ability to address this demand will become key driver of our growth.

In the second half of 2021, we launched our first SaaS offering, introducing new products and support for several cloud applications and infrastructure. On October 31, 2022 we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which was previously only sold as a self-hosted solution. The benefits of SaaS delivery are widely established for both customers and providers, and we believe this evolution of a SaaS delivery option for the Varonis Data Security Platform will be transformational. The advantages include: quicker and easier deployment and maintenance of solutions with reduced infrastructure and personnel requirements; a lower total cost of ownership; faster deployment of risk assessments, which is the core of our sales motion; enhanced threat detection; continual threat model updates; increased automation for securing data in place; and the ability to deliver additional features and functionality to customers more efficiently. In addition, our SaaS solution allows us to offer Managed Data Detection and Response (MDDR) services providing customers with 24x7x365 monitoring with a service level agreement (SLA) that ensures a Varonis expert will respond to alerts within a specified time frame.

Recognizing the potential of a SaaS business model, we plan to transition to a predominately SaaS delivery model over the next several years. We expect our flagship Varonis Data Security Platform as a SaaS to grow significantly over this time and become the primary driver of our revenues. During this transition, we expect our revenues to be negatively impacted due to revenue recognition accounting treatment headwinds associated with the increase in SaaS sales and existing customer conversions to SaaS. These revenue headwinds will be dependent on the pace of the transition.

Overview
 
Varonis is a leader in data security as, since we started operations in 2005, we recognized that an enterprise's capacity to create and share data far exceeded its capacity to protect it. We believed that rapid data growth combined with increasing information dependence would change the global economy and the risk profiles of corporations and governments. Our focus has been on using innovation to address the cyber-implications of these trends, creating software that provides new ways to track, alert and protect data wherever it is stored.

22


We sell substantially all of our products and services to channel partners, including distributors and resellers, which sell to end-user customers, which we refer to in this report as our customers. We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force, has and will continue to play a major role in our ability to grow and to successfully deliver our unique value proposition for enterprise data. While our products serve customers of all sizes, across industries and across geographies, the marketing focus and majority of our sales focus is on targeting organizations with 1,000 users or more who can make larger initial purchases with us and, over time, have a greater potential lifetime value. Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We believe our existing customer base serves as a strong source of incremental future revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns. We will continue our focus on targeting organizations with 1,000 users or more who can make larger purchases with us initially and over time. We are also focused on maintaining a high renewal rate by investing in the quality and reliability of our customer service and support teams to ensure our customers receive value from our products and providing software upgrades and enhancements when and if they are available. Our product offering currently contains coverage for more than 40 of the most critical on-premises and cloud data stores and applications and our renewal rate continued to be over 90% for the three months ended March 31, 2024.

We believe there is a significant long-term growth opportunity in both domestic and international markets, which could include any organization that relies on data stored in SaaS applications, IaaS environments, NAS devices, file shares, databases and email servers. For the three months ended March 31, 2024, approximately 76% of our revenues were derived from North America, while approximately 21% of our revenues were derived from EMEA and approximately 3% from ROW. Additionally, despite the revenue recognition headwinds from the accounting treatment associated with the positive trend of our increase in SaaS sales and existing customer conversions to SaaS, total revenues still grew approximately 6% for the three months ended March 31, 2024 compared with the three months ended March 31, 2023. We continue to expect expansion in both domestic and international markets to be key components of our long-term growth strategy. Over the last few years, however, our operations around the world were negatively impacted by broader macroeconomic conditions, including a higher inflation and interest rate environment and a general economic slowdown. As a result, we have seen changes in customer buying patterns including, some budgetary tightening and longer renewal cycles, a trend which may continue for the foreseeable future.

