10-Q

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, 2022

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36324

____________________

VARONIS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

____________________

 

Delaware			57-1222280
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
1250 Broadway, 29th Floor	New York	NY	10001
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	VRNS	The 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 filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      ☐

Yes    ý  No

As of April 29, 2022, there were 109,569,674 shares of common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021		1
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021		3
Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021		4
Unaudited Consolidated Statements of Changes in Stockholders’ Equity as of March 31, 2022 and 2021		5
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 6.	Exhibits	58
SIGNATURES		59
EXHIBIT INDEX		60

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VARONIS SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	775,719	$	805,761
Marketable securities	28,372		—
Short-term deposits	—		1,850
Trade receivables (net of allowances of $3,575 and $2,754 at March 31, 2022 and December 31, 2021, respectively)	63,604		117,179
Prepaid expenses and other current assets	35,812		34,417
Total current assets	903,507		959,207
Long-term assets:
Operating lease right-of-use asset	61,351		63,749
Property and equipment, net	39,495		38,298
Intangible assets, net	3,931		4,313
Goodwill	23,135		23,135
Other assets	20,143		19,835
Total long-term assets	148,055		149,330
Total assets	$	1,051,562	$	1,108,537
Liabilities and stockholders’ equity
Current liabilities:
Trade payables	$	4,771	$	5,324
Accrued expenses and other short-term liabilities	92,560		102,226
Deferred revenues	98,763		104,221
Total current liabilities	196,094		211,771
Long-term liabilities:
Convertible senior notes, net	247,846		225,330
Operating lease liability	65,786		68,694
Deferred revenues	2,378		2,566
Other liabilities	3,680		3,583
Total long-term liabilities	319,690		300,173
Stockholders’ equity:
Share capital
Common stock of $0.001 par value - Authorized: 200,000,000 shares at March 31, 2022 and December 31, 2021; Issued and outstanding: 109,566,197 shares at March 31, 2022 and 107,509,096 shares at December 31, 2021	110		108

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Accumulated other comprehensive income	2,894		6,083
Additional paid-in capital	1,000,493		1,018,005
Accumulated deficit	(467,719)		(427,603)
Total stockholders’ equity	535,778		596,593
Total liabilities and stockholders’ equity	$	1,051,562	$	1,108,537

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

2

VARONIS SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data) 

	Three Months Ended March 31,
	2022		2021
Revenues:
Subscriptions	$	68,985	$	45,114
Maintenance and services	27,276		29,671
Total revenues	96,261		74,785
Cost of revenues	17,809		13,482
Gross profit	78,452		61,303
Operating expenses:
Research and development	43,570		30,062
Sales and marketing	64,787		51,493
General and administrative	18,180		13,823
Total operating expenses	126,537		95,378
Operating loss	(48,085)		(34,075)
Financial income (expenses), net	736		(1,022)
Loss before income taxes	(47,349)		(35,097)
Income taxes	(1,414)		(559)
Net loss	$	(48,763)	$	(35,656)
Net loss per share of common stock, basic and diluted	$	(0.45)	$	(0.36)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted	108,204,960		100,246,972

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

3

VARONIS SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

	Three Months Ended March 31,
	2022		2021
Net loss	$	(48,763)	$	(35,656)
Other comprehensive loss:
Unrealized income (loss) on marketable securities, net of tax	(10)		4
Income on marketable securities reclassified into earnings, net of tax	—		1
	(10)		5
Unrealized loss on derivative instruments, net of tax	(2,759)		(3,149)
Income on derivative instruments reclassified into earnings, net of tax	(420)		(2,036)
	(3,179)		(5,185)
Total other comprehensive loss	(3,189)		(5,180)
Comprehensive loss	$	(51,952)	$	(40,836)

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

4

VARONIS SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

 

	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total stockholders’ equity
	Number	Amount
Balance as of December 31, 2020	95,456,862	95	$	395,347	$	9,371	$	(310,742)	$	94,071
Issuance of Common stock in connection with follow-on offering, net of issuance costs of $17,466	7,961,538	8	500,026						500,034
Stock-based compensation expense	—	—	21,379		—		—		21,379
Common stock issued under employee stock plans	2,728,995	3	4,670		—		—		4,673
Taxes paid related to net share settlement of equity awards	—	—	(731)		—		—		(731)
Unrealized loss on derivative instruments	—	—	—		(5,185)		—		(5,185)
Unrealized income on available for sale securities	—	—	—		5		—		5
Net loss	—	—	—		—		(35,656)		(35,656)
Balance as of March 31, 2021	106,147,395	106	920,691		4,191		(346,398)		578,590

	Common stock			Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Total stockholders’ equity
	Number	Amount
Balance as of December 31, 2021	107,509,096	$	108	$	1,018,005	$	6,083	$	(427,603)	$	596,593
Effect of adoption of ASU 2020-06	—	—		(30,794)		—		8,647		(22,147)
Stock-based compensation expense	—	—		35,998		—		—		35,998
Common stock issued under employee stock plans	2,057,101	2		6,109		—		—		6,111
Taxes paid related to net share settlement of equity awards	—	—		(28,825)		—		—		(28,825)
Unrealized loss on derivative instruments	—	—		—		(3,179)		—		(3,179)
Unrealized loss on available for sale securities	—	—		—		(10)		—		(10)
Net loss	—	—		—		—		(48,763)		(48,763)
Balance as of March 31, 2022	109,566,197	110		1,000,493		2,894		(467,719)		535,778

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

5

VARONIS SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(48,763)	$	(35,656)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2,679		2,349
Stock-based compensation	35,998		21,379
Amortization of deferred commissions	6,120		4,157
Noncash operating lease costs	2,326		2,242
Amortization of debt discount and issuance costs	370		1,689
Changes in assets and liabilities:
Trade receivables	53,575		42,927
Prepaid expenses and other current assets	(2,575)		(1,673)
Deferred commissions	(6,942)		(3,873)
Other long-term assets	359		900
Trade payables	(553)		(213)
Accrued expenses and other short-term liabilities	(12,502)		(5,029)
Deferred revenues	(5,646)		(7,618)
Other long-term liabilities	96		(1,198)
Net cash provided by operating activities	24,542		20,383
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities	—		6,036
Investment in marketable securities	(28,372)		—
Proceeds from short-term and long-term deposits	1,850		50,235
Investment in short-term and long-term deposits	(1,853)		(60,000)
Purchases of property and equipment	(3,495)		(1,116)
Net cash used in investing activities	(31,870)		(4,845)
Cash flows from financing activities:
Proceeds from employee stock plans	6,111		4,673
Taxes paid related to net share settlement of equity awards	(28,825)		(731)
Proceeds from follow-on offering, net	—		500,034
Net cash provided by (used in) financing activities	(22,714)		503,976
Increase (decrease) in cash and cash equivalents	(30,042)		519,514
Cash and cash equivalents at beginning of period	805,761		234,092
Cash and cash equivalents at end of period	$	775,719	$	753,606
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	507	$	2,822
Cash paid for interest	$	1,582	$	1,582
Lease liabilities arising from obtaining right-of-use assets	$	248	$	7,785

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

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:     GENERAL

a. Description of Business:

Varonis Systems, Inc. ("VSI" and together with its subsidiaries, collectively, the “Company” or "Varonis") was incorporated under the laws of the State of Delaware on November 3, 2004, commenced operations on January 1, 2005 and has twelve wholly-owned subsidiaries.

The Company’s software products and services allow enterprises to manage, analyze, alert and secure enterprise data. Varonis focuses on protecting enterprise data including: sensitive files and emails; confidential customer, patient and employee data; financial records; strategic and product plans; and other intellectual property. Through its products: DatAdvantage (including the Automation Engine), DatAlert (including Varonis Edge), DataPrivilege, Data Classification Engine (including Policy Pack and Data Classification Labels), Data Transport Engine and DatAnswers, the Varonis Data Security Platform detects cyberthreats from both internal and external actors by analyzing data, account activity and user behavior; prevents and limits disaster by locking down sensitive and stale data; and efficiently sustains a secure state with automation. Varonis products address additional important use cases including data protection, data governance, Zero Trust, cybercrime, compliance, data privacy, classification and threat detection and response.

b. Basis of Presentation:

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain amounts in prior periods' financial statements have been recast and reclassified to conform to the current year's presentation.

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2021 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021 filed with the SEC on February 8, 2022 (the “2021 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the 2021 Form 10-K, unless otherwise stated.

c. Revenue Recognition:

The Company generates revenues in the form of software license fees and related maintenance and services fees. Subscription revenues are sold on-premises and are comprised of time-based licenses whereby customers use the Company's software (including support and unspecified upgrades and enhancements when and if they are available) for a specified period. In the second half of 2021, the Company launched its cloud offering that allows customers to use hosted software. Maintenance and services primarily consist of fees for maintenance and services of perpetual license sales (including support and unspecified upgrades and enhancements when and if they are available) and to a lesser extent professional services, which focus on both operationalizing the software and training the Company's customers to fully leverage the use of its products, although the user can benefit from the software without the Company's assistance. The Company sells its products worldwide to a network of distributors and value-added resellers, and payment is typically due within 30 to 60 calendar days of the invoice date.

The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers.” As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

Subscription software and perpetual license revenues are recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. As we have successfully transitioned to a subscription model which has resulted in an immaterial amount of perpetual license revenues, these revenues are included within the subscriptions line of the

7

consolidated statements of operations. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement. In 2021, the Company launched its cloud offering that allows customers to use hosted software, and its revenue is recognized ratably over the associated contract period. As the Company only introduced these licenses in the second half of 2021, the total associated revenues have not yet been material.

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

Revenues from professional services consist mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service term has expired.

The Company enters into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The license is distinct upon delivery as the customer can derive the economic benefit of the software without any professional services, updates or technical support. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. For maintenance, the Company determines the standalone selling prices based on the price at which the Company separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services. For software licenses, the Company uses the residual approach to determine the standalone selling prices due to the lack of history of selling software license on a standalone basis and the highly variable sales price.

Trade receivables are generally recorded at the invoice amount mostly for a one-year period, net of an allowance for credit losses.

Deferred revenues represent mostly unrecognized fees billed or collected for maintenance and professional services. Deferred revenues are recognized as (or when) the Company performs under the contract. Pursuant to these contracts, customers are not invoiced for subsequent years until the annual renewal occurs. The amount of revenues recognized in the period that was included in the opening deferred revenues balance was $39,029 for the three months ended March 31, 2022.

The Company does not grant a right of return to its customers, except for one of its resellers. In 2021 and for the three months ended March 31, 2022, there were no returns from this reseller.

For information regarding disaggregated revenues, refer to Note 7.

d. Contract Costs:

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

e. Derivative Instruments:

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

8

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

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following table (in thousands):

 

	Assets (liabilities) as of March 31, 2022 (unaudited)				Assets (liabilities) as of December 31, 2021
	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in prepaid expenses and other current assets	$	97,165	$	2,904	$	115,710	$	6,083
Foreign exchange forward contract derivatives for monetary items included in accrued expenses and other short-term liabilities	$	29,414	$	(30)	$	42,056	$	(62)

The unaudited consolidated statements of operations reflect a gain of $420 and $547 for the three months ended March 31, 2022 and 2021, respectively, related to the effective portion of the cash flow hedges. No material ineffective hedges were recognized for the three months ended March 31, 2022 and 2021 in operating expenses in the consolidated statement of operations.

For the three months ended March 31, 2022 and 2021, the unaudited consolidated statements of operations reflect a gain of $741 and $771, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program.

f. Income Taxes:

The Company operates in the U.S. and in foreign jurisdictions and is subject to taxes in each country or jurisdiction in which it conducts business. Earnings from its non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. To date, on a consolidated basis, the Company has incurred accumulated net losses and has not recorded any U.S. federal tax provision.

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

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

The Company's fiscal 2022 annual effective rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded on its U.S. losses. For the three months ended March 31, 2022 and 2021, the Company recorded income tax expense of $1,414 and $559, respectively, comprised primarily of foreign income taxes.

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

The Company remains open to federal and state examination to the extent net carry-over unused operating losses and tax credit attributable to those years remain unutilized. As of March 31, 2022, the Company's federal tax returns for the years 2010

9

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 various deposit accounts.

The Company considers all high-quality investments purchased with original maturities at the date of purchase greater than three months but less than one year to be short-term. Cash equivalents, marketable securities and deposits are classified as available for sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of financial income (expenses), net in the consolidated statement of operations. Cash, cash equivalents, marketable securities and deposits consist of the following (in thousands):

 

	As of March 31, 2022
	(unaudited)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents
Money market funds	$	384,062	$	—	$	—	$	384,062
Corporate bonds	2,454		—		*)		2,454
Total	$	386,516	$	—	$ *)		$	386,516
Marketable securities
US Treasury securities	$	14,005	$	—	$	(8)	$	13,997
Commercial paper	9,573		—		—		9,573
Corporate bonds	4,804		*)		(2)		4,802
Total	$	28,382	$ *)		$	(10)	$	28,372
Long-term deposits
Term bank deposits	$	1,850	$	—	$	—	$	1,850
Total	$	1,850	$	—	$	—	$	1,850

10

*) Represents an amount lower than $1 

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

All the marketable securities have a stated effective maturity of less than 12 months as of March 31, 2022.

The gross unrealized gains and losses related to these short-term investments was due primarily to changes in interest rates. Available for sale debt securities with an amortized cost basis in excess of estimated fair value are assessed using the Current Expected Credit losses model to determine what portion of that difference, if any, is caused by expected credit losses. Expected credit losses on available for sale debt securities are recognized in financial income (expenses), net on the consolidated statements of operations. As of March 31, 2022, the Company did not recognize an allowance for credit losses on available for sale marketable securities as any expected credit losses are not material to the consolidated financial statements.

h. Revolving Credit Facility:

On August 21, 2020, the Company entered into a credit and security agreement with KeyBank National Association (the “Credit and Security Agreement”), for a three-year secured revolving credit facility of $70,000 (the “Credit Facility”). The Credit Facility maturity date is the earlier of August 21, 2023 or 90 days prior to the scheduled maturity of any convertible debt securities. The fees incurred in connection with entering into the Credit and Security Agreement are amortized on a straight-line basis over the contractual term of the arrangement. Ongoing fees and interest paid on the used and unused portions of the Credit Facility are expensed as incurred and included within financial income (expenses), net on the consolidated statement of operations. The Credit Facility is secured and the Credit and Security Agreement contains customary covenants and customary events of default provisions.

As of March 31, 2022, the Company had no balance outstanding on the Credit Facility and was in compliance with all financial covenants and non-financial covenants.

i. Basic and Diluted Net Loss Per Share:

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, performance stock units and the shares related to the conversion of the 1.25% Convertible Senior Notes issued by the Company on May 11, 2020 and due August 2025 in an aggregate principal amount of $253,000 (the "2025 Notes"), to the extent dilutive.

Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. There were 9,194,862 and 8,913,594 potentially dilutive shares from the conversion of outstanding stock options, restricted stock units and performance stock units that were not included in the calculation of diluted net loss per share for the period ending March 31, 2022 and 2021, respectively. Additionally, 8,239,254 shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash, shares or a combination thereof. As a result of the adoption of ASU 2020-06, the Company uses the if-converted method for calculating any potential dilutive effect on diluted net income per share, if applicable.

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j. Recently Adopted Accounting Pronouncements:

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on earnings per share. The Company adopted this standard on January 1, 2022 using a modified retrospective basis which resulted in a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. For more information, refer to Note 5.

n. Recently Issued Accounting Pronouncements Not Yet Adopted:

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

NOTE 2:     FAIR VALUE MEASUREMENTS

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. There have been no transfers between fair value measurements levels during the three months ended March 31, 2022.

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.

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The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2022 and December 31, 2021 by level within the fair value hierarchy (in thousands):

 

	As of March 31, 2022
	(unaudited)								As of December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Financial assets:
Cash equivalents:
Money market funds	$	384,062	$	—	$	—	$	384,062	$	414,942	$	—	$	—	$	414,942
Corporate bonds	—		2,454		—		2,454		—		—		—		—
Marketable securities:
US Treasury securities	13,997		—		—		13,997		—		—		—		—
Commercial paper	—		9,573		—		9,573		—		—		—		—
Corporate bonds	—		4,802		—		4,802		—		—		—		—
Prepaid expenses and other current assets:
Forward foreign exchange contracts	—		2,904		—		2,904		—		6,083		—		6,083
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts	—		(30)		—		(30)		—		(62)		—		(62)
Total financial assets (liabilities)	$	398,059	$	19,703	$	—	$	417,762	$	414,942	$	6,021	$	—	$	420,963

See Note 5 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of the Company's 2025 Notes as of March 31, 2022.

NOTE 3:    LEASES

The Company has various operating leases for office space, vehicles and office equipment that expire through 2032. The lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Below is a summary of the Company's operating right-of-use assets and operating lease liabilities (in thousands):

	March 31, 2022
	(unaudited)
Operating right-of-use assets	$	61,351
Operating lease liabilities, current	$	(9,240)
Operating lease liabilities, long-term	(65,786)
Total operating lease liabilities	$	(75,026)

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

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

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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, 2022, are as follows (in thousands):

	March 31, 2022
	(unaudited)
2022	$	8,329
2023	11,527
2024	9,729
2025	9,767
2026	9,879
Thereafter	34,296
Total undiscounted lease payments	$	83,527
Less: Imputed interest	(8,501)
Present value of lease liabilities	$	75,026

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31, 2022:

Remaining lease term and discount rate:
Weighted average remaining lease term (years)	7.99
Weighted average discount rate	2.87	%

Total operating lease cost for the three months ended March 31, 2022 was $2,309, inclusive of sublease income of $100. Total operating lease cost for the three months ended March 31, 2021 was $1,440.

NOTE 4:    GOODWILL AND INTANGIBLE ASSETS

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

Goodwill

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

There were no additions, impairments or any other changes to the carrying amount of goodwill during the three months ended March 31, 2022 or during prior periods.

Intangible Assets

Total cost and amortization of intangible assets is comprised of the following (in thousands, except useful life):

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	Estimated Useful Life	March 31, 2022
Intangible assets, net	(in years)	(unaudited)
Developed technology & trademarks	4	$	6,110
Total intangible assets		6,110
Less: Accumulated amortization		2,179
Total intangible assets, net		$	3,931

Intangible assets are expensed on a straight-line basis over the useful life of the asset. The Company recorded amortization expense of $381 and $384 for the three months ended March 31, 2022 and 2021.

