Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

a. On December 30, 2005, the Company’s board of directors adopted the Varonis Systems, Inc. 2005 Stock Plan (the “2005 Stock Plan”). As of December 31, 2013, the Company had reserved 4,713,319 shares of common stock available for issuance to employees, directors, officers and consultants of the Company and its subsidiaries. The options generally vest over four years. No awards were granted under the 2005 Stock Plan subsequent to December 31, 2013, and no further awards will be granted under the 2005 Stock Plan.

On November 14, 2013, the Company’s board of directors adopted the Varonis Systems, Inc. 2013 Omnibus Equity Incentive Plan (the “2013 Plan”) which was subsequently approved by the Company’s stockholders. The Company initially reserved 1,904,633 shares of common stock for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2013 Plan was increased on January 1, 2016 and has been, and will be, increased on each January 1 thereafter by four percent (4%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase (rounded down to the nearest whole share), but the amount of each increase will be limited to the number of shares of common stock necessary to bring the total number of shares of Common Stock available for grant and issuance under the 2013 Plan to five percent (5%) of the number of shares of common stock issued and outstanding on each December 31. Since January 1, 2016, the share reserve under the 2013 Plan has been automatically increased by an aggregate of 5,530,555 shares. Awards granted under the 2013 Plan generally vest over four years. Any award that is forfeited or canceled before expiration becomes available for future grants under the 2013 Plan.

A summary of employees’ stock options activities during the nine months ended September 30, 2020 is as follows:

	Nine Months Ended September 30, 2020 (unaudited)
	Number	Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding as of January 1, 2020	454,348	$	20.628	$	25,935	4.343
Granted	—	$	—
Exercised	(121,487)	$	20.177
Forfeited and expired	(500)	$	1.576
Options outstanding and exercisable as of September 30, 2020	332,361	$	20.822	$	31,441	3.673

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 nine months ended September 30, 2020 was $9,769. As of September 30, 2020, there was no unrecognized compensation cost related to employees and non-employees unvested stock options as all options have vested.

b. The options outstanding as of September 30, 2020 (unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price				Options outstanding and exercisable as of September 30, 2020	Weighted average remaining contractual life (years)	Weighted average exercise price of options outstanding and exercisable
$	6.230	—	8.800	10,356	1.356	$	8.289
$	12.470	—	16.870	89,825	3.371	$	14.282
$	19.510	—	24.230	173,998	3.786	$	21.440
		$29.880		46,588	4.395	$	29.880
		$39.860		11,594	3.474	$	39.860
				332,361	3.673	$	20.822

c. Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of September 30, 2020 (unaudited) were as follows:

	Options outstanding and exercisable as of September 30, 2020	Exercise price per share		Exercisable through
	(number)
August 2013	3,100	$	21.140	August 2023
March 2014	2,300	$	39.860	March 2024
May 2014	2,600	$	22.010	May 2024
November 2014	4,038	$	21.660	November 2024
February 2016	1,000	$	16.870	February 2026
	13,038

d. Restricted stock units:

A summary of restricted stock units and performance stock units for employees, consultants and non-employee directors of the Company for the nine months ended September 30, 2020 (unaudited) is as follows:

	Number of shares underlying outstanding restricted stock units	Weighted- average grant date fair value
Unvested balance - January 1, 2020	2,559,083	$	49.58
Granted	1,361,881	$	86.27
Vested	(898,820)	$	44.28
Forfeited	(156,613)	$	60.23
Unvested balance – September 30, 2020	2,865,531	$	68.10

e. As of September 30, 2020, there was $156,759 of total unrecognized compensation cost related to employees and non-employees unvested restricted stock units which is expected to be recognized over a period of 2.341 years.

f. 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 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) 400,000 shares of common stock. Since January 1, 2016, the share reserve under the ESPP has been automatically increased by an aggregate of 702,163 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.

g. Stock-based compensation expense for employees and consultants:

The Company recognized non-cash stock-based compensation expense in the consolidated statements of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(unaudited) (in thousands)				(unaudited) (in thousands)
Cost of revenues	$	1,476	$	637	$	3,615	$	1,967
Research and development	6,000		3,476		15,767		9,674
Sales and marketing	7,184		3,932		18,773		11,015
General and administrative	4,018		2,977		11,029		12,123
Total	$	18,678	$	11,022	$	49,184	$	34,779

h. Since the Company is in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all the periods as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. There were 3,210,930 and 3,162,815 potentially dilutive shares from the conversion of outstanding restricted stock units and stock options that were not included in the calculation of diluted net loss per share as of September 30, 2020 and 2019, respectively.

Additionally, approximately 2.7 million shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net income per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash and therefore will use the treasury stock method for calculating any potential dilutive effect on diluted net income per share, if applicable. The conversion will have a dilutive impact on diluted net income per share when the average market price of a common stock for a given period exceeds the conversion price of $92.12 per share.