We continue to expand our domestic and international operations as part of our long-term growth strategy. While the expansion of our domestic operations is focused primarily on our underpenetrated territories, the expansion of our international operations depends in particular on our ability to hire, integrate and retain local sales personnel in these international markets, acquire new channel partners and implement an effective marketing strategy. Given the nominal amount of our ROW revenues, our ROW revenue growth rates have fluctuated in the past and may fluctuate in the future based on the timing of deal closures. In addition, the further expansion of our international operations will increase our sales and marketing and general and administrative expenses and will subject us to a variety of risks and challenges, including those related to economic and political conditions in each region, compliance with foreign laws and regulations, and compliance with domestic laws and regulations applicable to our international operations.

Since inception, we have continued to scale our business and execute on strategic initiatives which we believe have positioned us for durable long-term growth. For the three months ended March 31, 2024, we have continued to grow our revenues despite revenue recognition accounting treatment headwinds associated with the increase in SaaS sales and existing customer conversions to SaaS. For the three months ended March 31, 2024 and 2023, SaaS revenues were $34.0 million and $2.1 million, respectively. For the three months ended March 31, 2024 and 2023, our total revenues were $114.0 million and $107.3 million, respectively. For the three months ended March 31, 2024 and 2023, we had operating losses of $47.6 million and $43.1 million and net losses of $40.5 million and $38.3 million, respectively.

Instability in the Middle East

Due to the war that began on October 7, 2023, a portion of our employees in Israel have been called to active reserve duty and additional employees may be called in the future, if needed. The Company has a business continuity plan and will remain aware and responsive to the evolving situation. However, it is possible that some of our operations in the region may be disrupted if the situation deteriorates further.

Key Performance Indicators and Recent Business Highlights

Annual Recurring Revenues

Annual recurring revenues is a key performance indicator defined as the annualized value of active term-based subscription license contracts, SaaS contracts and maintenance contracts in effect at the end of that period. Subscription license
23


contracts, SaaS contracts and maintenance contracts are annualized by dividing the total contract value by the number of days in the term and multiplying the result by 365.

As of March 31, 2024 and 2023, ARR were $560.3 million and $478.1 million, respectively, an increase of 17% period over period. The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of these contracts are not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period. ARR is not a forecast of future revenues and can be impacted by contract start and end dates and renewal rates. We expect ARR to continue to increase in absolute dollars.

Transition to SaaS-Based Business Model and SaaS as a Percentage of ARR
Over the last two years, we have strategically expanded our offering to include SaaS solutions. Recognizing the established benefits of SaaS for both customers and us, we plan to transition our business to a predominantly SaaS delivery model over the next several years. Due to differences in the revenue recognition accounting treatment, the transition to a SaaS based-business model may produce revenue headwinds which may cause significant variation in the reported revenues for a given period compared to the same period in the previous year. As of March 31, 2024, SaaS as a percentage of total ARR was approximately 30% and we expect this percentage to increase as we continue the transition to a SaaS delivery model.

Remaining Performance Obligations

Remaining performance obligations ("RPO") represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future. Our RPO were $426.2 million as of March 31, 2024. We expect RPO to continue to increase in absolute dollars as we transition to a predominately SaaS-based company.

Components of Operating Results

Revenues
 
Term License Subscription Revenues. Term license subscription revenues relate to subscription license revenues which are sold on-premises and are recognized at the point in 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.

SaaS Revenues. SaaS revenues relate to the Company's SaaS platform. Over the last two years, the Company began to offer SaaS solutions to its customers, including its (i) flagship Data Security Platform as a SaaS that was previously only sold as a self-hosted solution and (ii) DatAdvantage Cloud product line. Each of these products allow customers to use hosted software, and the related revenue from these products is recognized ratably over the associated contract period. Over the next several years, we expect SaaS revenues to grow considerably and become the primary driver of our revenues. Conversions from a license sold on-premises to our SaaS offering during the original subscription period are accounted for on a pro-rata prospective basis. Due to the transition to a predominately SaaS business model, the timing of renewals and renewal rates, we could produce significant variation in the revenues we recognize in a given period.