The following table summarizes estimated future amortization expense of our intangible assets as of March 31, 2022 (in thousands):

Years ending December 31,	Amount (unaudited)
2022	1,143
2023	1,525
2024	1,263
Total future amortization expense	$	3,931

NOTE 5:    CONVERTIBLE SENIOR NOTES AND CAPPED CALL TRANSACTIONS

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

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

The initial conversion rate for the 2025 Notes is 32.5668 shares of the Company’s common stock for each $1,000 principal amount of the 2025 Notes, which is equivalent to an initial conversion price of approximately $30.71 per share. The conversion rate is subject to adjustment in specified events. The 2025 Notes are convertible into shares of the Company’s common stock, at the option of a holder, prior to the close of business on the business day immediately preceding February 15, 2025, 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, 2022, 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, 2022 through June 30, 2022. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition. The Company has not received any conversion notices through the issuance date of our consolidated financial statements. Since the Company may elect to repay the 2025 Notes in cash, shares of our common stock, or a combination of both, it has continued to classify the 2025 Notes as long-term debt on its consolidated balance sheet as of March 31, 2022.

The 2025 Notes are not redeemable at the Company’s option prior to August 20, 2023. The Company may redeem the 2025 Notes for cash, at its option, subject to the terms and conditions provided in the Indenture.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2025 Notes into liability and equity components. The carrying amounts of the liability components of the 2025 Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the 2025 Notes. This difference represented the debt discount that was amortized to interest expense using the effective interest rate method. The carrying amount of the equity components representing the conversion option was approximately

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$31,779 for the 2025 Notes and were recorded in additional paid-in capital. In addition, the Company allocated transaction costs related to the issuance of the 2025 Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were approximately $6,857 and were being amortized to interest expense at an effective interest method rate of 4.51%. Transaction costs attributable to the equity component were approximately $985 and were netted with the equity component of the 2025 Notes in additional paid-in capital.

Following the adoption of ASU 2020-06 on January 1, 2022, which the Company elected to adopt using a modified retrospective approach, the Company no longer separates the 2025 Notes into liability and equity components. The cumulative effect of the accounting change as of January 1, 2022 was a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. Comparative prior year periods were not adjusted. In connection with the adoption, the Company calculated an effective interest rate of 1.87%.

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

	March 31, 2022
	(unaudited)
Principal	$	253,000
Unamortized issuance costs	(5,154)
Net carrying amount	$	247,846

The interest expense recognized related to the 2025 Notes for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Contractual interest expense	$	791	$	790
Amortization of debt discount	—		1,389
Amortization of debt issuance costs	369		300
Total	$	1,160	$	2,479

As of March 31, 2022, the total estimated fair value of the 2025 Notes was approximately $418,080. 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 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.

NOTE 6:    STOCKHOLDERS’ EQUITY

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a. Stock plans:

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

On November 14, 2013, the Company’s board of directors adopted the Varonis Systems, Inc. 2013 Omnibus Equity Incentive Plan (the “2013 Plan”) which was subsequently approved by the Company’s stockholders. The Company initially reserved 5,713,899 shares of common stock for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2013 Plan was increased on January 1, 2016 and has been, and will be, increased on each January 1 thereafter by four percent (4%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase (rounded down to the nearest whole share), but the amount of each increase will be limited to the number of shares of common stock necessary to bring the total number of shares of Common Stock available for grant and issuance under the 2013 Plan to five percent (5%) of the number of shares of common stock issued and outstanding on each December 31. Since January 1, 2016, the share reserve under the 2013 Plan has been automatically increased by an aggregate of 24,217,741 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.

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

A summary of employees’ stock options activities during the three months ended March 31, 2022 is as follows:

 

	Three Months Ended March 31, 2022 (unaudited)
	Number	Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding as of January 1, 2022	803,870	$	7.077	$	33,524	2.747
Granted	—	$	—
Exercised	(3,208)	$	7.123
Forfeited and expired	—	$	—
Options outstanding as of March 31, 2022	800,662	$	7.077	$	32,397	2.501
Options exercisable as of March 31, 2022	786,922	$	7.101	$	31,822	2.407

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, 2022 was $111. As of March 31, 2022, there was $418 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005 Plan, 2013 Plan and Polyrize Plan. This cost is expected to be recognized over a weighted-average period of approximately 1.594 years.

b. The options outstanding as of March 31, 2022 (unaudited) have been separated into ranges of exercise price as follows:

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Range of exercise price				Options outstanding as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options outstanding		Options exercisable as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options exercisable
$	4.157	—	5.682	224,661	2.712	$	4.883	210,921	2.377	$	4.821
$	6.503	—	8.077	430,099	2.311	$	7.111	430,099	2.311	$	7.111
		$9.960		120,180	2.896	$	9.960	120,180	2.896	$	9.960
		$13.287		25,722	1.975	$	13.287	25,722	1.975	$	13.287
				800,662	2.501	$	7.077	786,922	2.407	$	7.101

c. Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of March 31, 2022 (unaudited) were as follows:

 

	Number of options outstanding and exercisable as of March 31, 2022	Exercise price per share		Exercisable through
August 2013	4,500	$	7.047	August 2023
March 2014	4,650	$	13.287	March 2024
May 2014	3,000	$	7.337	May 2024
November 2014	7,500	$	7.220	November 2024
February 2016	3,000	$	5.623	February 2026
	22,650

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

A summary of RSUs and PSUs for employees, consultants and non-employee directors of the Company for the three months ended March 31, 2022 (unaudited) is as follows:

 

	Number of shares underlying outstanding RSUs and PSUs	Weighted- average grant date fair value
Unvested balance - January 1, 2022	7,726,125	$	42.53
Granted	3,366,541	$	43.20
Vested	(2,548,923)	$	32.66
Forfeited	(172,193)	$	46.28
Unvested balance – March 31, 2022	8,371,550	$	45.73

As of March 31, 2022, there was $344,959 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 2.696 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

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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 3,004,765 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 consolidated statements of operations as follows (in thousands):

 

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Cost of revenues	$	3,087	$	1,589
Research and development	12,600		7,158
Sales and marketing	13,096		7,742
General and administrative	7,215		4,890
Total	$	35,998	$	21,379

g. Common stock split:

On February 8, 2021, the Company announced a three-for-one split of its common stock to stockholders of record as of the close of business on March 12, 2021. Trading of the Company's common stock began on a split-adjusted basis on March 15, 2021.

h. Follow-on offering:

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

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 from licensing of software and sales of professional services, maintenance and technical support (see Note 1 above for a brief description of the Company’s business). The following is a summary of revenues within geographic areas (in thousands):

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	Three Months Ended March 31,
	2022		2021
	(unaudited)
Revenues based on customer’s location:
North America	$	69,141	$	52,806
EMEA (*)	24,209		20,234
Rest of World	2,911		1,745
Total revenues	$	96,261	$	74,785

(*)       Sales to customers in France did not exceed 10% of total revenues for the three months ended March 31, 2022 and accounted for 10.3% of total revenues for the three months ended March 31, 2021.

For the three months ended March 31, 2022 and 2021, 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 of		As of
	March 31, 2022		December 31, 2021
	(unaudited)
Long-lived assets by geographic region:
United States	$	42,142	$	43,317
Israel	40,854		40,169
Ireland	15,911		16,341
Other	1,939		2,220
	$	100,846	$	102,047

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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 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, 2021.

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 Digital Transformation

COVID-19 accelerated the global digital transformation, which, as it continues to gain traction across almost all industries, changes the way we live and work, and impacts how data is stored, managed and accessed. This transformation has fueled, and we expect will continue to fuel, the secular trends that drive demand for our products, including the shift to the cloud; increase in cybercrime; and compliance with data-driven regulations. These trends impact the way organizations operate and have increased our long-term opportunity to help our customers protect their data, detect threats and achieve regulatory compliance.

Companies around the world are focused on the elevated risks associated with having a highly distributed workforce collaborating on multiple platforms and we believe this trend will continue in the long-term and that we are well positioned to capitalize on the opportunity ahead. As companies of all sizes and industries are increasingly facing cyberattacks, they understand that a data-centric approach to security is critical and that the aforementioned elevated risks are here for the long-term. This has caused significant customer engagement which has converted into new business and expansion of existing business.

Overview

Varonis is a pioneer in data security and analytics, fighting a different battle than conventional cybersecurity companies. We are pioneers because more than 15 years ago we recognized that enterprise 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 both the global economy and the risk profiles of corporations and governments. This conviction has only strengthened over time. Since our founding, 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.

In 2021, we introduced an update to our platform to help customers combat insider and collaboration risks in Microsoft 365. The update increases insight into organization-wide exposures related to Microsoft 365, adds new threat detection capabilities in Azure AD, adds support for additional NAS solutions and versions, and enhances search granularity for locating sensitive and personal data. In the second half of 2021, we also launched DatAdvantage Cloud, introducing licenses and support for additional cloud applications and infrastructure, including AWS, Box, GitHub, Google Drive, Jira, Okta, Salesforce, Slack and Zoom. DatAdvantage Cloud helps customers visualize and prioritize their biggest cloud risks, proactively reduce their blast radius, and conduct faster cross-cloud investigations. Additionally, we introduced Data Classification Cloud for Google Drive and Box to help automatically identify sensitive information in these mission-critical Software-as-a-Service ("SaaS") applications. While we do not expect these products to meaningfully contribute to our 2022 financial performance, we

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believe they offer significant potential in extending the Varonis Data Security Platform to cloud applications where our customers continue to move sensitive data.

In the first quarter of 2022, we introduced more functionality to control sharing and collaboration in Microsoft 365, including new dashboards for visualizing data exposure from sharing links, expanded remediation capabilities for SharePoint Online and OneDrive sites, the ability to automatically label data in SharePoint and OneDrive and updated threat models to defend against the latest ransomware tactics. In addition, we continued to expand our capabilities in the cloud security space, adding SaaS Security Posture Management (SSPM) functionality to DatAdvantage Cloud to identify configuration risks and recommend appropriate remediation. This functionality expands DatAdvantage Cloud’s ability to find sensitive data across different SaaS applications, reveal who can access that data, and monitor for suspicious activity and threats.

In order to allow our customers to better unleash the power of our platform through faster adoption of our integrated products, we strategically shifted to a subscription-based business model. The transition has positioned us well for the future, and, although revenues are still primarily front-end loaded, they are more predictable and recurring in nature. For the three months ended March 31, 2022, more than 99% of our license revenues are subscriptions and more than 99% of our total revenues are recurring. We currently have over thirty-five licenses. As of March 31, 2022, 74% of our customers with 500 employees or more had purchased four or more licenses, compared to 66% a year ago, and 42% purchased six or more licenses, compared to 32% a year ago. Our maintenance renewal rate continued to be over 90% for the quarter ended March 31, 2022. Our key strategies to ensure and maintain a high subscription and maintenance renewal rate include focusing on the quality and reliability of our customer service and support to ensure our customers receive value from our products and providing software upgrades and enhancements when and if they are available.

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, energy and utilities, technology, consumer and retail, media and entertainment and education 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 believe there is a significant long-term growth opportunity in both domestic and foreign markets, which could include any organization that uses file shares, SaaS applications, intranets and email for collaboration. For the three months ended March 31, 2022, approximately 72% of our revenues were derived from North America, while approximately 25% of our revenues were derived from EMEA and approximately 3% from Rest of World (“ROW”). Additionally, total revenues grew approximately 29% for the three months ended March 31, 2022 compared with the three months ended March 31, 2021. We continue to expect sales growth in North America and international expansion to be key components of our long-term growth strategy.

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, 2022 and 2021, subscription revenues were $69.0 million and $45.1 million, respectively, representing year-over-year growth of 53%. For the three months ended March 31, 2022 and 2021, our total revenues were $96.3 million and $74.8 million, respectively, representing year-over-year growth of 29%. For the three months ended March 31, 2022 and 2021, we had operating losses of $48.1 million and $34.1 million and net losses of $48.8 million and $35.7 million, respectively.

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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 and maintenance contracts related to perpetual licenses in effect at the end of that period. Subscription license contracts and maintenance for perpetual license 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, 2022 and 2021, ARR was $404.5 million and $306.9 million, respectively, an increase of 32% 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 maintenance contracts is 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.

Components of Operating Results

Revenues

Our revenues consist of licenses and maintenance and services revenues.

Subscription Revenues. Subscription revenues are sold on-premises and are recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement. In 2021, we launched our cloud offering that allows customers to use hosted software, and its revenue is recognized ratably over the associated contract period. As we only introduced these licenses in the second half of 2021, the contribution to total revenues has not yet been significant, nor is it expected to be significant in 2022. In addition, given the nominal amount of perpetual license revenues due to the successful transition to a subscription model, these revenues, which are generally recognized with the license fee portion of the arrangement upon delivery as the benefit of the asset has transferred, are included within the subscriptions line of the consolidated statements of operations. Due to the timing of renewals and subscription renewal rates, we could produce significant variation in the revenues we recognize in a given period. We are focused on acquiring new subscription customers and increasing subscription revenues from our existing customers.

Maintenance and Services Revenues. Maintenance and services revenues consist of revenues from maintenance agreements of 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 maintenance renewal rate for our customers over a 12-month period, based on a dollar maintenance renewal rate for contracts expiring during that time period. Our maintenance renewal rate for each of the three months ended March 31, 2022 and 2021 continued to be over 90%. We have seen and expect to continue to see insignificant perpetual license revenues in the future and, therefore, we expect maintenance and support of perpetual licenses 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. Although professional services have always been a small percentage of our total revenues, we have recently seen, and expect to continue to see, that percentage decline as many of our newer licenses can provide remediation in more automated ways. As such, our overall maintenance and services revenues is also expected to continue to decline.

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

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	Three Months Ended March 31,
	2022		2021
	(as a percentage of total revenues)
Revenues:
Subscriptions	71.7	%	60.3	%
Maintenance and services	28.3		39.7
Total revenues	100.0	%	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 85 countries.

Cost of Revenues, Gross Profit and Gross Margin

Our cost of revenues consists of cost of maintenance and services revenues. Cost of maintenance and services 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 maintenance and services employees; amortization of acquired intangible assets; travel expenses; and allocated overhead costs for facilities, IT and depreciation. We recognize expenses related to maintenance and services as they are incurred. We expect that our cost of maintenance and services revenues will increase in absolute dollars as we continue to invest in our customer success and support teams and programs that play a critical role in our subscription-based business model and our overall renewals.

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.

Operating Expenses

Our 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, 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.

General and Administrative. General and administrative expenses mostly 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.

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Financial Income (Expenses), Net

Financial income (expenses), net consist primarily of foreign exchange gains or losses, amortization of debt discount and issuance costs, interest expense and interest income. 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. Other factors such as economic instability could also contribute to volatility in the global financial and foreign exchange markets, including volatility in the value of Pounds Sterling, Euros and other currencies. Amortization of debt discount and issuance costs relate to the 2025 Notes we issued in May 2020 and the Credit Facility we entered into in August 2020. Interest expense consists of the contractual interest expenses associated with the 2025 Notes. Interest income represents interest received on our cash, cash equivalents, marketable securities and deposits.

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. To date, on a consolidated basis, we have incurred accumulated net losses and have not recorded any U.S. federal tax provision.

Because of our history of U.S. net operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards, in that jurisdiction. 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 tax audits 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.

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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following tables are a summary of our consolidated statements of operations for the three months ended March 31, 2022 and 2021 in dollars and as a percentage of our total revenues.

 

	Three Months Ended March 31,
	2022		2021
	(unaudited) (in thousands)
Statement of Operations Data:
Revenues:
Subscriptions	$	68,985	$	45,114
Maintenance and services	27,276		29,671
Total revenues	96,261		74,785
Cost of revenues	17,809		13,482
Gross profit	78,452		61,303
Operating expenses:
Research and development	43,570		30,062
Sales and marketing	64,787		51,493
General and administrative	18,180		13,823
Total operating expenses	126,537		95,378
Operating loss	(48,085)		(34,075)
Financial income (expenses), net	736		(1,022)
Loss before income taxes	(47,349)		(35,097)
Income taxes	(1,414)		(559)
Net loss	$	(48,763)	$	(35,656)

 

	Three Months Ended March 31,
	2022		2021
	(as a percentage of total revenues)
Statement of Operations Data:
Revenues:
Subscriptions	71.7	%	60.3	%
Maintenance and services	28.3		39.7
Total revenues	100.0		100.0
Cost of revenues	18.5		18.0
Gross profit	81.5		82.0
Operating expenses:
Research and development	45.3		40.2
Sales and marketing	67.3		68.9
General and administrative	18.9		18.5
Total operating expenses	131.5		127.6
Operating loss	(50.0)		(45.6)
Financial income (expenses), net	0.8		(1.3)
Loss before income taxes	(49.2)		(46.9)

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Income taxes	(1.5)		(0.8)
Net loss	(50.7)	%	(47.7)	%

Revenues

 

	Three Months Ended March 31,
	2022		2021		% Change
	(unaudited) (in thousands)
Revenues:
Subscriptions	$	68,985	$	45,114	52.9	%
Maintenance and services	27,276		29,671		(8.1)	%
Total revenues	$	96,261	$	74,785	28.7	%

 

	Three Months Ended March 31,
	2022		2021
	(as a percentage of total revenues)
Revenues:
Subscriptions	71.7	%	60.3	%
Maintenance and services	28.3	%	39.7	%
Total revenues	100.0	%	100.0	%

Subscription revenues increased 53% from $45.1 million for the three months ended March 31, 2021 to $69.0 million for the three months ended March 31, 2022. The increase in subscription revenues was driven by existing customers expanding their licenses, new customer acquisitions and our high subscription renewal rate. Total revenues increased approximately 29% for the three months ended March 31, 2022 as compared to 2021. ARR was $404.5 million and $306.9 million as of March 31, 2022 and 2021, respectively, representing an increase of 32%. The anticipated decrease in maintenance and services revenues was due to insignificant new perpetual licenses revenue despite our maintenance renewal rate continuing to be over 90% for each of the three months ended March 31, 2022 and 2021, as well as, newer licenses 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. As of March 31, 2022, 74% of our customers with 500 employees or more had purchased four or more licenses, compared to 66% a year ago, and 42% purchased six or more licenses, compared to 32% a year ago.

Cost of Revenues and Gross Margin

 

	Three Months Ended March 31,
	2022		2021		% Change
	(unaudited) (in thousands)
Cost of revenues	$	17,809	$	13,482	32.1	%

 

	Three Months Ended March 31,
	2022		2021
	(as a percentage of total revenues)
Total gross margin	81.5	%	82.0	%

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The increase in cost of revenues was primarily related to an increase of $3.7 million in salaries and benefits and stock-based compensation expense due to increased headcount for customer success and support personnel to ensure high customer satisfaction and maintain our strong renewal rates. The increase was also due to a $0.6 million increase in facilities and allocated overhead costs.