Maintenance and Services Revenues. Maintenance and services revenues consist of revenues from maintenance agreements of past perpetual license sales and, to a lesser extent, professional services. Customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available. We recognize the revenues associated with maintenance ratably over the associated contract period. We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the three months ended March 31, 2024 and 2023 continued to be over 90%. We do not expect perpetual license revenues in the future and, therefore, we expect the associated maintenance and support to continue to decline despite the strong renewal rates. We also offer professional services, generally provided on a time and materials basis, focused on training our customers in the use of our products. We recognize the revenues associated with these professional services as we deliver the services, provide the training or when the service term has expired. Professional services have always been a small percentage of our total revenues and we expect it to continue to be a small percentage as our newer solutions can provide remediation in more automated ways. As such, maintenance and services revenues are expected to continue to decline.

The following table sets forth the percentage of our revenues that have been derived from subscription licenses and maintenance and services revenues for the periods presented.
24


 
 Three Months Ended
March 31,
 20242023
(as a percentage of total revenues)
Revenues:  
Term license subscriptions49.1 %75.4 %
SaaS29.8 1.9 
Maintenance and services21.1 22.7 
Total revenues100.0 %100.0 %
 
Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses. Our customers span a broad array of industries and are located in over 90 countries.
 
Cost of Revenues, Gross Profit and Gross Margin
 
Cost of revenues consist primarily of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation for our customer support, customer success and services employees; third-party hosting fees; amortization of acquired intangible assets; travel expenses; and allocated overhead costs for facilities, IT and depreciation. We recognize expenses related to these costs as they are incurred and expect that these costs will increase in absolute dollars as we continue to invest in our customer success and support teams, move to a SaaS delivery model and support the underlying programs that play a critical role in maintaining our high renewal rate.

Gross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. As the majority of our expenses are relatively fixed quarter over quarter and due to the seasonality of our business, the first quarter typically results in the lowest gross margin as our first quarter revenues have historically been the lowest for the year. Conversely, the fourth quarter typically results in the highest gross margin as our fourth quarter revenues have historically been the highest for the year. As we transition to a predominately SaaS-based company, we expect this seasonality to decrease due to differences in the revenue recognition accounting treatment.

Operating Expenses
 
Operating expenses are classified into three categories: research and development, sales and marketing and general and administrative. For each category, the largest component is personnel costs, which consists of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation. Operating expenses also include allocated overhead costs for facilities, IT and depreciation. Allocated costs for facilities primarily consist of rent and office maintenance. Operating expenses are generally recognized as incurred. As a company, we have always aimed to tie our level of investment in the business to the revenues we expect to achieve and we actively manage expenses across the business. We expect personnel costs to continue to increase in absolute dollars as we continue to grow our business.

Research and Development. Research and development expenses primarily consist of personnel costs attributable to our research and development personnel, as well as allocated overhead costs. We expense research and development costs as incurred. We expect that our research and development expenses will continue to increase in absolute dollars as we further strengthen our technology platform and invest in the development of both existing and new products through the hiring of talented and capable employees.

Sales and Marketing. Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, as well as marketing and business development costs, travel expenses, third-party hosting fees, training and education and allocated overhead costs. We expect that sales and marketing expenses will continue to increase in absolute dollars as we plan to expand our sales and marketing efforts, both domestically and internationally. We also expect sales and marketing expenses to continue to be our largest category of operating expenses.

25


General and Administrative. General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel. Other expenses are comprised of legal, accounting and other consultant fees and other corporate expenses and allocated overhead. We expect that general and administrative expenses will increase in absolute dollars as we expand our operations.

Financial Income (Expenses), Net
 
Financial income (expenses), net consists primarily of interest income, foreign exchange gains or losses, amortization of debt discount and issuance costs and interest expense. Interest income represents interest received on our cash, cash equivalents, marketable securities, deposits and amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities. Foreign exchange gains or losses relate to our business activities in foreign countries with different operational reporting currencies. As a result of our business activities in foreign countries, we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business. Amortization of debt discount and issuance costs relate to the 2025 Notes we issued in May 2020. Interest expense consists of the contractual interest expenses associated with the 2025 Notes.

Income Taxes
 
We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax.

Because of our history of operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards. Our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods. We reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period.

In addition, we are subject to the regular examinations of our income tax returns by different tax authorities. For example, we are currently subject to an income and a withholding tax audit in Israel and a state tax audit in the United States. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

26


Results of Operations
 
Comparison of the Three Months Ended March 31, 2024 and 2023
 
The following tables are a summary of our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 in dollars and as a percentage of our total revenues.
 
 Three Months Ended
March 31,
 20242023
(unaudited)
(in thousands)
Statement of Operations Data:  
Revenues:  
Term license subscriptions$55,980 $80,906 
SaaS33,985 2,068 
Maintenance and services24,057 24,361 
Total revenues114,022 107,335 
Cost of revenues21,349 17,637 
Gross profit92,673 89,698 
Operating expenses:  
Research and development47,827 44,732 
Sales and marketing71,227 68,393 
General and administrative21,252 19,689 
Total operating expenses140,306 132,814 
Operating loss(47,633)(43,116)
Financial income, net8,545 7,773 
Loss before income taxes(39,088)(35,343)
Income taxes(1,402)(2,961)
Net loss$(40,490)$(38,304)
 
 Three Months Ended
March 31,
 20242023
(as a percentage of total revenues)
Statement of Operations Data:  
Revenues:  
Term license subscriptions49.1 %75.4 %
SaaS29.8 1.9 
Maintenance and services21.1 22.7 
Total revenues100.0 100.0 
Cost of revenues18.7 16.4 
Gross profit81.3 83.6 
Operating expenses:  
Research and development42.0 41.7 
Sales and marketing62.5 63.7 
General and administrative18.6 18.4 
Total operating expenses123.1 123.8 
Operating loss(41.8)(40.2)
Financial income, net7.5 7.3 
27


Loss before income taxes(34.3)(32.9)
Income taxes(1.2)(2.8)
Net loss(35.5)%(35.7)%
 
Revenues
 
 Three Months Ended
March 31,
 
 20242023% Change
(unaudited)
(in thousands)
 
Revenues:   
Term license subscriptions$55,980 $80,906 (30.8)%
SaaS33,985 2,068 1,543.4 %
Maintenance and services24,057 24,361 (1.2)%
Total revenues$114,022 $107,335 6.2 %
 
 
 Three Months Ended
March 31,
 20242023
(as a percentage of total revenues)
Revenues:  
Term license subscriptions49.1 %75.4 %
SaaS29.8 1.9 
Maintenance and services21.1 22.7 
Total revenues100.0 %100.0 %

For the three months ended March 31, 2024, our revenues increased 6% compared to the three months ended March 31, 2023 despite the positive trend of increased SaaS sales and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition. SaaS revenues increased 1,543% from $2.1 million for the three months ended March 31, 2023 to $34.0 million for the three months ended March 31, 2024 as we progress through our transition to a predominantly SaaS delivery model. The increase in SaaS revenues was driven by new customer acquisitions, existing customers conversions and our high renewal rate. Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the future. ARR were $560.3 million and $478.1 million as of March 31, 2024 and 2023, respectively, representing an increase of 17%. The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the three months ended March 31, 2024 and 2023, as well as newer solutions providing remediation in more automated ways, requiring less professional services time. As a result, we expected, and continue to expect less associated maintenance and services revenues in the future.
 
28


Cost of Revenues and Gross Margin
 
 Three Months Ended
March 31,
 
 20242023% Change
 (unaudited)
(in thousands)
 
Cost of revenues$21,349 $17,637 21.0 %
 
 Three Months Ended
March 31,
 20242023
 (as a percentage of total revenues)
Total gross margin81.3 %83.6 %

The increase in cost of revenues was primarily related to a $1.8 million increase in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, ensure high customer satisfaction and maintain our strong renewal rates. The increase is also due to a $1.6 million increase in third-party hosting costs associated with our transition to a SaaS delivery model and an increase of $0.2 million in facilities and allocated overhead costs.
 