Operating Expenses

 

	Three Months Ended March 31,
	2022		2021		% Change
	(unaudited) (in thousands)
Operating expenses:
Research and development	$	43,570	$	30,062	44.9	%
Sales and marketing	64,787		51,493		25.8	%
General and administrative	18,180		13,823		31.5	%
Total operating expenses	$	126,537	$	95,378	32.7	%

	Three Months Ended March 31,
	2022		2021
	(as a percentage of total revenues)
Operating expenses:
Research and development	45.3	%	40.2	%
Sales and marketing	67.3	%	68.9	%
General and administrative	18.9	%	18.5	%
Total operating expenses	131.5	%	127.6	%

The increase in research and development expenses was primarily related to an increase of $11.9 million in salaries and benefits and stock-based compensation expense resulting from increased headcount as part of our focus on enhancing and developing our existing and new products. The increase was also due to a $1.4 million increase in facilities and allocated overhead costs.

The increase in sales and marketing expenses was primarily related to a $11.3 million increase in salaries and benefits and stock-based compensation expense due to increased headcount to expand our sales force and commissions on increased customer orders. The increase was also due to a $1.2 million increase in facilities and allocated overhead costs.

The increase in general and administrative expenses was primarily related to an increase of $3.2 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business. The increase was also due to a $1.0 million increase in other expenses and facilities and allocated overhead costs.

Financial Income (Expenses), Net

 

	Three Months Ended March 31,
	2022		2021		% Change
	(unaudited) (in thousands)
Financial income (expenses), net	$	736	$	(1,022)	172.0	%

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The increase in financial income (expenses), net was primarily due to a decrease in the amortization of debt discount costs on our convertible senior notes as a result of our adoption of ASU 2020-06 on January 1, 2022.

Income Taxes

 

	Three Months Ended March 31,
	2022		2021		% Change
	(unaudited) (in thousands)
Income taxes	$	(1,414)	$	(559)	(153.0)	%

Income taxes for the three months ended March 31, 2022 and 2021, including the increase in income taxes, were comprised primarily of 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,
	2022		2021
	(unaudited) (in thousands)
Net cash provided by operating activities	$	24,542	$	20,383
Net cash used in investing activities	(31,870)		(4,845)
Net cash provided by (used in) financing activities	(22,714)		503,976
Increase (decrease) in cash and cash equivalents	$	(30,042)	$	519,514

On March 31, 2022, our cash and cash equivalents and marketable securities of $804.1 million were held for working capital purposes and were invested primarily in money market funds. We have proactively taken steps to increase available cash, including, but not limited to, issuing a follow-on equity offering and the 2025 Notes, and we believe that our existing cash and cash equivalents, marketable securities 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 subscription 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, if any.

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, noncash operating lease costs and amortization of debt discount and issuance costs, 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 revenues which represents unearned amounts billed to our channel partners, related to these sales.

For the three months ended March 31, 2022, cash inflows from our operating activities were $24.5 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 revenue 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

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31, 2022, sources of cash inflows were from changes in our working capital, including a $53.6 million decrease in accounts receivable. Our days’ sales outstanding (“DSO”) for the three months ended March 31, 2022 was 63. Other sources of cash inflows were from a $0.4 million decrease in other long-term assets and a $0.1 million increase in other long-term liabilities. This was partially offset by $1.3 million from our net loss excluding non-cash charges, a $12.5 million decrease in accrued expenses and other liabilities, a $9.5 million increase in prepaid expenses and other current assets (including deferred commissions), a $5.6 million decrease in deferred revenues and a $0.6 million decrease in trade payables.

For the three months ended March 31, 2021, cash inflows from our operating activities were $20.4 million. For the three months ended March 31, 2021, sources of cash inflows were from changes in our working capital, including a $42.9 million decrease in accounts receivable. Our DSO for the three months ended March 31, 2021 was 69. Additional sources of cash inflows were from a $0.9 million decrease in other long-term assets. This was partially offset by $3.8 million from our net loss excluding non-cash charges, a $7.6 million decrease in deferred revenues, a $5.5 million increase in prepaid expenses and other current assets (including deferred commissions), a $5.0 million decrease in accrued expenses and other liabilities, a $1.2 million decrease in other long-term liabilities and a $0.2 million decrease in trade payables.

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, 2022, net cash used in investing activities of $31.9 million was primarily attributable to investments of $28.4 million in marketable securities and $3.5 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.

During the three months ended March 31, 2021, net cash used in investing activities of $4.8 million was primarily attributable to a $12.2 million increase in short-term deposits 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 new office space. This was partially offset by a $6.0 million decrease in marketable securities and a $2.5 million decrease in long-term deposits.

Financing Activities

For the three months ended March 31, 2022, net cash used in financing activities of $22.7 million was attributable to $28.8 million in taxes paid related to net share settlement of equity awards, partially offset by $6.1 million of proceeds from employee stock plans.

For the three months ended March 31, 2021, net cash provided by financing activities of $504.0 million was attributable to $500.0 million of net proceeds from a public follow-on offering of equity and $4.7 million of proceeds from employee stock plans. This was partially offset by $0.7 million in taxes paid related to net share settlement of equity awards.

Revolving Credit Facility

On August 21, 2020, we entered into the Credit and Security Agreement, for a three-year secured revolving credit facility of $70.0 million. For information regarding the revolving credit facility, refer to Note 1 of our consolidated financial statements.

As of March 31, 2022, we had no balance outstanding on the Credit Facility and we were in compliance with all financial covenants and non-financial covenants.

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 consolidated financial statements.

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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, 2022 for the upcoming years were as follows:

	Payments Due by Period
	2022		2023		2024		2025		2026		Thereafter		Total
	(in thousands)
Operating lease obligations	$	8,329	$	11,527	$	9,729	$	9,767	$	9,879	$	34,296	$	83,527

We have obligations related to unrecognized tax benefit liabilities totaling $10.3 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.

Off-Balance Sheet Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of 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 the accounting policies discussed below 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

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

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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, 2022 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 and Australian dollar. Our foreign currency expenses consist primarily of personnel and overhead costs from our international operations. Our 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 2022, 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 consolidated financial statements.

For purposes of our 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.

Historically, we have used derivative financial instruments, specifically foreign currency forward contracts, to manage exposure to foreign currency risks, by hedging a portion of our forecasted expenses denominated in NIS generally expected to occur within 12 months. 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 which impacts financial income (expenses), net. We do not use derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

We had cash and cash equivalents and marketable securities of $804.1 million as of March 31, 2022. We hold our cash and cash equivalents and marketable securities for working capital purposes. Our cash and cash equivalents are held primarily in cash deposits and money market funds. 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 10% change in interest rates would not have a material impact on our 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 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. 

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As of March 31, 2022, we had no outstanding obligations under our credit facility. 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, 2022 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 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 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. Some of the more significant risks relating to our business include:

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•Risks Related to the Industry in which we Operate, including (i) potential limited growth ability of the market for enterprise software; (ii) prolonged economic uncertainties or downturns; (iii) increased competition in our market; and (iv) a failure to comply with legal requirements, contractual obligations and industry standards regarding security, data protection and privacy to which we are subject.

•Risks Related to our Operations, including (i) security breaches, cyberattacks or other cyber-risks of our IT systems; (ii) fluctuation in our quarterly results of operations due to variability in our revenues; (iii) a failure of our subscription-based business model to yield the benefits that we expect; (iv) the effects of COVID-19 on our business and our customers; (v) a decline or fluctuation in our customer renewal rates; (vi) a failure to manage our business growth effectively; (vii) difficulties in evaluating and predicting our future prospects and our ability to forecast our future operating results; (viii) our inability to attract new customers and expand sales to existing customers, both domestically and internationally; (ix) our inability to be profitable in the future; (x) our inability to maintain successful relationships with our channel partners; (xi) collection and credit risks; (xii) substantial currency exchange rates fluctuations; (xiii) a failure to maintain or enhance our brand recognition or reputation; (xiv) a failure to maintain and increase our sales to customers in the public sector; (xv) a failure to meet applicable export and import controls which could subject us to liability or impair our ability to compete in international markets; (xvi) an increase in risks associated with our international activities in countries with a history of corruption and where we have transactions with foreign governments; and (xvii) risks associated with acquisitions of other entities or business.

•Risks Related to Human Capital, including (i) a failure to maintain sales and marketing personnel productivity and a failure to hire and integrate additional sales and marketing personnel; (ii) a failure to retain, attract and recruit highly qualified personnel; and (iii) cessation of our co-founder, Chief Executive Officer and President’s services.

•Risks Related to our Technology, Products, Services and Intellectual Property, including (i) a failure to continually enhance and improve our technology; (ii) our customers' decision not to renew their subscription licenses or maintenance and support agreements or not buy additional products in the future; (iii) a failure of the products in our platform to achieve increased market acceptance; (iv) interruptions or performance problems, including to our website or support website; (v) security breach of our software; (vi) our use of open source software, which could negatively affect our ability to sell our software and subject us to possible litigation; (vii) false detection of security breaches, false identification of malicious sources or misidentification of sensitive or regulated information; and (viii) a failure to protect our proprietary technology and intellectual property rights.

•Risks Related to our Tax Regime, including (i) a significant change in our effective tax rate; (ii) our ability to fully utilize our net operating loss carryforwards; (iii) our provision for income taxes or adverse outcomes resulting from examination of our income tax returns; and (iv) the enactment of tax legislation changes.

•Risks Related to our 2025 Notes and Credit Facility, including (i) a decrease in our business flexibility and access to capital and increase of our borrowing costs; (ii) our ability to raise additional capital and burden on our future cash resources, particularly if we elect to settle our debt obligations in cash upon conversion or upon maturity or required repurchase; (iii) dilution of our existing stockholders and a potentially adverse impact to the market price of our common stock due to the issuance of shares in connection with conversion of the 2025 Notes; (iv) a delay or preventing of takeover attempt of the Company due to certain provisions under the 2025 Notes; (v) an adverse effect on the value of the 2025 Notes and our common stock due to the capped call transactions; and (vi) the default of all or some of the financial institutions which are counterparties to the capped call transactions, which may cause the protection under the capped call transactions to be unavailable.

•Risks Related to our International Operations, including (i) international conflicts and business conditions, which may limit our ability to develop and sell our products and (ii) unavailability of or failure to meet certain conditions to receive certain tax benefits which were available to our Israeli subsidiary.

•Risks Related to the Ownership of our Common Stock, including (i) substantial future sales of shares of our common stock; (ii) volatility in the price of our common stock; (iii) our intention to not pay dividends on our common stock; and (iv) anti-takeover provisions in our charter documents and under Delaware law and provisions in the indenture for our 2025 Notes and Credit Facility, which may discourage the acquisition of our Company and attempts by our stockholders to replace or remove our current management.

•General Risk Factors, including (i) real or perceived errors, failures or bugs in our software; (ii) the lack of available capital on acceptable terms to support our business growth; (iii) risks of fire, power outages, floods, earthquakes, pandemics and other catastrophic events, and interruption by manmade problems such as terrorism; (iv) changes in financial accounting standards which may adversely impact our reported results of operations; (v) publishing of

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negative reports about our business; (vi) internal controls over financial reporting which might be determined to be ineffective; and (vii) dilution of the percentage ownership of our stockholders which could cause our stock price to decline, due to future sales and issuances of our capital stock or rights to purchase capital stock.

Risks Related to the Industry in which we Operate

The market for software that analyzes, secures, governs, manages and migrates enterprise data may not continue to grow at the same pace.

We believe our future success depends in large part on the continued growth of the market for software that enables enterprises to analyze, secure, govern, manage and migrate their data. In order for us to market and sell our products, we must successfully demonstrate to enterprise IT, security and business personnel the potential value of their data and the risk of that data getting compromised or stolen. Despite a number of recent high-profile cyberattacks around the world, we must still persuade them to devote a portion of their budgets to a unified platform that we offer to analyze, secure, govern, manage and extract value from this resource. We cannot provide any assurance that enterprises will recognize the need for our products or, if they do, that they will decide that they need a solution that offers the range of functionalities that we offer. Software solutions focused on enterprise data may not yet be viewed as a necessity, and accordingly, our sales effort is and will continue to be focused in large part on explaining the need for, and value offered by, our solution. We can provide no assurance that the market for our solution will continue to grow at its current rate or at all. The failure of the market to continue to develop would materially adversely impact our results of operations.

Prolonged economic uncertainties or downturns could materially adversely affect our business.

Our business depends on our current and prospective customers’ ability and willingness to invest in IT services, including cybersecurity projects, which in turn is dependent upon their overall economic health. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from COVID-19, changes in gross domestic product growth, potential future government shutdowns, the federal government's failure to raise the debt ceiling, financial and credit market fluctuations, inflationary pressure and a higher interest rate environment, the imposition of trade barriers and restrictions such as tariffs, political deadlock, restrictions on travel, natural catastrophes, warfare, including geopolitical turmoil and sanctions caused by the war between Russia and Ukraine, and terrorist attacks, could cause a decrease in business investments, including corporate spending on enterprise software in general and negatively affect the rate of growth of our business.

Uncertainty in the global economy makes it extremely difficult for our customers and us to forecast and plan future business activities accurately. This could cause our customers to reevaluate decisions to purchase our product or to delay their purchasing decisions, which could lengthen our sales cycles.

A downturn in any of our leading industries, or a reduction in any revenue-generating vertical, may cause enterprises to react to worsening conditions by reducing their spending on IT. Customers may delay or cancel IT projects, choose to focus on in-house development efforts or seek to lower their costs by renegotiating maintenance and support agreements. To the extent purchases of licenses for our software are perceived by customers and potential customers to be discretionary, our revenues may be disproportionately affected by delays or reductions in general IT spending. In addition, consolidation in certain industries may result in reduced overall spending on our software. If the economic conditions of the general economy or industries in which we operate worsen from present levels, our business, results of operations and financial condition could be adversely affected.

We may face increased competition in our market.

While there are some companies which offer certain features similar to those embedded in our solutions, as well as others with whom we compete in certain tactical use cases, we believe that we do not currently compete with a company that offers the same breadth of functionalities that we offer. Nevertheless, we do compete against a select group of software vendors that provide standalone solutions, similar to those found in our comprehensive software suite, in the specific markets in which we operate. We also face direct competition with respect to certain of our products, specifically Data Transport Engine, DatAnswers and DatAdvantage for Directory Services. As we continue to augment our functionality with insider threat detection and user behavior analytics and as we expand our classification capabilities to better serve compliance needs, such as GDPR, CCPA and other data privacy laws, we may face increased perceived and real competition from other security and classification technologies. As we expand our coverage and penetration in the cloud, we may face increased perceived and real competition from other cloud-focused technologies. In the future, as customer requirements evolve and new technologies are introduced, we may experience increased competition if established or emerging companies develop solutions that address the

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enterprise data market. Furthermore, because we operate in an evolving area, we anticipate that competition will increase based on customer demand for these types of products.

In particular, if a more established company were to target our market, we may face significant competition. They may have competitive advantages, such as greater name recognition, larger sales, marketing, research and acquisition resources, access to larger customer bases and channel partners, a longer operating history and lower labor and development costs, which may enable them to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than we do. Increased competition could result in us failing to attract customers or maintain licenses at the same rate. It could also lead to price cuts, alternative pricing structures or the introduction of products available for free or a nominal price, reduced gross margins, longer sales cycles, lower renewal rates and loss of market share.

In addition, our current or prospective channel partners may establish cooperative relationships with future competitors. These relationships may allow future competitors to rapidly gain significant market share. These developments could also limit our ability to obtain revenues from existing and new customers.

Our ability to compete successfully in our market will also depend on a number of factors, including ease and speed of product deployment and use, the quality and reliability of our customer service and support, total cost of ownership, return on investment and brand recognition. Any failure by us to successfully address current or future competition in any one of these or other areas may reduce the demand for our products and adversely affect our business, results of operations and financial condition.

We are subject to a number of legal requirements, contractual obligations and industry standards regarding security, data protection and privacy, and any failure to comply with these requirements, obligations or standards could have an adverse effect on our reputation, business, financial condition and operating results.

Privacy and data information security have become a significant issue in the United States and in many other countries where we have employees and operations and where we offer licenses to our products. The regulatory framework for privacy and personal information security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. The U.S. federal and various state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations limiting, or laws and regulations regarding, the collection, distribution, use, disclosure, storage and security of personal information. For example, the CCPA, which went into effect on January 1, 2020, requires, among other things, covered companies to provide new disclosures to California consumers and afford such consumers new abilities to opt-out of certain sales of personal information. Notably, the CCPA was expanded by the California Privacy Rights Act on November 3, 2020, and will impose additional obligations on businesses relating to personal information beginning on January 1, 2023, with enforcement beginning on July 1, 2023. In addition, Virginia recently enacted the Virginia Consumer Data Protection Act and Colorado recently enacted the Colorado Privacy Rights Act that take effect on January 1, 2023 and July 1, 2023, respectively.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of data that identifies or may be used to identify or locate an individual, such as names, email addresses and, in some jurisdictions, Internet Protocol addresses. These laws and regulations often are more restrictive than those in the United States and are rapidly evolving. For example, the European Union's ("EU") data protection regime, the GDPR, became enforceable on May 25, 2018. Additionally, the United Kingdom enacted legislation in May 2018 that substantially implements the GDPR, but the United Kingdom’s exit from the EU (which formally occurred on January 31, 2020), commonly referred to as “Brexit," has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, the United Kingdom’s government has announced that it is considering revising some aspects of its domestic data protection regime to move further away from the EU approach, and it is unclear how the two regimes will interact after that. In addition, the United Kingdom is reviewing its data transfer rules with respect to transfers to the United States and other jurisdictions. This may result in substantively different compliance obligations with respect to transfers of personal data out of the United Kingdom and the EU, respectively. Complying with the GDPR or other laws, regulations or other obligations relating to privacy, data protection or information security may cause us to incur substantial operational costs or require us to modify our data handling practices. Non-compliance could result in proceedings against us by governmental entities or others, could result in substantial fines or other liability and may otherwise adversely impact our business, financial condition and operating results.