Operating Expenses
 
 Three Months Ended
March 31,
 
 20242023% Change
 (unaudited)
(in thousands)
 
Operating expenses:   
Research and development$47,827 $44,732 6.9 %
Sales and marketing71,227 68,393 4.1 %
General and administrative21,252 19,689 7.9 %
Total operating expenses$140,306 $132,814 5.6 %

 Three Months Ended
March 31,
 20242023
 (as a percentage of total revenues)
Operating expenses:  
Research and development42.0 %41.7 %
Sales and marketing62.5 63.7 
General and administrative18.6 18.4 
Total operating expenses123.1 %123.8 %
 
The increase in research and development expenses was primarily related to a $2.0 million increase in salaries and benefits and stock-based compensation expense for our employees as part of our focus on enhancing and developing our existing and new products. The increase is also due to a $0.6 million increase in facilities and allocated overhead costs and a $0.4 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

The increase in sales and marketing expenses was primarily related to a $2.3 million increase related to general sales and marketing expenses, including increased travel and marketing events. The increase is also due to a $1.1 million increase in
29


salaries and benefits and stock-based compensation expense for our sales force and commissions on customer orders. This is partially offset by a decrease of $0.5 million in facilities and allocated overhead costs.

The increase in general and administrative expenses was primarily related to an increase of $1.6 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.
 
Financial Income, Net
 
 Three Months Ended
March 31,
 
 20242023% Change
(unaudited)
(in thousands)
Financial income, net$8,545 $7,773 9.9 %
 
The increase in financial income, net was primarily due to higher interest income, partially offset by less foreign currency gains.

Income Taxes
 
 Three Months Ended
March 31,
 
 20242023% Change
(unaudited)
(in thousands)
Income taxes$(1,402)$(2,961)52.7 %
 
Income taxes for the three months ended March 31, 2024, including the decrease in income taxes, were comprised of U.S. and foreign income taxes.

Liquidity and Capital Resources
 
The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods:
 
 Three Months Ended
March 31,
 20242023
(unaudited)
(in thousands)
Net cash provided by operating activities$56,723 $36,830 
Net cash used in investing activities(111,966)(142,515)
Net cash used in financing activities(28,446)(13,530)
Decrease in cash and cash equivalents$(83,689)$(119,215)

On March 31, 2024, our cash and cash equivalents, short-term marketable securities and short-term deposits of $548.1 million were held for working capital purposes. We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, timing of renewals and renewal rates, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products and enhancements to existing software products, the continuing market acceptance of our software offerings and our use of cash to pay for acquisitions or share repurchases, if any.

30


Operating Activities
 
Our operating activities are driven by sales of our products less costs and expenses, primarily payroll and related expenses, and adjusted for certain non-cash items, mainly depreciation and amortization, stock-based compensation, amortization of deferred commissions, non-cash operating lease costs, amortization of debt issuance costs and amortization of premium and accretion of discount on marketable securities, and changes in operating assets and liabilities. Changes in operating assets and liabilities are driven mainly by collection of accounts receivable from the sales of our software products and deferred revenue, which primarily consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy.

For the three months ended March 31, 2024, cash inflows from our operating activities were $56.7 million. We have observed two seasonal patterns that impact our net cash provided by operating activities. First, a majority of our sales are made during the last three weeks of the quarter. Second, the highest dollar amount of sales of our products and services occurs in the fourth quarter. Consequently, we end the fourth quarter with our highest accounts receivable balance of any quarter which in turn generates the greatest amount of collections in the following quarter. In addition, there is negative sequential sales in the first quarter, which results in a relatively lower amount collected during the second quarter. These seasonal trends also impact our operating loss because the majority of our expenses are relatively fixed in the short-term. For the three months ended March 31, 2024, cash inflows were $1.5 million from our net loss excluding non-cash charges. Additional sources of cash inflows were from changes in our working capital, including a $68.7 million decrease in accounts receivable. Our days’ sales outstanding (“DSO”) for the three months ended March 31, 2024 was 78. Other sources of cash inflows were from a $3.6 million increase in deferred revenues, a $2.2 million increase in trade payables and a $0.2 million increase in other long-term liabilities. This was partially offset by a $16.8 million decrease in accrued expenses and other liabilities, a $2.4 million increase in prepaid expenses and other current assets (including deferred commissions) and a $0.1 million increase in other long-term assets.

For the three months ended March 31, 2023, cash inflows from our operating activities were $36.8 million. For the three months ended March 31, 2023, cash inflows were $5.3 million from our net loss excluding non-cash charges. Additional sources of cash inflows were from changes in our working capital, including a $60.6 million decrease in accounts receivable. Our DSO for the three months ended March 31, 2023 was 64. Other sources of cash inflows were from a $1.2 million increase in other long-term liabilities. This was partially offset by a $15.8 million decrease in accrued expenses and other liabilities, a $10.3 million increase in prepaid expenses and other current assets (including deferred commissions), a $2.3 million decrease in trade payables, a $1.4 million decrease in deferred revenues and a $0.6 million increase in other long-term assets.

Investing Activities
 
Our investing activities consist primarily of capital expenditures to purchase property and equipment, including leasehold improvements, purchase and sale of deposits and changes in our marketable securities. In the future, we expect to continue to incur capital expenditures to support our expanding operations.

During the three months ended March 31, 2024, net cash used in investing activities of $112.0 million was primarily attributable net investments of $116.4 million in marketable securities and $0.3 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements. This was partially offset by net proceeds of $4.7 million in deposits.

During the three months ended March 31, 2023, net cash used in investing activities of $142.5 million was primarily attributable to net investments of $98.5 million in net deposits, $42.9 million in marketable securities and $1.1 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements mainly in connection with office space.
 
Financing Activities
 
For the three months ended March 31, 2024, net cash used in financing activities of $28.4 million was attributable to $34.9 million in taxes paid related to net share settlement of equity awards, partially offset by $6.4 million of proceeds from employee stock plans.

For the three months ended March 31, 2023, net cash used in financing activities of $13.5 million was attributable to $16.9 million in taxes paid related to net share settlement of equity awards and $2.5 million of repurchases of common stock, partially offset by $5.9 million of proceeds from employee stock plans.

31


Convertible Notes

On May 11, 2020, we issued $253.0 million aggregate principal amount of the 2025 Notes. The net proceeds from the offering, after deducting initial purchaser discount and issuance costs, were approximately $245.2 million. In connection with the issuance of the 2025 Notes, we entered into the Capped Call Transactions. We used $29.3 million of the net proceeds from the 2025 Notes to purchase the Capped Call Transactions, as further discussed in Note 5 of our condensed consolidated financial statements.


Contractual Payment Obligations
 
Our principal commitments primarily consist of obligations under leases for office space and motor vehicles. Aggregate minimum rental commitments under non-cancelable leases as of March 31, 2024 for the upcoming years were as follows:
 Payments Due by Period
 20242025202620272028ThereafterTotal
 (in thousands)
Operating lease obligations$8,915 $11,928 $10,267 $10,156 $10,104 $14,001 $65,371 

We have obligations related to unrecognized tax benefit liabilities totaling $24.3 million and others related to severance pay, which have been excluded from the table above as we do not believe it is practicable to make reliable estimates of the periods in which payments for these obligations will be made. We also have a contractual minimum purchase commitment with a service provider through August 31, 2025 totaling $3.1 million and an additional $50.7 million contractual minimum purchase commitment with another service provider through December 31, 2026 with no specified annual commitments. We expect to fund these obligations with cash flows from operations and cash on our balance sheet.

Off-Balance Sheet Arrangements
 
As of March 31, 2024, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates
 
We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that our accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.
 
Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. We are currently evaluating the effect of adopting the ASU on our disclosures.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The ASU requires that an entity
32


disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments should be applied on a prospective basis. We are currently evaluating the effect of adopting the ASU on our disclosures.

33


Item 3.Quantitative and Qualitative Disclosures About Market Risk
 
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates. We do not hold financial instruments for trading or speculative purposes.
 