Some statutory requirements, both in the United States and abroad, include obligations of companies to notify individuals of security breaches involving particular personal information, which could result from breaches experienced by us or our service providers. Even though we may have contractual protections with our service providers, a security breach could impact our

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reputation, harm our customer confidence, hurt our sales or cause us to lose existing customers and could expose us to potential liability or require us to expend significant resources on data security and in responding to such breach.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. We also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection and information security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, contractual obligations and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of laws and other obligations relating to privacy and data protection are still uncertain, it is possible that these laws and other obligations may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our software. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new features could be limited. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.

Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy and personal information security concerns, whether valid or not valid, may inhibit market adoption of our products particularly in certain industries and foreign countries.

Risks Related to Our Operations

Security breaches, cyberattacks or other cyber-risks of our IT and production systems could expose us to significant liability and cause our business and reputation to suffer and harm our competitive position.

Our corporate infrastructure stores and processes our sensitive, proprietary and other confidential information (including as related to financial, technology, employees, marketing, sales, etc.) which is used on a daily basis in our operations. In addition, our software involves transmission and processing of our customers' confidential, proprietary and sensitive information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. Being a leading pioneer in the cyber industry, we may be an attractive target for cyber attackers or other data thieves.

High-profile cyberattacks and security breaches have increased in recent years, with the potential for such acts heightened as a result of the number of employees working remotely due to COVID-19. Security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting IT products and enterprise infrastructure. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and often are not recognized until launched against a specific target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As we continue to increase our client base and expand our brand, we may become more of a target for third parties seeking to compromise our security systems and we anticipate that hacking attempts and cyberattacks will increase in the future. We cannot give assurance that we will always be successful in preventing or repelling unauthorized access to our systems. We also may face delays in our ability to identify or otherwise respond to any cybersecurity incident or any other breach. Additionally, we use third-party service providers to provide some services to us that involve the storage or transmission of data, such as SaaS, cloud computing, and internet infrastructure and bandwidth, and they face various cybersecurity threats and also may suffer cybersecurity incidents or other security breaches. Despite our security measures, our IT and infrastructure may be vulnerable to attacks. Threats to IT security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, continuously undertake attacks that pose threats to our customers and our IT. These actors may use a wide variety of methods, which may include developing and deploying malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to attack our products and services or gain access to our networks, using social engineering techniques to induce our employees, users, partners, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users’ or customers’ data, or acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. Inadequate account security practices may also result in unauthorized access to confidential and/or sensitive data.

Security risks, including, but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, theft of intellectual property, theft of internal employee’s PII/PHI information, theft of financial data and financial reports, loss or corruption of customer data and computer hacking attacks or other cyberattacks, could require us to expend significant capital and other resources to alleviate the problem and to improve technologies, may impair our ability to provide services to

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our customers and protect the privacy of their data, may result in product development delays, may compromise confidential or technical business information, may harm our competitive position, may result in theft or misuse of our intellectual property or other assets and could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses, costs for remediation and incentives offered to affected parties, including customers, other business partners and employees, in an effort to maintain business relationships after a breach or other incident, and other liabilities. We are continuously working to improve our IT systems, together with creating security boundaries around our critical and sensitive assets. We provide advanced security awareness training to our employees and contractors that focuses on various aspects of the cybersecurity world. All of these steps are taken in order to mitigate the risk of attack and to ensure our readiness to responsibly handle any security violation or attack. However, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed, we could lose potential sales and existing customers, our ability to operate our business could be impaired, we may incur significant liabilities, we could suffer harm to our reputation and competitive position, and our operating results could be negatively impacted.

Our quarterly results of operations have fluctuated and may fluctuate significantly due to variability in our revenues which could adversely impact our stock price.

Our revenues and other results of operations have fluctuated from quarter to quarter in the past and could continue to fluctuate in the future partially due to the front-loaded revenue recognition nature of our business. Additionally, we have a limited operating history under our subscription model, which makes it difficult to forecast our results. As a result, comparing our revenues and results of operations on a period-to-period basis may not be meaningful, and should not be relied on for any particular past quarter or other period results. Our revenues depend in part on the conversion of enterprises that have undergone risk assessments, which can be and are frequently performed remotely, into paying customers; however, these risk assessments may not be converted at the same historical rates. At the same time, the majority of our sales are typically made during the last three weeks of every quarter. We may fail to meet market expectations for that quarter if we are unable to close the number of transactions that we expect during this short period and closings are deferred to a subsequent quarter or not closed at all. In addition, our sales cycle from initial contact to delivery of and payment for the software license generally becomes longer and less predictable with respect to large transactions and often involves multiple meetings or consultations at a substantial cost and time commitment to us. The closing of a large transaction in a particular quarter may raise our revenues in that quarter and thereby make it more difficult for us to meet market expectations in subsequent quarters and our failure to close a large transaction in a particular quarter or any renewals may adversely impact our revenues in that quarter. Moreover, we base our current and future expense levels on our revenue forecasts and operating plans, and our expenses are relatively fixed in the short-term. Accordingly, we would likely not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues and even a relatively small decrease in revenues could disproportionately and adversely affect our financial results for that quarter.

The variability and unpredictability of these and other factors, many of which are outside of our control, could result in our failing to meet or exceed financial expectations for a given period and may cause the price of our common stock to decline substantially.

If our subscription-based business model fails to continue yielding the benefits that we have achieved to date, our results of operations could be negatively impacted.

We have completed our transition to a subscription-based business model, but it is uncertain whether the benefits we have achieved will continue. Market acceptance of our products is dependent on our ability to include functionality and usability that address certain customer requirements. Additionally, we must optimally price our products in light of marketplace conditions, our costs and customer demand. At the start of the transition, we suffered a negative revenue and earnings impact, including on our quarterly results of operations. Such negative implications might return if we are unable to achieve the renewals we anticipate, either at all or on a timely basis.

This subscription strategy may give rise to a number of risks, including the following:

• our revenues and cash flows may fluctuate more than anticipated over the short-term as a result of this strategy;

• if our customers do not renew their subscriptions or do not renew them on a timely basis, our revenues may decline and our business may suffer;

• the shift to a subscription strategy may raise, and has raised, concerns among our customer base, including concerns regarding changes to pricing over time;

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• we may be unsuccessful in maintaining or implementing our target pricing or new pricing models, product adoption and projected renewal rates, or we may select a target price or new pricing model that is not optimal and could negatively affect our sales or earnings; and

• our sales force may struggle with the additional requirements of selling subscription renewals which may lead to increased turnover rates and lower headcount.

The global COVID-19 pandemic could have harmful effects on our business and results of operations.

The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations. Many jurisdictions have required mandatory business closures, or imposed capacity limitations and other restrictions affecting our operations. Extended restrictions or closures may adversely affect economies and financial markets globally. Our operations, and the operations of our customers and partners, have been disrupted and may continue to be so for a period of time that cannot currently be predicted.

The move to remote working has not to date materially impacted our business operations and research and development activity; however, if our employees are not able to continue working effectively as a result of the COVID-19 pandemic, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. Further, as recently seen in many places around the world, remote and hybrid work arrangements increase the risk of cybersecurity incidents, data breaches or cyberattacks, which could have a material adverse effect on our business and results of operations if it were to happen to us, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government imposed penalty. While the move to remote working and virtual-only customer experience has not to date adversely impacted our sales, we have had to postpone or cancel customer and industry events or conduct them virtually, and we cannot predict with certainty the impact these changes may have on our sales.

Additionally, concerns over the economic impact of COVID-19 could cause extreme volatility in financial and other capital markets which have temporarily adversely impacted, and may in the future adversely impact, our stock price.

Overall, the pandemic gives rise to a number of risks, including, but not limited to, the following:

• our ability to expand within our existing customer base, including through the adoption of additional licenses;

• reduced economic activity which could lead to a prolonged recession, which could negatively impact consumer discretionary spending and in return could severely impact our business operations, financial condition and liquidity;

• our ability to continue to show the positive trends at the levels we have shown in the last several quarters for certain key performance metrics, such as renewal rates and annual recurring revenues;

• negatively affect our customer success efforts, our ability to enter into new markets and our ability to acquire new customers, in part due to potentially lower conversion rates on risk assessments and delay and lengthen our sales cycles due to virtual meetings;

• a reduction in the number of users as customers terminate and furlough employees;

• an increase in bad debt reserves as customers face economic hardship and collectability becomes more uncertain, including the risk of bankruptcies;

• our ability to timely retain, attract and recruit employees and effectively train our existing employees;

• a reduction in our operating effectiveness, employee productivity, sales and marketing efforts, as our employees work from home;

• variability with forward-looking guidance and financial results, including management's accounting estimates and assumptions;

• potential negative impact on the health of our personnel and staff, particularly if a significant number of them are impacted, which could result in a deterioration in our ability to ensure business continuity during this disruption;

• our ability to remotely develop new products and enhance existing products; and

• our ability to raise capital.

These factors may make it more difficult for us to gain new customers and to expand within our existing customer base. While our revenues increased for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, we may face future difficulties in gaining new customers and expanding within our existing customer base.

The challenges posed by and the full impact of the pandemic on our business and our future performance is difficult to predict and there is a risk that any guidance we provide to the market may turn out to be incorrect.

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We may not be able to predict subscription renewal rates and their impact on our future revenues and operating results.

Although our subscription solutions are designed to increase the number of customers that purchase our solutions and the number of products purchased by existing and new customers to create a recurring revenue stream that increases and is more predictable over time, our customers are not required to renew their subscriptions for our solutions and they may elect not to renew when, or as we expect, or they may elect to reduce the scope of their original purchases or delay their purchase. We cannot accurately predict renewal rates given our varied customer base of enterprise and small and medium size business customers and the number of multiyear subscription contracts. Customer renewal rates may decline or fluctuate due to a number of factors, including offering pricing, competitive offerings, customer satisfaction and reductions in customer spending levels or customer activity due to economic downturns, the adverse impact of import tariffs, inflation, the pandemic or other market uncertainty. If our customers do not renew their subscriptions when or as we expect, or if they choose to renew for fewer subscriptions (in quantity or products) or renew for shorter contract lengths or if they renew on less favorable terms, our revenues and earnings may decline, and our business may suffer.

We have been growing and expect to continue to invest in our growth for the foreseeable future. If we fail to manage this growth effectively, our business and results of operations will be adversely affected.

We intend to continue to grow our business and plan to continue to hire new sales employees either for expansion or replacement of existing sales personnel. If we cannot adequately and timely hire new employees and if we fail to adequately train these new employees, including our sales force, engineers and customer support staff, which processes have become more challenging during the COVID-19 period, our sales may not grow at the rates we project and/or our sales productivity might suffer, our customers might decide not to renew or reduce the scope of their original purchases, or our customers may lose confidence in the knowledge and capability of our employees or products. We must successfully manage our growth to achieve our objectives. Although our business has experienced significant growth in the past, we cannot provide any assurance that our business will continue to grow at the same rate, or at all.

Our ability to effectively manage any significant growth of our business will depend on a number of factors, including our ability to do the following:

• adequately and timely recruit, train, motivate and integrate new employees, including our sales force and engineers, while retaining existing employees, maintaining the beneficial aspects of our corporate culture and effectively executing our business plan;

• satisfy existing customers and attract new customers;

• successfully manage and integrate any future acquisitions of businesses, including without limitation, the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies;

• successfully introduce new products and enhancements;

• effectively manage existing channel partnerships and expand to new ones;

• improve our key business applications and processes to support our business needs;

• enhance information and communication systems to ensure that our employees and offices around the world are well-coordinated and can effectively communicate with each other and our growing customer base;

• enhance our internal controls to ensure timely and accurate reporting of all of our operations and financial results;

• protect and further develop our strategic assets, including our intellectual property rights; and

• continue to capitalize on the transition to a subscription-based business model.

These activities will require significant investments and allocation of valuable management and employee resources, and our growth will continue to place significant demands on our management and our operational and financial infrastructure. There are no guarantees we will be able to grow our business in an efficient or timely manner, or at all. Moreover, if we do not effectively manage the growth of our business and operations, the quality of our software could suffer, which could negatively affect our brand, results of operations and overall business.

We have a limited operating history at our current scale, which makes it difficult to evaluate and predict our future prospects and may increase the risk that we will not be successful.

We have a relatively short history operating our business at its current scale. For example, we have increased the number of our employees and have expanded our operations and product offerings. This limits our ability to forecast our future operating results and subjects us to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in new markets that may not develop as expected. Because we depend in part on the market’s acceptance of our products, it is difficult to evaluate trends that may affect our business. If our assumptions regarding these trends and uncertainties, which we use to

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plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer. Moreover, although we have experienced significant growth historically, we may not continue to grow as quickly in the future.

Our future success will depend in large part on our ability to, among other things:

• continue to reap the benefits from the transition to a subscription-based model;

• maintain and expand our business, including our customer base and operations, to support our growth, both domestically and internationally;

• our ability to successfully manage and integrate any acquisitions of businesses;

• develop new products and services and bring products and services in beta to market;

• renew subscription and maintenance and support agreements with, and sell additional products to, existing customers;

• maintain high customer satisfaction and ensure quality and timely releases of our products and product enhancements;

• increase market awareness of our products and enhance our brand;

• maintain compliance with applicable governmental regulations and other legal obligations, including those related to intellectual property, international sales and taxation; and

• hire, integrate, train and retain skilled talent, including members of our sales force and engineers.

If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those described elsewhere in this “Risk Factors” section, our business will be adversely affected, and our results of operations will suffer.

If we are unable to attract new customers and expand sales to existing customers, both domestically and internationally, our growth could be slower than we expect, and our business may be harmed.

Our success will depend, in part, on our ability to support new and existing customer growth and maintain customer satisfaction. Due to COVID-19, our sales and marketing teams have avoided in-person meetings and are increasingly engaging with customers online and through other communications channels, including virtual meetings. While our revenues increased for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, there is no guarantee that in the future our sales and marketing teams will be as successful or effective using these other communications channels as they try to build relationships. If we cannot provide the tools and training to our teams to efficiently do their jobs and satisfy customer demands, we may not be able to achieve anticipated revenue growth as quickly as expected.

Our future growth depends upon expanding sales of our products to existing customers and their organizations and receiving subscription and maintenance renewals. If our customers do not purchase additional licenses or capabilities, our revenues may grow more slowly than expected, may not grow at all or may decline. There can be no assurance that our efforts would result in increased sales to existing customers ("upsells") and additional revenues. If our efforts to upsell to our customers are not successful, our business would suffer.

Our future growth also depends in part upon increasing our customer base, particularly those customers with potentially high customer lifetime values. Our ability to achieve significant growth in revenues in the future will depend, in large part, upon the effectiveness of our sales and marketing efforts, both domestically and internationally, and our ability to attract new customers. Our ability to attract new customers may be adversely affected by newly enacted laws that may prohibit certain sales and marketing activities, such as recent legislation passed in the State of New York, pursuant to which, due to the declared disaster state of emergency attributed to COVID-19, unsolicited telemarketing sales calls are prohibited. If we fail to attract new customers and maintain and expand those customer relationships, our revenues may be adversely affected, and our business will be harmed.

We have a history of losses, and we may not be profitable in the future.

We have incurred net losses in each year since our inception, including a net loss of $48.8 million for the three months ended March 31, 2022 and net losses of $116.9 million and $94.0 million in each of the years ended December 31, 2021 and 2020, respectively. Because the market for our software is rapidly evolving and has still not yet reached widespread adoption, it is difficult for us to predict our future results of operations. We expect our operating expenses to increase over the next several years as we hire additional personnel, expand and improve the effectiveness of our distribution channels, and continue to develop features and applications for our software.

If we are unable to maintain successful relationships with our channel partners, our business could be adversely affected.

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We rely on channel partners, such as distribution partners and resellers, to sell licenses and support and maintenance agreements for our software and to perform some of our professional services. In 2021 and for the three months ended March 31, 2022, our channel partners fulfilled substantially all of our sales, and we expect that sales to channel partners will continue to account for substantially all of our revenues for the foreseeable future. Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our channel partners.

Our agreements with our channel partners are generally non-exclusive, meaning our channel partners may offer customers the products of several different companies. If our channel partners do not effectively market and sell our software, choose to use greater efforts to market and sell their own products or those of others, or fail to meet the needs of our customers, including through the provision of professional services for our software, our ability to grow our business, sell our software and maintain our reputation may be adversely affected. Our contracts with our channel partners generally allow them to terminate their agreements for any reason upon 30 days’ notice. A termination of the agreement has no effect on orders already placed. The loss of a substantial number of our channel partners, our possible inability to replace them, or the failure to recruit additional channel partners could materially and adversely affect our results of operations. If we are unable to maintain our relationships with these channel partners, our business, results of operations, financial condition or cash flows could be adversely affected.

Finally, even if we are successful, our relationships with channel partners may not result in greater customer usage of our products and professional services or increased revenue.

Our long-term growth depends, in part, on being able to continue to expand internationally on a profitable basis, which subjects us to risks associated with conducting international operations.

Historically, we have generated the majority of our revenues from customers in North America. For the year ended December 31, 2021 and for the three months ended March 31, 2022, approximately 72% of our total revenues were derived from sales in North America. Nevertheless, we have operations across the globe, and we plan to continue to expand our international operations as part of our long-term growth strategy. The further expansion of our international operations will subject us to a variety of risks and challenges, including:

• sales and customer service challenges associated with operating in different countries;

• increased management travel, a lack of travel due to pandemics, infrastructure and legal compliance costs associated with having multiple international operations;

• difficulties in receiving payments from different geographies, including difficulties associated with currency fluctuations, payment cycles, transfer of funds or collecting accounts receivable, especially in emerging markets;

• variations in economic or political conditions between each country or region;

• economic uncertainty around the world and adverse effects arising from economic interdependencies across countries and regions;

• the uncertainty around the effects of global pandemics on our business and results of operations;

• uncertainty around a potential reverse or renegotiation of international trade agreements and partnerships;

• compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations;

• ability to hire, retain and train local employees and the ability to comply with foreign labor laws and local labor requirements, such as representations by an internal labor committee in France which is affiliated with an external trade union and the applicability of collective bargaining arrangements at the national level in certain European countries;

• compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), the U.K. Bribery Act of 2010 (the "UK Bribery Act"), import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our software in certain foreign markets, and the risks and costs of non-compliance;

• heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of financial statements and irregularities in financial statements;

• reduced protection for intellectual property rights in certain countries and practical difficulties and costs of enforcing rights abroad; and

• compliance with the laws of numerous foreign taxing jurisdictions and overlapping of different tax regimes and digital tax imposed on our operations in foreign taxing jurisdictions.