 Market Risk
 
We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates and interest rates. We manage our exposure to these market risks through internally established policies and procedures. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading or speculative purposes, and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and, where appropriate, may use hedging strategies to mitigate these risks.
 
Foreign Currency Exchange Risk
 
Approximately one quarter of our revenues for the three months ended March 31, 2024 were earned in non-U.S. dollar denominated currencies, mainly in the Euro and Pound Sterling. Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S. dollar and NIS, and to a lesser extent the Euro, Pound Sterling, Canadian dollar, Australian dollar and Singapore dollar. Our expenses denominated in foreign currencies consist primarily of personnel and overhead costs from our international operations. Our condensed consolidated results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. We enter into financial hedging strategies to reduce our exposure to foreign currency rate changes. During 2024, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business, after considering foreign currency hedges, would not have had a material impact on our condensed consolidated financial statements.

For purposes of our condensed consolidated financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet date and local currency revenues and expenses are translated at the exchange rate at the date of the transaction or the average exchange rate during the reporting period.

We use derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks, by hedging a portion of our forecasted revenues and expenses. A majority of our revenues and operating expenditures are transacted in U.S. dollars; however, certain revenues and operating expenditures are incurred in or exposed to other currencies, specifically, Euro and Pound Sterling for revenues and the New Israeli Shekel, Euro and Pound Sterling for operating expenses. The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes on the underlying hedged item. We also enter into forward contracts to hedge a portion of our monetary items in the balance sheet, such as trade receivables and payables, denominated in Pound Sterling and Euro for short-term periods to protect the fair value of the monetary assets and liabilities from foreign exchange rate fluctuations. The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes in the underlying hedged item which impacts financial income, net. We do not use derivative financial instruments for trading or speculative purposes.

Interest Rate Risk
 
We had cash and cash equivalents, short-term marketable securities and short-term deposits of $548.1 million as of March 31, 2024. We hold our cash and cash equivalents, short-term marketable securities and short-term deposits for working capital purposes. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce our future interest income. The effect of a hypothetical 100 basis point increase in interest rates would not have a material impact on our condensed consolidated financial statements.
 
In May 2020, we issued $253.0 million aggregate principal amount of 1.25% convertible senior notes due in 2025. The 2025 Notes have fixed annual interest rates at 1.25% and, therefore, we do not have economic interest rate exposure on our 2025 Notes. However, the values of the 2025 Notes are exposed to interest rate risk. Generally, the fair market value of our fixed interest rate 2025 Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair values of the 2025 Notes are affected by our stock price. The fair value of the 2025 Notes will generally increase as our common stock
34


price increases and will generally decrease as our common stock price declines in value. Additionally, we carry the 2025 Notes at face value less unamortized costs on our balance sheet, and we present the fair value for required disclosure purposes only.

To the extent we enter into other long-term debt arrangements in the future, we would be subject to fluctuations in interest rates which could have a material impact on our future financial condition and results of operation.

Item 4.Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We regularly seek to identify, develop and implement improvements to our technology systems and business processes, some of which may affect our internal control over financial reporting. These changes may include such activities as implementing new, more efficient systems, updating existing systems or platforms, automating manual processes or utilizing technology developed by third parties. These system changes are often phased in over multiple periods in order to limit the implementation risk in any one period, and as each change is implemented, we monitor its effectiveness as part of its internal control over financial reporting.

PART II.OTHER INFORMATION

Item 1.Legal Proceedings
 
We are not currently a party to any material litigation. 

Item 1A.Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained herein, including our condensed consolidated financial statements and the related notes thereto, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Summary Risk Factors

Our business faces significant risks. In addition to the summary below, you should carefully review the Risk Factors in this Quarterly Report on Form 10-Q. We may be subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by
35


any of these risks, and the trading price of our common stock could decline by virtue of these risks. These risks should be read in conjunction with the other information in this report. The following is a summary of the principal risks of our business:

the fact that the market for software that analyzes, secures, governs, manages and migrates enterprise data may not continue to grow or grow at the same pace;
prolonged economic uncertainties or downturns;
currency exchange rate fluctuations;
increased competition;