Any of these risks could adversely affect our international operations, reduce our revenues from outside the United States or increase our operating costs, adversely affecting our business, results of operations and financial condition and growth prospects. There can be no assurance that all of our employees, independent contractors and channel partners will comply with

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the formal policies we have and will implement, or applicable laws and regulations. Violations of laws or key control policies by our employees, independent contractors and channel partners could result in delays in revenue recognition, financial reporting misstatements, fines, penalties or the prohibition of the importation or exportation of our software and services and could have a material adverse effect on our business and results of operations.

We are exposed to collection and credit risks, which could impact our operating results.

Our accounts receivable and contract assets are subject to collection and credit risks. These agreements may include purchase commitments for multiple years of subscription-based software licenses and maintenance services, which may be invoiced over multiple reporting periods increasing these risks. For example, our operating results may be impacted by significant bankruptcies among customers and resellers, which could negatively impact our revenues and cash flows. Although we have processes in place that are designed to monitor and mitigate these risks, we cannot guarantee these programs will be effective. If we are unable to adequately control these risks, our business, operating results and financial condition could be harmed. Furthermore, as a result of the COVID-19 pandemic, existing customers may attempt to renegotiate contracts and obtain material concessions or fail to make payments on existing contracts, which may materially and negatively impact our operating results and financial condition.

If currency exchange rates fluctuate substantially in the future, our results of operations, which are reported in U.S. dollars, could be adversely affected.

Our functional and reporting currency is the U.S. dollar, and we generate the majority of our revenues and incur the majority of our expenses in U.S. dollars. Revenues and expenses are also incurred in other currencies, primarily Euros, Pounds Sterling, Canadian dollars, Australian dollars and the New Israeli Shekel. Accordingly, changes in exchange rates may have a material adverse effect on our business, results of operations and financial condition. The exchange rates between the U.S. dollar and foreign currencies have fluctuated substantially in recent years and may continue to fluctuate substantially in the future. Furthermore, a strengthening of the U.S. dollar could increase the cost in local currency of our software and our subscription licenses and maintenance renewals to customers outside the United States, which could adversely affect our business, results of operations, financial condition and cash flows. Volatility in exchange rates may continue in the short-term after the United Kingdom's exit from the EU.

We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in local currencies. The weakening of the U.S. dollar against such currencies would cause the U.S. dollar equivalent of such expenses to increase which could have a negative impact on our reported results of operations and our ability to attract employees in such non-U.S. locations due to the actual increase in the compensation to be paid to such employees. We use forward foreign exchange contracts to hedge or mitigate the effect of changes in foreign exchange rates on our operating expenses denominated in certain foreign currencies. However, this strategy might not eliminate our exposure to foreign exchange rate fluctuations and involves costs and risks of its own, such as cash expenditures, ongoing management time and expertise, external costs to implement the strategy and potential accounting implications. Additionally, our hedging activities may contribute to increased losses as a result of volatility in foreign currency markets and the difference between the interest rates of the currencies being hedged.

Our business is highly dependent upon our brand recognition and reputation, and the failure to maintain or enhance our brand recognition or reputation may adversely affect our business.

We believe that enhancing the “Varonis” brand identity and maintaining our reputation in the IT industry is critical to our relationships with our customers and to our ability to attract new customers. Our brand recognition and reputation are dependent upon:

• our ability to continue to offer high quality, innovative and error- and bug-free products;

• our ability to maintain customer satisfaction with our products;

• our ability to be responsive to customer concerns and provide high quality customer support, training and professional services;

• our marketing efforts;

• any misuse or perceived misuse of our products;

• positive or negative publicity;

• our ability to prevent or quickly react to any cyberattack on our IT systems or security breach of or related to our software;

• interruptions, delays or attacks on our website; and

• litigation or regulatory-related developments.

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We may not be able to successfully promote our brand or maintain our reputation. In addition, independent industry analysts often provide reviews of our products, as well as other products available in the market, and perception of our product in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive than reviews about other products available in the market, our brand may be adversely affected. Furthermore, negative publicity relating to events or activities attributed to us, our employees, our channel partners or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. If we do not successfully enhance our brand and maintain our reputation, our business may not grow, we may have reduced pricing power relative to competitors with stronger brands, and we could lose customers or renewals, all of which would adversely affect our business, operations and financial results. Moreover, damage to our reputation and loss of brand equity may reduce demand for our products and have an adverse effect on our business, results of operations and financial condition. Any attempts to rebuild our reputation and restore the value of our brand may be costly and time consuming, and such efforts may not ultimately be successful.

Moreover, it may be difficult to enhance our brand and maintain our reputation in connection with sales to channel partners. Promoting our brand requires us to make significant expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets and geographies and as more sales are generated to our channel partners. To the extent that these activities yield increased revenues, these revenues may not offset the increased expenses we incur.

Our success depends in part on maintaining and increasing our sales to customers in the public sector.

We derive a portion of our revenues from contracts with federal, state, local and foreign governments and government-owned or -controlled entities (such as public health care bodies, educational institutions and utilities), which we refer to as the public sector herein. We believe that the success and growth of our business will continue to depend on our successful procurement of public sector contracts. Selling to public sector entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that our efforts will produce any sales. Government demand and payment for our products and services may be impacted by public sector budgetary cycles, or lack of, and funding authorizations, including in connection with an extended government shutdown, with funding reductions or delays adversely affecting public sector demand for our products and services. Factors that could impede our ability to maintain or increase the amount of revenues derived from public sector contracts include:

• changes in public sector fiscal or contracting policies;

• decreases or elimination of available public sector funding;

• changes in public sector programs or applicable requirements;

• the adoption of new laws or regulations or changes to existing laws or regulations;

• potential delays or changes in the public sector appropriations or other funding authorization processes;

• the requirement of contractual terms that are unfavorable to us, such as most-favored-nation pricing provisions; and

• delays in the payment of our invoices by public sector payment offices.

Furthermore, we must comply with laws and regulations relating to public sector contracting, which affect how we and our channel partners do business in both the United States and abroad. These laws and regulations may impose added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, penalties, termination of contracts, and temporary suspension or permanent debarment from public sector contracting. Moreover, governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities.

The occurrence of any of the foregoing could cause public sector customers to delay or refrain from purchasing licenses of our software in the future or otherwise have an adverse effect on our business, operations and financial results.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

We incorporate encryption technology into certain of our products and these products are subject to U.S. export control. We are also subject to Israeli export controls on encryption technology since our product development initiatives are primarily conducted by our wholly-owned Israeli subsidiary. We have obtained the required licenses to export our products outside of the United States. In addition, the current encryption means used in our products are listed in the “free means encryption items” published by the Israeli Ministry of Defense, which means we are exempt from obtaining an encryption control license. If the applicable U.S. or Israeli legal requirements regarding the export of encryption technology were to change or if we change the

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encryption means in our products, we may need to apply for new licenses in the United States and may no longer be able to rely on our licensing exception in Israel. There can be no assurance that we will be able to obtain the required licenses under these circumstances. Furthermore, various other countries regulate the import of certain encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries.

We are also subject to U.S. and Israeli export control and economic sanctions laws, which prohibit the shipment of certain products to embargoed or sanctioned countries, governments and persons. In March 2022, in response to the war between Russia and Ukraine, the U.S. imposed sanctions and export controls on Russia. Our products could be exported to these sanctioned targets by our channel partners despite the contractual undertakings they have given us and any such export could have negative consequences, including government investigations, penalties and reputational harm. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.

Our business in countries with a history of corruption and transactions with foreign governments increase the risks associated with our international activities.

As we operate and sell internationally, we are subject to the FCPA, the UK Bribery Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. We have operations, deal with and make sales to governmental customers in countries known to experience corruption, particularly certain emerging countries in Eastern Europe, South and Central America, East Asia, Africa and the Middle East. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, channel partners or sales agents that could be in violation of various anti-corruption laws, even though these parties may not be under our control. While we have implemented safeguards to prevent these practices by our employees, consultants, channel partners and sales agents, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, channel partners or sales agents may engage in conduct for which we might be held responsible. Violations of the FCPA or other anti-corruption laws may result in severe criminal or civil sanctions, including suspension or debarment from government contracting, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

Acquisitions could disrupt our business and adversely affect our results of operations, financial condition and cash flows.

As we continue to pursue business opportunities, we may make acquisitions that could be material to our business, results of operations, financial condition and cash flows. Acquisitions involve many risks, including the following:

• an acquisition may negatively affect our results of operations, financial condition or cash flows because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, including potential write-downs of deferred revenues, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;

• we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us;

• an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

• an acquisition may result in a delay or reduction of customer purchases for both us and the company we acquired due to customer uncertainty about continuity and effectiveness of service from either company;

• we may encounter difficulties in, or may be unable to, successfully sell any acquired products;

• an acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions;

• challenges inherent in effectively managing an increased number of employees in diverse locations;

• the potential strain on our financial and managerial controls and reporting systems and procedures;

• potential known and unknown liabilities or deficiencies associated with an acquired company that were not identified in advance;

• our use of cash to pay for acquisitions would limit other potential uses for our cash and affect our liquidity;

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• if we incur debt to fund such acquisitions, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants;

• the risk of impairment charges related to potential write-downs of acquired assets or goodwill in future acquisitions;

• to the extent that we issue a significant amount of equity or convertible debt securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and

• managing the varying intellectual property protection strategies and other activities of an acquired company.

We may not succeed in addressing these or other risks or any other problems encountered in connection with the integration of any acquired business. Our ability as an organization to successfully acquire and integrate technologies or businesses is unproven. The inability to successfully integrate the business, technologies, products, personnel or operations of any acquired business, or any significant delay in achieving integration, could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Risks Related to Human Capital

A failure to maintain sales and marketing personnel productivity or hire and integrate additional sales and marketing personnel could adversely affect our results of operations and growth prospects.

Our business requires intensive sales and marketing activities. Our sales and marketing personnel are essential to attracting new customers and expanding sales to existing customers, both of which are key to our future growth. We face a number of challenges in successfully expanding our sales force. Our transition to a subscription-based model, and the additional demands involved in selling multiple products as well as new product offerings, has increased the complexity and to some extent imposed new challenges in finding, hiring and retaining qualified sales force members. We must locate and hire a significant number of qualified individuals, and competition for such individuals is intense. In addition, as we expand into new markets with which we have less familiarity and develop existing territories, we will need to recruit individuals who have skills particular to a certain geography or territory, and it may be difficult to find candidates with those qualifications. We may be unable to achieve our hiring or integration goals due to a number of factors, including, but not limited to, the challenge in remotely recruiting employees and adequately training them due to COVID-19, the number of individuals we hire, challenges in finding individuals with the correct background due to increased competition for such hires, increased attrition rates among new hires and existing personnel as well as the necessary experience to sell our Data Security Platform rather than individual software products. Furthermore, based on our past experience in mature territories, it can take up to 12 months before a new sales force member is trained and operating at a level that meets our expectations, and during the COVID-19 pandemic such training may take even longer. We invest significant time and resources in training new members of our sales force, and we may be unable to achieve our target performance levels with new sales personnel as rapidly as we have done in the past, or at all, due to larger numbers of hires or lack of experience training sales personnel to operate in new jurisdictions or because of the remote hiring and training process. Our failure to hire a sufficient number of qualified individuals, to integrate new sales force members within the time periods we have achieved historically or to keep our attrition rates at levels comparable to others in our industry may materially impact our projected growth rate.

Failure to retain, attract and recruit highly qualified personnel could adversely affect our business, operating results, financial condition and growth prospects.

Our future success and growth depend, in part, on our ability to continue to recruit and retain highly skilled personnel and to preserve the key aspects of our corporate culture. Because our future success is dependent on our ability to continue to enhance and introduce new products, we are particularly dependent on our ability to hire and retain engineers. Any of our employees may terminate their employment at any time, and we face intense competition for highly skilled employees. Competition for qualified employees, particularly in Israel, where we have a substantial presence and need for qualified engineers, from numerous other companies, including other software and technology companies, many of whom have greater financial and other resources than we do, is intense. Moreover, to the extent we hire personnel from other companies, we may be subject to allegations that they have been improperly solicited or may have divulged proprietary or other confidential information to us. In addition, during the COVID-19 pandemic, which is characterized as an unstable period, to some extent it may be more difficult to timely attract and train new employees. If we are unable to timely attract, retain or train qualified employees, particularly our engineers, salespeople and key managers, our ability to innovate, introduce new products and compete would be adversely impacted, and our financial condition and results of operations may suffer. Lastly, equity grants are a critical component of our current compensation programs. If we reduce, modify or eliminate our equity compensation programs or if there is a decline in our stock price, the result of which the value of our equity compensation shall be lower, we may have difficulty attracting and retaining employees.

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We are dependent on the continued services and performance of our co-founder, Chief Executive Officer and President, the loss of whom could adversely affect our business.

Much of our future performance depends on the continued services and continuing contributions of our co-founder, Chief Executive Officer and President, Yakov Faitelson, to successfully manage our company, to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of Mr. Faitelson's services could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business.

Risks Related to our Technology, Products, Services and Intellectual Property

Our failure to continually enhance and improve our technology could adversely affect sales of our products.

The market is characterized by the exponential growth in enterprise data, rapid technological advances, changes in customer requirements, including customer requirements driven by changes to legal, regulatory and self-regulatory compliance mandates, frequent new product introductions and enhancements and evolving industry standards in computer hardware and software technology. As a result, we must continually change and improve our products in response to changes in operating systems, application software, computer and communications hardware, networking software, data center architectures, programming tools, computer language technology and various regulations. Moreover, the technology in our products is especially complex because it needs to effectively identify and respond to a user’s data retention, security and governance needs, while minimizing the impact on database and file system performance. Our products must also successfully interoperate with products from other vendors.

While we extend our technological capabilities though innovation and strategic transactions, we cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to extend our technological expertise and develop new products or expand the functionality of our current products in a timely manner or at all. Even if we are able to anticipate, develop and introduce new products and expand the functionality of our current products, there can be no assurance that enhancements or new products will achieve widespread market acceptance.

Our product enhancements or new products could fail to attain sufficient market acceptance for many reasons, including:

• failure to accurately predict market demand in terms of product functionality and to supply products that meet this demand in a timely fashion;

• inability to interoperate effectively with the database technologies and file systems of prospective customers;

• defects, errors or failures;

• negative publicity or customer complaints about performance or effectiveness; and

• poor business conditions, causing customers to delay IT purchases.

If we fail to anticipate market requirements or stay abreast of technological changes, we may be unable to successfully introduce new products, expand the functionality of our current products or convince our customers and potential customers of the value of our solutions in light of new technologies. Accordingly, our business, results of operations and financial condition could be materially and adversely affected.

If our technical support, customer success or professional services are not satisfactory to our customers, they may not renew their subscription licenses or maintenance and support agreements or not buy additional products in the future, which could adversely affect our future results of operations.

Our business relies on our customers’ satisfaction with the technical support and professional services we provide to support our products. Our customers have no obligation to renew their subscription licenses or maintenance and support agreements with us after the initial terms have expired. Our customers who had originally purchased perpetual licenses have an option to renew their maintenance agreements. For us to maintain and improve our results of operations, it is important that our existing customers renew their subscription licenses and maintenance and support agreements, if applicable, when the existing contract term expires. For example, our perpetual license maintenance renewal rate for the year ended December 31, 2021 and for the three months ended March 31, 2022 continued to be over 90%. Customer satisfaction will become even more important as almost all of our licensing has shifted to subscription license agreements.

If we fail to provide technical support services that are responsive, satisfy our customers’ expectations and resolve issues that they encounter with our products and services, then they may elect not to purchase or renew subscription licenses or annual maintenance and support contracts and they may choose not to purchase additional products and services from us. Accordingly, our failure to provide satisfactory technical support or professional services could lead our customers not to renew their

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agreements with us or renew on terms less favorable to us, and therefore have a material and adverse effect on our business and results of operations.

Because we derive substantially all of our revenues and cash flows from sales of licenses from a single platform of products, failure of the products in the platform to satisfy customers or to achieve increased market acceptance would adversely affect our business.

In 2021 and for the three months ended March 31, 2022, we generated substantially all of our revenues from sales of licenses from DatAdvantage, DatAlert, Data Classification Engine, DataPrivilege and Data Transport Engine. We expect to continue to derive the majority of our revenues from license sales relating to these products in the future. As such, market acceptance of these products is critical to our continued success. Demand for licenses for our platform of products is affected by a number of factors, some of which are outside of our control, including continued market acceptance of our software by referenceable accounts for existing and new use cases, technological change and growth or contraction in our market. We expect the proliferation of enterprise data to lead to an increase in the data analysis demands, and data security and retention concerns, of our customers, and our software, including the software underlying our Data Security Platform, may not be able to scale and perform to meet those demands. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our software, our business, operations, financial results and growth prospects will be materially and adversely affected.

Interruptions or performance problems, including associated with our website or support website or any caused by cyberattacks, may adversely affect our business.

Our continued growth depends in part on the ability of our existing and potential customers to quickly access our website and support website. Access to our support website is also imperative to our daily operations and interaction with customers, as it allows customers to download our software, fixes and patches, as well as open and respond to support tickets and register license keys for evaluation or production purposes. We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including technical failures, cyberattacks, natural disasters, infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously and denial of service or fraud. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. System failures or outages, including any potential disruptions due to a period of increased global demand on certain cloud-based systems, could compromise our ability to perform our day-to-day operations in a timely manner, which could negatively impact our business or delay our financial reporting. It may become increasingly difficult to maintain and improve the performance of our websites, especially during peak usage times and as our software becomes more complex and our user traffic increases. If our websites are unavailable or if our users are unable to download our software, patches or fixes within a reasonable amount of time or at all, we may suffer reputational harm and our business would be negatively affected.

If our software is perceived as not being secure, customers may reduce the use of or stop using our software, and we may incur significant liabilities.

Our software involves the transmission of data between data stores, and between data stores and desktop and mobile computers, and may in the future involve the storage of data. We have a legal and contractual obligation to protect the confidentiality and appropriate use of customer data. Any security breaches with respect to such data could result in the loss of this information, litigation, indemnity obligations and other liabilities. The security of our products and accompanied services is important in our customers’ decisions to purchase or use our products or services. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. While we have taken steps to protect the confidential information that we have access to, including confidential information we may obtain through our customer support services or customer usage of our products, we have no direct control over the substance of the content. Security measures might be breached as a result of third-party action, employee error, malfeasance or otherwise. We also incorporate open source software and other third-party software into our products. There may be vulnerabilities in open source software and third-party software that may make our products likely to be harmed by cyberattacks. Moreover, our products operate in conjunction with and are dependent on products and components across a broad ecosystem of third parties. If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, such security vulnerability may adversely impact our product vulnerability and we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

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There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. While we maintain insurance coverage for some of the above events, the potential liabilities associated with these security breach events could exceed the insurance coverage we maintain.

Any or all of these issues could tarnish our reputation, negatively impact our ability to attract new customers or sell additional products to our existing customers, cause existing customers to elect not to renew their maintenance and support agreements or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby adversely affecting our results of operations.

Our use of open source software could negatively affect our ability to sell our software and subject us to possible litigation.

We use open source software and expect to continue to use open source software in the future. Some open source software licenses require users who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost. We may face ownership claims of third parties over, or seeking to enforce the license terms applicable to, such open source software, including by demanding the release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which would have a negative effect on our business and results of operations. In addition, if the license terms for the open source code change, we may be forced to re-engineer our software or incur additional costs. Finally, while we implement policies and procedures, we cannot provide assurance that we have incorporated open source software into our own software in a manner that conforms with our current policies and procedures and we cannot assure that all open source software is reviewed prior to use in our solution, that our programmers have not incorporated open source software into our solution, or that they will not do so in the future.

In addition, our solution may incorporate third-party software under commercial licenses. We cannot be certain whether such third-party software incorporates open source software without our knowledge. In the past, companies that incorporate open source software into their products have faced claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. Therefore, we could be subject to suits by parties claiming noncompliance with open source licensing terms or infringement or misappropriation of proprietary software. Because few courts have interpreted open source licenses, the manner in which these licenses may be interpreted and enforced is subject to some uncertainty. There is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our solution. As a result of using open source software subject to such licenses, we could be required to release proprietary source code, pay damages, re-engineer our solution, limit or discontinue sales or take other remedial action, any of which could adversely affect our business.

False detection of security breaches, false identification of malicious sources or misidentification of sensitive or regulated information could adversely affect our business.

Our cybersecurity products may falsely detect threats that do not actually exist. For example, our DatAlert product may enrich metadata collected by our products with information from external sources and third-party data providers. If the information from these data providers is inaccurate, the potential for false positives increases. These false positives, while typical in the industry, may affect the perceived reliability of our products and solutions and may therefore adversely impact market acceptance of our products. As definitions and instantiations of personal identifiers and other sensitive content change, automated classification technologies may falsely identify or fail to identify data as sensitive. If our products and solutions fail to detect exposures or restrict access to important systems, files or applications based on falsely identifying legitimate use as an attack or otherwise unauthorized, then our customers’ businesses could be adversely affected. Any such false identification of use and subsequent restriction could result in negative publicity, loss of customers and sales, increased costs to remedy any problem and costly litigation.

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business.

The success of our business and competitive position depends on our ability to obtain, protect and enforce our trade secrets, trademarks, copyrights, patents and other intellectual property rights. We attempt to protect our intellectual property under patent, trademark, copyrights and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection and may not now or in the future provide us with a competitive advantage.

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As of March 31, 2022, we had 81 issued patents in the United States and 13 pending U.S. patent applications. We also had 52 patents issued and 55 applications pending for examination in non-U.S. jurisdictions, and no pending PCT patent applications, all of which are counterparts of our U.S. patent applications. We may file additional patent applications in the future. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner all the way through to the successful issuance of a patent. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Furthermore, it is possible that our patent applications may not issue as granted patents, that the scope of our issued patents will be insufficient or not have the coverage originally sought, that our issued patents will not provide us with any competitive advantages, and that our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. In addition, issuance of a patent does not guarantee that we have an absolute right to practice the patented invention. Our policy is to require our employees (and our consultants and service providers that develop intellectual property included in our products) to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property), but we cannot provide assurance that we have adequately protected our rights in every such agreement or that we have executed an agreement with every such party. Finally, in order to benefit from patent and other intellectual property protection, we must monitor, detect and pursue infringement claims in certain circumstances in relevant jurisdictions, all of which is costly and time-consuming. As a result, we may not be able to obtain adequate protection or to enforce our issued patents or other intellectual property effectively.

In addition to patented technology, we rely on our unpatented proprietary technology and trade secrets. Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties, including our employees, consultants, service providers or customers, may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, consultants, service providers, vendors, channel partners and customers, and generally limit access to and distribution of our proprietary information and proprietary technology through certain procedural safeguards. These agreements may not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our intellectual property or technology. We cannot provide assurance that the steps taken by us will prevent misappropriation of our trade secrets or technology or infringement of our intellectual property. In addition, the laws of some foreign countries where we operate do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.

Moreover, industries in which we operate, such as data security, cybersecurity, compliance, data retention and data governance are characterized by the existence of a large number of relevant patents and frequent claims and related litigation regarding patent and other intellectual property rights. From time to time, third parties have asserted and may assert their patent, copyright, trademark and other intellectual property rights against us, our channel partners or our customers. Successful claims of infringement or misappropriation by a third party could prevent us from distributing certain products, performing certain services or could require us to pay substantial damages (including, for example, treble damages if we are found to have willfully infringed patents and increased statutory damages if we are found to have willfully infringed copyrights), royalties or other fees. Such claims also could require us to cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others or to expend additional development resources to attempt to redesign our products or services or otherwise to develop non-infringing technology. Even if third parties may offer a license to their technology, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, results of operations or financial condition to be materially and adversely affected. In some cases, we indemnify our channel partners and customers against claims that our products infringe the intellectual property of third parties. Defending against claims of infringement or being deemed to be infringing the intellectual property rights of others could impair our ability to innovate, develop, distribute and sell our current and planned products and services. If we are unable to protect our intellectual property rights and ensure that we are not violating the intellectual property rights of others, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.

We have registered the “Varonis” name and logo and “DatAdvantage,” “DataPrivilege,” “DatAlert,” “DatAnywhere” and other names in the United States and, as related to some of these names, certain other countries. However, we cannot provide assurance that any future trademark registrations will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights.

We also license software from third parties for integration into our solution, including open source software and other software available on commercially reasonable terms. We cannot provide assurance that such third parties will maintain such software or

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continue to make it available. We also rely on confidentiality agreements, consulting agreements, work-for-hire agreements and invention assignment agreements with our employees, consultants and others.

Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. In addition, others may independently discover our trade secrets, in which case we would not be able to assert trade secret rights or develop similar technologies and processes. Further, the contractual provisions that we enter into may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, trade secrets and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. We may be unable to determine the extent of any unauthorized use or infringement of our solution, technologies or intellectual property rights.

Risks Related to our Tax Regime

Our tax rate may vary significantly depending on our stock price.

The tax effects of the accounting for stock-based compensation may significantly impact our effective tax rate from period to period. In periods in which our stock price is higher than the grant price of the stock-based compensation vesting in that period, we will recognize excess tax benefits that will decrease our effective tax rate, while in periods in which our stock price is lower than the grant price of the stock-based compensation vesting in that period, our effective tax rate may increase. The amount and value of stock-based compensation issued relative to our earnings in a particular period will also affect the magnitude of the impact of stock-based compensation on our effective tax rate. These tax effects are dependent on our stock price, which we do not control, and a decline in our stock price could significantly increase our effective tax rate and adversely affect our financial results.

Multiple factors may adversely affect our ability to fully utilize our net operating loss carryforwards.

A U.S. corporation's ability to utilize its federal net operating loss (“NOL”) carryforwards is limited under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if the corporation undergoes an ownership change.

We have accumulated a $318.3 million federal NOL since inception. Future changes in our stock ownership, including future offerings, as well as changes that may be outside of our control, could result in a subsequent ownership change under Section 382, that would impose an annual limitation on NOLs. In addition, the cash tax benefit from our NOLs is dependent upon our ability to generate sufficient taxable income. Accordingly, we may be unable to earn enough taxable income in order to fully utilize our current NOLs.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

We are subject to income taxation in the United States, Israel and numerous other jurisdictions. Determining our provision for income taxes requires significant management judgment. In addition, our provision for income taxes could be adversely affected by many factors, including, among other things, changes to our operating structure including a review of our intellectual property ("IP") structure, changes in the amounts of earnings in jurisdictions with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. Significant judgment is required to determine the recognition and measurement attributes prescribed in Accounting Standards Codification 740-10-25 (“ASC 740-10-25”). ASC 740-10-25 applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes. Our income in certain countries is subject to reduced tax rates provided we meet certain employment criteria. Failure to meet these commitments could adversely impact our provision for income taxes.

We are also subject to the regular examination of our income tax returns by the U.S. Internal Revenue Services and other tax authorities in various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing, IP structure or other matters and assess additional taxes. While we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, there can be no assurance that the outcomes from these regular examinations will not have a material adverse effect on our results of operations and cash flows. Further, we may be audited in various jurisdictions, and such jurisdictions may assess additional taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially

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different from our historical tax provisions and accruals, which could have a material adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.

The adoption of the U.S. tax reform and the enactment of additional legislation changes could materially impact our financial position and results of operations.

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") that significantly reforms the Code was enacted. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of certain expenses and restricts the use of net operating loss carryforwards arising after December 31, 2017. Due to the expansion of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial position and results of operations. Further, foreign governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially affect our financial position and results of operations. Effective in 2022, the TCJA requires all U.S. companies to capitalize, and subsequently amortize R&D expenses over five years for research activities conducted in the United States and over fifteen years for research activities conducted outside of the United States, rather than deducting such costs in the year incurred for tax purposes. Although Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that Congress will take any action with respect to this provision. As of the first quarter of 2022, we have accounted for an estimate of the effects of the R&D capitalization, based on interpretation of the law as currently enacted, and have estimated that our $318.3 million accumulated federal NOL should offset all the effects of the R&D capitalization requirement for all of 2022. To the extent that this provision is not deferred, modified or repealed, and once our available NOLs are fully utilized, we may incur an increase in our tax expenses and a decrease in our cash flows provided by operations.

We conduct our operations in a number of jurisdictions worldwide and report our taxable income based on our business operations in those jurisdictions. Therefore, our intercompany relationships are subject to transfer pricing regulations administered by taxing authorities in various jurisdictions. While we believe that we are currently in material compliance with our obligations under applicable taxing regimes, the relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions and may seek to impose additional taxes on us, including for past sales. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

The Organization for Economic Cooperation and Development (“OECD”) introduced the base erosion and profit shifting project which sets out a plan to address international taxation principles in a globalized, digitized business world (the “BEPS Plan”). During 2018, as part of the BEPS Plan, more than 80 countries chose to implement the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”). The MLI significantly changes the bilateral tax treaties signed by any country that chose to implement the MLI. In addition, during 2019 the OECD, the EU and individual countries (e.g., France, Austria and Italy) each published an initiative to tax digital transactions executed by a non-resident entity and a local end-user or local end-consumer. Under each initiative, the local payer is obligated to withhold a fixed percentage from the gross proceeds paid to the non-resident entity as a tax on executing a digital transaction in that territory, provided the entity’s sales in that territory exceeds a certain threshold (“Digital Service Tax”). As a result of participating countries adopting the international tax policies set under the BEPS Plan, MLI and Digital Service Tax, changes have been and continue to be made to numerous international tax principles and local tax regimes. Due to the expansion of our international business activities, those modifications may increase our worldwide effective tax rate, create tax and compliance obligations in jurisdictions in which we previously had none and adversely affect our financial position.

Risks Related to the 2025 Notes and Credit Facility

We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.

In May 2020 we issued the 2025 Notes. As of March 31, 2022, we had $253.0 million outstanding aggregate principal amount of 2025 Notes. In addition, on August 21, 2020 we entered into a credit and security agreement with KeyBank National Association and other parties thereto (the “Credit and Security Agreement") for a three-year secured revolving credit facility of $70.0 million, with a letter of credit sublimit of $15.0 million and an accordion feature under which the Company can increase the credit facility to up to $90.0 million (the “Credit Facility”). Our Credit Facility contains customary restrictive, negative and financial covenants and is secured by a first priority security interest. If we are unable to comply with the restrictive and financial covenants in our Credit Facility, there would be a default under the terms of that Credit and Security Agreement, and this could result in an acceleration of payment of funds that have been borrowed. As of March 31, 2022, we had no outstanding

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obligations under our Credit Facility. Our indebtedness may limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes, limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes, require us to use a substantial portion of our cash flow from operations to make debt service payments, limit our flexibility to plan for, or react to, changes in our business and industry, place us at a competitive disadvantage compared to our less leveraged competitors and increase our vulnerability to the impact of adverse economic and industry conditions.

Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase.

Our ability to meet our payment obligations under the 2025 Notes and any outstanding indebtedness under our Credit Facility, depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions. In addition, our Credit Facility limits our ability to incur additional indebtedness under certain circumstances. If we are unable to obtain capital on favorable terms or at all, we may have to reduce our operations or forego opportunities, and this may have a material adverse effect on our business, financial condition and results of operations.

We may issue additional shares of our common stock in connection with conversions of the 2025 Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.

In the event that the 2025 Notes are converted and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of the 2025 Notes could depress the market price of our common stock.

The fundamental change provisions of the 2025 Notes may delay or prevent an otherwise beneficial takeover attempt of us.

If the Company undergoes a “fundamental change,” subject to certain conditions, holders may require the Company to repurchase for cash all or part of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if such fundamental change also constitutes a “make-whole fundamental change,” the conversion rate for the 2025 Notes may be increased upon conversion of the 2025 Notes in connection with such “make-whole fundamental change.” Any increase in the conversion rate will be determined based on the date on which the “make-whole fundamental change” occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase the 2025 Notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.

The Capped Call Transactions may affect the value of the 2025 Notes and our common stock.

In connection with the issuance of the 2025 Notes, we entered into Capped Call Transactions with certain financial institutions. The Capped Call Transactions are expected generally to reduce or offset the potential dilution upon conversion of the 2025 Notes and/or offset any cash payments we are 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 the Cap Price, subject to certain adjustments under the terms of the Capped Call Transactions.

From time to time, certain financial institutions (with which we entered into the Capped Call Transactions) or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2025 Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

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The potential effect, if any, of these transactions and activities on the price of our common stock or 2025 Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock.

As of March 31, 2022, our stock price was higher than the Cap Price under the Capped Call Transactions, hence, as of March 31, 2022, and as long as our common stock price shall be higher than $47.24, the incremental amount by which the stock price exceeds the Cap Price is not protected under the Capped Call Transactions.

We are subject to counterparty risk with respect to the Capped Call Transactions.

All or some of the financial institutions (which are counterparties to the capped call transactions) might default under the Capped Call Transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties.

Risks Related to our International Operations

We face risks associated with operating in international markets that may limit our ability to develop and sell our products, which could result in a decrease of our revenues.

We operate on a global basis and political, economic and security conditions in countries in which we operate may limit our ability to develop and sell our products. Specifically, we have operations in Ukraine, where Russia and Ukraine are currently involved in a military conflict. Political instability and conflict in Ukraine, and any other areas in the world where we have operations, may affect our business and operations in those regions.

In March 2022, in response to the war between Russia and Ukraine, a number of countries, including the United States, imposed sanctions and export controls on Russia, which in turn imposed counter-sanctions in response. While sales in Russia represent, at present, a very small percentage of our overall business, and while our operations in Russia and Ukraine have historically been a small portion of our overall workforce, the conflict is complex and rapidly evolving and subjects us to additional regulatory risk and compliance costs. We have no way to predict the progress or outcome of the situation, including any impact on the rest of the world, as the conflict and government reactions are rapidly developing.

Our principal research and development facility, which also houses a portion of our support and general and administrative teams, is located in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as well as incidents of terror activities and other hostilities, and a number of state and non-state actors have publicly committed to its destruction. Political, economic and security conditions in Israel could directly affect our operations. We could be adversely affected by hostilities involving Israel, including acts of terrorism or any other hostilities involving or threatening Israel, the interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation or a significant downturn in the economic or financial condition of Israel. Any on-going or future armed conflicts, terrorist activities, tension along the Israeli borders or with other countries in the region, including Iran, or political instability in the region could disrupt international trading activities in Israel and may materially and negatively affect our business and could harm our results of operations.

Certain countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli companies, companies with large Israeli operations and others doing business with Israel and Israeli companies. The boycott, restrictive laws, policies or practices directed towards Israel, Israeli businesses or Israeli citizens could, individually or in the aggregate, have a material adverse effect on our business in the future.

Some of our officers and employees in Israel are obligated to perform routine military reserve duty in the Israel Defense Forces, depending on their age and position in the armed forces. Furthermore, they have been and may in the future be called to active reserve duty at any time under emergency circumstances for extended periods of time. Our operations could be disrupted by the absence, for a significant period, of one or more of our officers or key employees due to military service, and any significant disruption in our operations could harm our business.

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Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.

The tax benefits available to our Israeli subsidiary terminated in 2020 and we expect our Israeli subsidiary to become subject to an increase in taxes.

Our Israeli subsidiary has benefited from a status of a “Beneficiary Enterprise” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, since its incorporation. As of December 31, 2020, the tax benefit that we have been utilizing for our Israeli subsidiary terminated. A tax rate of 16% should be paid by our Israeli subsidiary under the Investment Law effective as of January 1, 2021, subject to meeting various conditions. To the extent we do not meet these conditions, our Israeli operations will be subject to a corporate tax at the standard rate, which, as of January 1, 2021, was set at 23%. If the Israeli subsidiary is subject to a corporate tax at the standard rate, it may adversely affect our tax expenses and effective tax rates. Additionally, if our Israeli subsidiary increases its activities outside of Israel, for example, through acquisitions, these activities may not be eligible for inclusion in Israeli tax benefit programs. The tax benefit derived from the Investment Law is dependent upon the ability to generate sufficient taxable income. Accordingly, our Israeli subsidiary may be unable to earn enough taxable income in order to fully utilize its tax benefits.

Risks Related to the Ownership of our Common Stock

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock into the public market, or the perception that these sales might occur, for whatever reason, including as a result of the conversion of the outstanding 2025 Notes or future public equity offerings, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.

As of March 31, 2022, we had options, restricted stock units (“RSUs”) and performance stock units ("PSUs") outstanding that, if fully vested and exercised, would result in the issuance of approximately 9.2 million shares of our common stock. All of the shares of our common stock issuable upon exercise of options and vesting of RSUs and PSUs have been registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements.

Our stock price has been and will likely continue to be volatile.

The market price for our common stock has been, and is likely to continue to be, volatile for the foreseeable future, and is subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors, as well as the volatility of our common stock, could affect the price at which our convertible noteholders could sell the common stock received upon conversion of the 2025 Notes and could also impact the trading price of the 2025 Notes. The market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot predict or control, including the factors listed below and other factors described in this “Risk Factors” section:

• actual or anticipated fluctuations in our results or those of our competitors;

• the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

• failure of securities analysts to maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

• ratings changes by any securities analysts who follow our company;

• announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;

• new announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks;

• changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

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• price and volume fluctuations in certain categories of companies or the overall stock market, including as a result of trends in the global economy;

• the trading volume of our common stock;

• changes in accounting principles;

• sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;

• additions or departures of any of our key personnel;

• lawsuits threatened or filed against us;

• short sales, hedging and other derivative transactions involving our capital stock;

• general economic conditions in the United States and abroad, including inflationary pressures and higher interest rates;

• changing legal or regulatory developments in the United States and other countries;

• conversion of the 2025 Notes; and

• other events or factors, including those resulting from war, incidents of terrorism, pandemics or responses to these events.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, results of operations, financial condition and cash flows and may cause a significant increase in the premium paid for our directors and officers insurance.

We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.

We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. In addition, the Credit and Security Agreement for our Credit Facility contains a prohibition on the payment of cash dividends. Until such time that we pay a dividend, stockholders, including holders of our 2025 Notes who receive shares of our common stock upon conversion of the 2025 Notes, must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Anti-takeover provisions in our charter documents and under Delaware law and provisions in the indenture for our 2025 Notes and Credit Facility could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management, thereby depressing the trading price of our common stock and 2025 Notes.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may delay, discourage or prevent an acquisition of us or a change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. These provisions include:

• authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock, which would increase the number of outstanding shares and could thwart a takeover attempt;

• a classified board of directors whose members can only be dismissed for cause;

• the prohibition on actions by written consent of our stockholders;

• the limitation on who may call a special meeting of stockholders;

• the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings; and

• the requirement of at least 75% of the outstanding capital stock to amend any of the foregoing second through fifth provisions.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to

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merge or combine with us, unless the merger or combination is approved in a prescribed manner. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

In addition, if a “fundamental change” occurs prior to the maturity date of the 2025 Notes, holders of the 2025 Notes will have the right, at their option, to require us to repurchase all or a portion of their Convertible Notes. If a “make-whole fundamental change” (as defined in the Indenture) occurs prior the maturity date, we will in some cases be required to increase the conversion rate of the 2025 Notes for a holder that elects to convert its 2025 Notes in connection with such “make-whole fundamental change.” These features of the 2025 Notes may make a potential acquisition more expensive for a potential acquiror, which may in turn make it less likely for a potential acquiror to offer to purchase our company, or reduce the amount of consideration offered for each share of our common stock in a potential acquisition. Furthermore, the Indenture prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2025 Notes. Last, under our Credit Facility we cannot sell or transfer or otherwise dispose of any assets of the Company to any person or entity subject to certain exceptions and we cannot merge, amalgamate or consolidate with any other entity.

General Risks Factors

Real or perceived errors, failures or bugs in our software could adversely affect our growth prospects.

Because our software uses complex technology, undetected errors, failures or bugs may occur. Our software is often installed and used in a variety of computing environments with different operating system management software, and equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which it is deployed. In addition, deployment of our software into computing environments may expose undetected errors, compatibility issues, failures or bugs in our software. Despite testing by us, errors, failures or bugs may not be found in our software until it is released to our customers. Moreover, our customers could incorrectly implement or inadvertently misuse our software, which could result in customer dissatisfaction and adversely impact the perceived utility of our products as well as our brand. Any of these real or perceived errors, compatibility issues, failures or bugs in our software could result in negative publicity, reputational harm, loss of or delay in market acceptance of our software, loss of competitive position or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. Alleviating any of these problems could require significant expenditures of our capital and other resources and could cause interruptions or delays in the use of our solutions, which could cause us to lose existing or potential customers and could adversely affect our operating results and growth prospects.

We may require additional capital to support our business growth, and this capital might not be available on acceptable terms, or at all.

We continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our software, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financing to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Our business is subject to the risks of fire, power outages, floods, earthquakes, pandemics and other catastrophic events, and to interruption by manmade problems such as terrorism.

A significant natural disaster, such as a fire, flood or an earthquake, an outbreak of a pandemic disease or a significant power outage could have a material adverse impact on our business, results of operations and financial condition. In the event our customers’ IT systems or our channel partners’ selling or distribution abilities are hindered by any of these events, we may miss financial targets, such as revenues and sales targets, for a particular quarter. Further, if a natural disaster occurs in a region from

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which we derive a significant portion of our revenue, customers in that region may delay or forego purchases of our products, which may materially and adversely impact our results of operations for a particular period. In addition, acts of terrorism could cause disruptions in our business or the business of channel partners, customers or the economy as a whole. Given our typical concentration of sales at each quarter end, any disruption in the business of our channel partners or customers that impacts sales at the end of our quarter could have a significant adverse impact on our quarterly results. All of the aforementioned risks may be augmented if the disaster recovery plans for us and our channel partners prove to be inadequate. To the extent that any of the above results in delays or cancellations of customer orders, or the delay in the development, deployment or shipment of our products, our business, financial condition and results of operations would be adversely affected.

Changes in financial accounting standards may adversely impact our reported results of operations.

New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our operating results or the way we conduct our business.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts or their expectations regarding our performance on a quarterly or annual basis. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline. If we fail to meet one or more of these analysts' published expectations regarding our performance on a quarterly basis, our stock price or trading volume could decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

We are obligated to develop and maintain proper and effective internal control over financial reporting. These internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes–Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting on an annual basis. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.

Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock.

Item 6. Exhibits

The exhibits listed below in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	VARONIS SYSTEMS, INC.
May 3, 2022	By:	/s/ Yakov Faitelson
		Yakov Faitelson
		Chief Executive Officer and President (Principal Executive Officer)
May 3, 2022	By:	/s/ Guy Melamed
		Guy Melamed
		Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

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 EXHIBIT INDEX

 

Exhibit Number	Description of the Document
3.1(1)	Amended and Restated Certificate of Incorporation
3.2(2)	Amended and Restated Bylaws
10.1†	Forms of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2013 Omnibus Equity Incentive Plan (Israeli Employees)
10.2†	Forms of Performance-Based Restricted Stock Unit Award Grant Notice and Performance-Based Restricted Stock Unit Award Agreement under the 2013 Omnibus Equity Incentive Plan (Israeli Employees)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Operations, (iii) the Unaudited Consolidated Statements of Comprehensive Loss, (iv) the Unaudited Consolidated Statements of Changes in Stockholders' Equity, (v) the Unaudited Consolidated Statements of Cash Flows and (vi) related notes to these consolidated financial statements, tagged as blocks of text and in detail
104	Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

____________

 

†	Indicates management contract or compensatory plan or arrangement.
*	Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.
(1)	Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014 (File No. 001-35324) (the “Company’s First Quarter 2014 Form 10-Q”) and incorporated herein by reference.
(2)	Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K with the Securities and Exchange Commission on February 8,2022 (File No. 001-36324) and incorporated herein by reference.

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EX-10.1

VARONIS SYSTEMS, INC.

2013 OMNIBUS EQUITY INCENTIVE PLAN RESTRICTED STOCK UNIT AWARD GRANT NOTICE

Varonis Systems, Inc. (the "Company"), pursuant to its 2013 Omnibus Equity Incentive Plan (including the Sub-Plan for Israeli Participants adopted by the Company) (the "Plan"), hereby grants to the individual listed below (the "Participant"), an Award of restricted stock units ("Restricted Stock Units" or "RSUs"). Each vested Restricted Stock Unit represents the right to receive, in accordance with the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the "Agreement"), one share of the common stock of the Company ("Share"). This Award of Restricted Stock Units is subject to all of the terms and conditions set forth herein and in the Agreement and the Plan, which are incorporated herein by reference.

Capitalized terms not specifically defined herein shall have the meanings specified in the Plan. Participant:    [●]

Grant Date:    [●]

Total Number of RSUs Subject to Grant: [●]

Type of Grant:    [Section 102 – "capital gains route"] Vesting Schedule: [●]

Termination: Except to the extent paid in accordance with the above vesting schedule, the Total Number of RSUs Subject to Grant shall terminate, become forfeited or expire without settlement in accordance with the terms of the Agreement.

By his or her signature, the Participant hereby:

(a)agrees to be bound by the terms and conditions of the Plan, the Agreement and this Notice.

(b)acknowledges receipt of a copy of the Plan and accepts the RSUs subject to all of the terms and provisions of the Plan, the Agreement and this Notice and declares that he/she has reviewed the Agreement, the Plan and this Notice in their entirety.

(c)declares that he/she has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan.

(d)agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Agreement and this Notice or relating to the Award of RSUs.

(e)declares that she/he is familiar with Section 102 and the regulations and rules promulgated thereunder, including without limitations the provisions of the applicable tax route, and

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agrees to comply with such provisions, as amended from time to time, provided that if such terms are not met, Section 102 may not apply.

(f)agrees to the terms and conditions of the trust deed signed between the Trustee and attached herein as Exhibit D and the Company and/or the applicable Affiliate, including but not limited to the control of the Shares by the Trustee.

(g)acknowledges that releasing the Shares from the control or holding of the Trustee prior to the termination of the Holding Period constitutes a violation of the terms of Section 102 and agrees to bear the relevant sanctions.

(h)authorizes the Company and/or the applicable Affiliate to provide the Trustee with any information required for the purpose of administering the Plan including executing its obligations under the Ordinance, the trust deed and the trust agreement, including without limitation information about his/her Shares, income tax rates, salary bank account, contact details and identification number.

(i)declares that he/she is a resident of the State of Israel for tax purposes on the Grant Date and agrees to notify the Company upon any change in the residence address indicated above and acknowledges that if he/she ceases to be an Israeli resident or if his/her engagement with the Company or Affiliate is terminated, the Shares shall remain subject to Section 102, the trust agreement, the Plan, the Agreement and this Notice.

(j)warrants and undertakes that at the time of grant of the RSUs herein, or as a consequence of the grant, the Participant is not and will not become a holder of a “controlling interest” in the Company, as such term is defined in Section 32(9) of the Ordinance.

(k)In addition, by signing below, the Participant also agrees that the Company, in its sole discretion, may satisfy any withholding obligations in accordance with Section 2.6(b) of the Agreement by (i) withholding shares of Common Stock otherwise issuable to the Participant upon vesting of the RSUs, (ii) instructing a broker on the Participant's behalf to sell shares of Common Stock otherwise issuable to the Participant upon vesting of the RSUs and submit the proceeds of such sale to the Company, or (iii) using any other method permitted by Section 2.6(b) of the Agreement or the Plan.

VARONIS SYSTEMS, INC.    PARTICIPANT

By: Print Name: Title:

By: Print Name: Date:

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Exhibit A

RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Restricted Stock Unit Award Grant Notice (the "Notice") to which this Restricted Stock Unit Award Agreement (this "Agreement") is attached, Varonis Systems, Inc. (the "Company") has granted to the Participant an Award of restricted stock units ("Restricted StockUnits" or "RSUs") under the Company's 2013 Omnibus Equity Incentive Plan (including the

Sub-Plan for Israeli Participants adopted by the Company) (the "Plan"). Each vested Restricted Stock Unit represents the right to receive one share of the Common Stock of the Company ("Share") to purchase the number of Shares indicated in the Notice. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and Notice.

ARTICLE I GENERAL

1.1    Incorporation of Terms of Plan. The RSUs are subject to the terms and

conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II

GRANT OF RESTRICTED STOCK UNITS

2.1Grant of RSUs. In consideration of the Participant's employment or service to the Company or any Affiliate and other good and valuable consideration, effective as of the Grant Date set forth in the Notice, the Company hereby grants to the Participant an Award of RSUs under the Plan, upon the terms and conditions set forth in the Plan and this Agreement.

2.2Unsecured Obligation. Unless and until the RSUs have vested in the manner set forth in Article 2 hereof, the Participant will have no right to receive Common Stock with respect to any such RSUs. Prior to actual payment of any vested RSUs, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

2.3Vesting Schedule. Subject to Sections 2.5 and 3.1 hereof, the RSUs shall vest and become nonforfeitable with respect to the applicable portion thereof according to the vesting schedule set forth in the Notice (rounding down to the nearest whole Share).

2.4Consideration to the Company. In consideration of the grant of the Award of RSUs pursuant hereto, the Participant agrees to render faithful and efficient employment or other service to the Company or any Affiliate. Nothing in the Plan or this Agreement shall confer upon the Participant any right to continue in the employment or service of the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which rights are hereby expressly reserved, to discharge or terminate the employment or service of the Participant at any time for any reason whatsoever, with or without Cause.

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2.5Forfeiture, Termination and Cancellation Upon Termination ofEmployment or Service.

(a)Upon the Participant's termination of employment or service with the Company and all Affiliates thereof, the RSUs shall be treated as follows, except as specifically provided in an employment agreement between the Company and the Participant:

(i)In the event that the employment or service of a Participant with the Company and all Affiliates thereof (including by reason of the Participant's employer ceasing to be an Affiliate of the Company) shall terminate for any reason other than Cause, unvested RSUs granted to such Participant shall terminate at the close of business on the date of such termination.

(ii)In the event of the termination of a Participant's employment or service for Cause, all outstanding RSUs (whether vested or not) granted to such Participant shall terminate at the commencement of business on the date of such termination.

(b)In the sole discretion of the Administrator, RSUs shall be affected, both with regard to vesting schedule and termination, by leaves of absence, including unpaid and un-protected leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant.

2.6Issuance of Common Stock upon Vesting.

(a)The RSUs shall represent the right to receive, on the first business day following the Vesting Date, the number of Shares determined in accordance with the Vesting Schedule set forth on the Notice of Grant to have been earned to the extent determined by the Compensation Committee after the applicable year-end audit, and provided that the Participant remains employed by the Company or an Affiliate through the Vesting Date, subject to the provisions of Section 2.5 or Section 3.1. Notwithstanding the above, earned Shares shall be treated as delivered on the first business day following the Vesting Date (the "Delivery Date") provided that they are delivered on a date following the Delivery Date that is in the same calendar year as the Delivery Date. On the Delivery Date, the Company shall deliver to the Trustee for the benefit of the Participant or to an account controlled by the Trustee (or any transferee permitted under Section 5.2 hereof) a number of Shares (either by delivering one or more certificates for such Shares or by entering such Shares in book entry form, as determined by the Company in its sole discretion) equal to the number of RSUs subject to this Agreement that vest on the Vesting Date, unless such RSUs terminate prior to the Vesting Date pursuant to Section 2.5 hereof. Notwithstanding the foregoing, in the event Shares cannot be issued pursuant to Section 19 of the Plan, the Shares shall be issued pursuant to the preceding sentence as soon as administratively practicable after the Administrator determines that Shares can again be issued in accordance with such Section.

(b)As set forth in Section 16 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require the Participant to remit to the Company, an amount sufficient to satisfy all applicable federal, state and local taxes required by

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law to be withheld with respect to any taxable event arising in connection with the Restricted Stock Units. The Company shall not be obligated to deliver any new certificate representing Shares to the Participant or the Participant's legal representative or enter such Shares in book entry form unless and until the Participant or the Participant's legal representative shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of the Participant resulting from the grant or vesting of the Restricted Stock Units or the issuance of Shares.

2.7Conditions to Delivery of Shares. The Shares deliverable hereunder may be either previously authorized but unissued Shares, treasury Shares or issued Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares deliverable hereunder prior to fulfillment of the conditions set forth in Section 19 of the Plan.

ARTICLE III TRUST

3.1    The RSUs and the underlying Shares and/or any additional rights, including without limitation any right to receive any dividends or any shares received as a result of an adjustment made under the Plan, that may be granted in connection with the RSUs (the “Additional Rights”) shall be issued to or controlled by the Trustee for the benefit of the Participant under the provisions of the 102 Capital Gains Route for at least the period stated in Section 102 of the Ordinance and the Income Tax Rules (Tax Benefits in Share Issuance to Employees) 5763-2003 (the “Rules”). In the event the RSUs do not meet the requirements of Section 102 of the Ordinance, such RSUs and the underlying Shares shall not qualify for the favorable tax treatment under the Capital Gains Route of Section 102 of the Ordinance. The Company makes no representations or guarantees that the RSUs will qualify for favorable tax treatment and will not be liable or responsible if favorable tax treatment is not available under Section 102 of the Ordinance. Any fees associated with any sale, transfer or any act in relation to the RSUs shall be borne by the Participant and the Trustee and/or the Company and/or any Affiliate shall be entitled to withhold or deduct such fees from payments otherwise due to from the Company or an Affiliate or the Trustee. In accordance with the requirements of Section 102 of the Ordinance and the Capital Gains Route, the Participant shall not sell nor transfer the Shares or Additional Rights from the Trustee until the end of the required Holding Period. Notwithstanding the above, if any such sale or transfer occurs before the end of the required Holding Period, the sanctions under Section 102 shall apply to and shall be borne by the Participant.

ARTICLE IV CHANGE IN CONTROL

4.1    Change in Control. In the event of a Change in Control, the RSUs shall be treated in accordance with Section 13 of the Plan.

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ARTICLE V OTHER PROVISIONS

5.1Administration. The Administrator shall have the power and authority to interpret and construe the terms and provisions of this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All decisions made by the Administrator shall be final, conclusive and binding on all persons, including the Participant, the Company and all other interested persons.

5.2Transferability of Grant. Except as otherwise set forth in the Plan:

(a)The RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Participant;

(b)Neither the RSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by Section 5.2(a) hereof.

(c)Notwithstanding anything mentioned in the Plan or this Agreement and in addition thereto, as long as the RSUs or Shares issued pursuant thereto are held or controlled by the Trustee on behalf of the Participant, all rights of the Participant over the Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

5.3Taxes. The Participant represents that the Participant has consulted with any tax consultants the Participant deems advisable in connection with the grant of RSUs and the issuance of Shares with respect thereto and that the Participant is not relying on the Company for any tax advice. The Company makes no warranties or representations whatsoever to the Participant regarding the tax consequences of the grant of RSUs or the receipt of Shares with respect thereto. The Participant shall be solely responsible for any taxes in respect of the RSUs.

5.4Adjustments. The Participant acknowledges that the RSUs are subject to modification and termination in certain events as provided in this Agreement and Section 5 of the Plan.

5.5Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Legal Department at the Company's principal office, and any notice to be given to the Participant shall be addressed to the Participant at the Participant's last address reflected on the Company's records. Any notice which is required

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to be given to the Participant shall, if the Participant is then deceased, be given to the person entitled to his or her RSUs pursuant to Section 5.2(a) hereof by written notice under this Section 5.5.

5.6Participant's Representations. If the Shares issuable hereunder have not been registered under the Securities Act or any applicable state laws on an effective registration statement at the time of such issuance, the Participant shall, if required by the Company, concurrently with such issuance, make such written representations as are deemed necessary or appropriate by the Company and/or its counsel.

5.7Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

5.8Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

5.9Conformity to Securities Laws. The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted and settled, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

5.10Amendments and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended, altered or terminated at any time or from time to time by the Administrator or the Board, but no amendment, alteration or termination of this Agreement shall be made that would materially impair the rights of a Participant under the RSUs without such Participant's consent.

5.11Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 5.2 hereof, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.

5.12Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if the Participant is subject to Section 16 of the Exchange Act, then the Plan, the RSUs and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

5.13Entire Agreement. The Plan, the Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their

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entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof.

5.14Electronic Signature; Electronic Delivery and Acceptance. The Participant's electronic signature of this Agreement shall have the same validity and effect as a signature affixed by hand. The Company may, in its sole discretion, decide to deliver any documents related to the Participant's current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

5.15Addendum. Notwithstanding any provisions in this Agreement, the RSUs shall be subject to any special provisions set forth in the Country Addendum attached hereto as Exhibit C for the Participant's country of residence, if any. If the Participant relocates to one of the countries included in the Country Addendum or the United States during the term of the RSUs, the special provisions for such country shall apply to Participant to the extent the Company determines that the application of such provisions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Agreement.

5.16Waiver. The Participant acknowledges that a waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Participant.

5.17Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

5.18The Company has received a securities exemption from the Israeli Securities Authority to avoid the requirement to file an Israeli securities prospectus in relation to the Plan. Copies of the Plan and the Form S-8 registration statement for the Plan filed with the

U.S. Securities and Exchange Commission will be made available by request from the Company’s Legal Department.

5.19Tax Withholding.

(a)The RSUs are intended to be taxed in accordance with Section 102, subject to full and complete compliance with the terms of Section 102. Participants with dual residency for tax purposes may be subject to taxation in several jurisdictions.

(b)Regardless of any action the Company and its Affiliates or, if Participant is an employee, the employer (the "Employer") takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax related items related to Participant's participation in the Plan and legally applicable to Participant ("Tax-Related Items"), Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains Participant's (and in the event of death, the Participant's heirs) responsibility and may exceed the amount actually withheld by the Company or any Affiliate. Participant further acknowledges that the Company, its Affiliates and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs,

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including, but not limited to, the grant or vesting of the RSUs, the subsequent sale or transfer of Shares acquired pursuant to the RSUs and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant's liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company, its Affiliates, the Employer (or former Employer, as applicable) and/or the Trustee may be required to withhold or account for Tax-Related Items in more than one jurisdiction. If Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former Employer, as applicable) and/or the Trustee may be required to withhold or account for Tax- Related Items in more than one jurisdiction. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of Participant's participation in the Plan.

(c)The Company, any Affiliate, the Employer or the Trustee or anyone on their behalf shall not be required to bear the aforementioned Tax-Related Items, directly or indirectly, nor shall they be required to gross up such Tax-Related Items in the Participant's salaries or remuneration.

(d)Without derogating from the aforementioned, the Company, an Affiliate, the Employer or the Trustee shall be entitled to withhold the Tax-Related Items as it deems complies with applicable law and to deduct any Tax-Related Items from payments otherwise due to the Participant from the Company or an Affiliate or the Employer or the Trustee. The ramifications of any future modification of applicable laws regarding the taxation of the RSUs granted to Participant shall apply to the Participant accordingly and the Participant shall bear the full cost thereof, unless such modified laws expressly provide otherwise.

5.20Data Privacy Notice and Consents.

(a)Data Collection and Usage. The Company collects, processes and uses personal data of the Participant, including, but not limited to, his or her name, home address and telephone number, email address, date of birth, social insurance, passport or other identification number (e.g., resident registration number), salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor. If the Company offers the Participant a grant of RSUs under the Plan, then the Company will collect the Participant’s personal data for purposes of allocating stock and

implementing, administering and managing the Plan. The Company’s legal basis for the processing of the Participant’s personal data would be his or her consent.

(b)Stock Plan Administration Service Providers. The Company transfers participant data to Morgan Stanley, an independent service provider based in the United States, which assists the Company with the implementation, administration and

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management of the Plan. In the future, the Company may select a different service provider and may share the Participant’s data with another company that serves in a similar manner. The Company’s service provider(s) will open an account for the Participant to receive and trade Shares. The Participant will be asked to agree on separate terms and data processing practices with such service provider(s), which is a condition to the Participant’s ability to participate in the Plan.

(c)International Data Transfers. The Company and its service providers are based in the United States. If the Participant is outside the United States, the Participant should note that his or her country has enacted data privacy laws that are different from the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis for the transfer of the Participant’s personal data is his or her consent.

(d)Data Retention. The Company will use the Participant’s personal data only as long as is necessary to implement, administer and manage the

Participant’s participation in the Plan or as required to comply with legal or regulatory obligations, including under tax and securities laws. When the Company no longer needs the Participant’s personal data, which will generally be seven years after the Participant is granted RSUs under the Plan, the Company will remove it from its systems. If the Company keeps data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulations.

(e)Voluntariness and Consequences of Consent Denial or Withdrawal. The Participant’s participation in the Plan and the Participant’s grant of consent is purely voluntary. The Participant may deny or withdraw his or her consent at any time. If the Participant does not consent, or if the Participant withdraws his or her consent, the Participant cannot participate in the Plan. This would not affect the Participant’s salary as an employee or his or her career; the Participant would merely forfeit the opportunities associated with the Plan.

(f)Data Subject Rights. The Participant has a number of rights under data privacy laws in his or her country. Depending on where the Participant is based, the Participant’s rights may include the right to (a) request access or copies of personal data the Company processes, (b) rectification of incorrect data, (c) deletion of data, (d) restrictions on processing, (e) portability of data, (f) lodge complaints with competent authorities in the

Participant’s country, and/or (g) request a list with the names and addresses of any potential recipients of the Participant’s personal data. To receive clarification regarding the

Participant’s rights or to exercise the Participant’s rights, please contact a local human resources representative.

If the Participant agrees with the data processing practices as described in this notice, he or she should declare his or her consent by clicking “Accept” on the Morgan Stanley award acceptance page.

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5.21Insider-Trading/Market-Abuse Laws. The Participant acknowledges that, depending on his or her country of residence or the country of residence of the Participant’s broker, the Participant may be subject to insider-trading restrictions and/or market-abuse laws, which may affect his or her ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., RSUs) or rights linked to the value of Shares during such times as the Participant is considered to have “inside information” regarding the Company, as defined by the laws or regulations in the Participant’s country. Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by the Participant before the Participant possessed inside information. Furthermore, the Participant could be prohibited from (i) disclosing the inside information to any third party (other than on a “need to know” basis) and

(ii) “tipping” third parties or causing them otherwise to buy or sell securities. Note that third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Participant acknowledges that it is his or her responsibility to be informed of and compliant with such regulations, and the Participant should speak to his or her personal legal advisor on this matter.

5.22Language. If the Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements r undertakings that may be necessary to accomplish the foregoing.

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EXHIBIT BTHE PLAN

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EXHIBIT C

THE ISRAELI SUB-PLAN

EXHIBIT D

THE TRUST DEED

EX-10.2

VARONIS SYSTEMS, INC.
2013 OMNIBUS EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD GRANT NOTICE

Varonis Systems, Inc. (the “Company”), pursuant to its 2013 Omnibus Equity Incentive Plan (including the Sub-Plan for Israeli Participants adopted by the Company) (the "Plan"), hereby grants to the individual listed below (the “Participant”) an Award of performance-based restricted stock units (“PSUs”). Each earned and vested PSU represents the right to receive, in accordance with the PSU Award Agreement attached hereto as Exhibit A (the “Agreement”), one share of the Common Stock of the Company (each, a “Share”). This Award of PSUs is subject to all of the terms and conditions set forth herein and in the Agreement and the Plan, which are incorporated herein by reference.

Capitalized terms not specifically defined herein shall have the meanings specified in the Plan.

Participant	[*]
Grant Date:	[*]
Performance Period:	[*]
Target Number of PSUs Subject to Grant:	[*]
Type of Grant:		Section 102 – "capital gains route"

Vesting Schedule: [*]

Termination: Except to the extent paid in accordance with the above vesting schedule, the PSUs shall terminate, become forfeited or expire without settlement in accordance with the terms of the Agreement.

By his or her signature, the Participant hereby:

(a)agrees to be bound by the terms and conditions of the Plan, the Agreement and this Notice.

(b)acknowledges receipt of a copy of the Plan and accepts the PSUs subject to all of the terms and provisions of the Plan, the Agreement and this Notice and declares that he/she has reviewed the Agreement, the Plan and this Notice in their entirety.

(c)declares that he/she has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan.

(d)agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Agreement and this Notice or relating to the award of PSUs.

(e)declares that she/he is familiar with Section 102 and the regulations and rules promulgated thereunder, including without limitations the provisions of the applicable tax route, and agrees to comply with such provisions, as amended from time to time, provided that if such terms are not met, Section 102 may not apply.

(f)agrees to the terms and conditions of the trust deed signed between the Trustee and attached herein as Exhibit D and the Company and/or the applicable Affiliate, including but not limited to the control of the Shares by the Trustee.

(g)acknowledges that releasing the Shares from the control or holding of the Trustee prior to the termination of the Holding Period constitutes a violation of the terms of Section 102 and agrees to bear the relevant sanctions.

(h)authorizes the Company and/or the applicable Affiliate to provide the Trustee with any information required for the purpose of administering the Plan including executing its obligations under the Ordinance, the trust deed and the trust agreement, including without limitation information about his/her Shares, income tax rates, salary bank account, contact details and identification number.

(i)declares that he/she is a resident of the State of Israel for tax purposes on the Grant Date and agrees to notify the Company upon any change in the residence address indicated above and acknowledges that if he/she ceases to be an Israeli resident or if his/her engagement with the Company or Affiliate is terminated, the Shares shall remain subject to Section 102, the trust agreement, the Plan, the Agreement and this Notice.

(j)warrants and undertakes that at the time of grant of the PSUs herein, or as a consequence of the grant, the Participant is not and will not become a holder of a “controlling interest” in the Company, as such term is defined in Section 32(9) of the Ordinance.

In addition, by signing below, the Participant also agrees that the Company, in its sole discretion, may satisfy any withholding obligations in accordance with Section 2.6(b) of the Agreement by (i) withholding shares of Common Stock otherwise issuable to the Participant upon vesting of the Earned PSUs, (ii) instructing a broker on the Participant’s behalf to sell shares of Common Stock otherwise issuable to the Participant upon vesting of the Earned PSUs and submit the proceeds of such sale to the Company, or (iii) using any other method permitted by Section 2.6(b) of the Agreement or the Plan.

VARONIS SYSTEMS, INC.	PARTICIPANT
By: __________________________________	By: __________________________________
Print Name:	Print Name:
Title:

EXHIBIT A

PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Performance-Based Restricted Stock Unit Award Grant Notice (the “Notice”) to which this Performance-Based Restricted Stock Unit Award Agreement (this “Agreement”) is attached, Varonis Systems, Inc. (the “Company”) has granted to the Participant an Award of performance-based restricted stock units (“PSUs”) under the Company's 2013 Omnibus Equity Incentive Plan (including the Sub-Plan for Israeli Participants adopted by the Company) (the "Plan"). Each earned and vested PSU represents the right to receive one share of the Common Stock of the Company (each a “Share”). Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and Notice.

ARTICLE I

GENERAL

1.1Incorporation of Terms of Plan. The PSUs are subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II

GRANT OF PSUS

2.1Grant of PSUs. In consideration of the Participant's employment or service to the Company or any Affiliate and other good and valuable consideration, effective as of the Grant Date set forth in the Notice, the Company hereby grants to the Participant an Award of PSUs under the Plan, upon the terms and conditions set forth in the Notice, the Plan and this Agreement.

2.2Unsecured Obligation. Unless and until the PSUs have been earned and vested in the manner set forth in Article 2 hereof, the Participant will have no right to receive Shares with respect to any such PSUs. Prior to actual payment of any earned and vested PSUs, such PSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

2.3Vesting Schedule. Subject to Sections 2.5 and 3.1 hereof, the PSUs shall be earned and shall thereafter vest and become nonforfeitable with respect to the applicable portion thereof according to the vesting schedule set forth in the Notice (rounding down to the nearest whole Share).

2.4Consideration to the Company. In consideration of the grant of the Award of PSUs pursuant hereto, the Participant agrees to render faithful and efficient employment or other service to the Company or any Affiliate. Nothing in the Plan or this Agreement shall confer upon the Participant any right to continue in the employment or service of the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which rights are hereby expressly reserved, to discharge or terminate the employment or service of the Participant at any time for any reason whatsoever, with or without Cause.

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2.5Forfeiture, Termination and Cancellation Upon Termination of Employment or Service.

(a)Upon the Participant's termination of employment or service with the Company and all Affiliates thereof, the PSUs shall be treated as follows, except as specifically provided in an employment agreement between the Company and the Participant:

(i)In the event that the employment or service of the Participant with the Company and all Affiliates thereof (including by reason of the Affiliate employing or engaging Participant ceasing to be an Affiliate of the Company) shall terminate for any reason other than for Cause, unvested PSUs granted to the Participant shall terminate at the close of business on the date of such termination.

(ii)In the event of the termination of the Participant's employment or service for Cause, all outstanding PSUs (whether vested or not and whether an Earned PSU or not) granted to the Participant shall terminate at the commencement of business on the date of such termination.

(b)In the sole discretion of the Administrator, PSUs shall be affected, both with regard to the vesting schedule and termination, by leaves of absence, including unpaid and un-protected leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of the Participant.

2.6Issuance of Shares upon Vesting.

(a)Earned PSUs to the extent determined by the Compensation Committee after the applicable year-end audit shall represent the right to receive, on the first business day following the applicable vesting date, the number of Shares determined in accordance with the Vesting Schedule set forth in the Notice and provided that the Participant remains employed by the Company or an Affiliate through the applicable vesting date, subject to the provisions of Section 2.5 or Section 3.1. Notwithstanding the above, Shares earned with respect to vested Earned PSUs shall be treated as delivered on the first business day following the applicable vesting date (the “Delivery Date”) provided that they are delivered on a date following the Delivery Date that is in the same calendar year as the Delivery Date. On the Delivery Date, the Company shall deliver to the Trustee for the benefit of the Participant or to an account controlled by the Trustee (or any transferee permitted under Section 4.3 hereof) a number of Shares (either by delivering one or more certificates for such Shares or by entering such Shares in book entry form, as determined by the Company in its sole discretion) equal to the number of Earned PSUs that vest on the applicable vesting date, unless such Earned PSUs terminate prior to the applicable vesting date pursuant to Section 2.5 hereof. Notwithstanding the foregoing, in the event Shares cannot be issued pursuant to Section 19 of the Plan, the Shares shall be issued pursuant to the preceding sentence as soon as administratively practicable after the Administrator determines that Shares can again be issued in accordance with such Section.

(b)As set forth in Section 16 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require the Participant to remit to the Company, an amount sufficient to satisfy all applicable federal, state and local taxes required by law to be withheld with respect to any taxable event arising in connection with the PSUs. The Company shall not be obligated to deliver any new certificate representing Shares to the Participant or the Participant's legal representative or enter such Shares in book entry form unless and until the Participant or the Participant's legal representative shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of the Participant resulting from the grant or vesting of the PSUs or the issuance of Shares.

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2.7Conditions to Delivery of Shares. The Shares deliverable hereunder may be either previously authorized but unissued Shares, treasury Shares or issued Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares deliverable hereunder prior to fulfillment of the conditions set forth in Section 19 of the Plan.

ARTICLE III

TRUST

3.1The PSUs and the underlying Shares and/or any additional rights, including without limitation any right to receive any dividends or any shares received as a result of an adjustment made under the Plan, that may be granted in connection with the PSUs (the “Additional Rights”) shall be issued to or controlled by the Trustee for the benefit of the Participant under the provisions of the 102 Capital Gains Route for at least the period stated in Section 102 of the Ordinance and the Income Tax Rules (Tax Benefits in Share Issuance to Employees) 5763-2003 (the “Rules”). In the event the PSUs do not meet the requirements of Section 102 of the Ordinance, such PSUs and the underlying Shares shall not qualify for the favorable tax treatment under the Capital Gains Route of Section 102 of the Ordinance. The Company makes no representations or guarantees that the PSUs will qualify for favorable tax treatment and will not be liable or responsible if favorable tax treatment is not available under Section 102 of the Ordinance. Any fees associated with any sale, transfer or any act in relation to the PSUs shall be borne by the Participant and the Trustee and/or the Company and/or any Affiliate shall be entitled to withhold or deduct such fees from payments otherwise due to from the Company or an Affiliate or the Trustee. In accordance with the requirements of Section 102 of the Ordinance and the Capital Gains Route, the Participant shall not sell nor transfer the Shares or Additional Rights from the Trustee until the end of the required Holding Period. Notwithstanding the above, if any such sale or transfer occurs before the end of the required Holding Period, the sanctions under Section 102 shall apply to and shall be borne by the Participant.

ARTICLE IV

CHANGE IN CONTROL

4.1Change in Control. In the event of a Change in Control, the PSUs shall be treated in accordance with Section 13 of the Plan.

ARTICLE V

OTHER PROVISIONS

5.1Administration. The Administrator shall have the power and authority to interpret and construe the terms and provisions of this Agreement and to adopt such rules for the administration, interpretation and application of this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All decisions made by the Administrator shall be final, conclusive and binding on all persons, including the Participant, the Company and any other interested persons and entities.

5.2Transferability of Grant. Except as otherwise set forth in the Plan:

(a)The PSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution. The terms of the Plan and this

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Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Participant;

(b)Neither the PSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by Section 4.2(a).

(c)Notwithstanding anything mentioned in the Plan or this Agreement and in addition thereto, as long as the PSUs or Shares issued pursuant thereto are held or controlled by the Trustee on behalf of the Participant, all rights of the Participant over the Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

5.3Taxes. The Participant represents that the Participant has consulted with any tax consultants the Participant deems advisable in connection with the grant of PSUs and the issuance of Shares with respect thereto and that the Participant is not relying on the Company for any tax advice. The Company makes no warranties or representations whatsoever to the Participant regarding the tax consequences of the grant of PSUs or the receipt of Shares with respect thereto. The Participant shall be solely responsible for any taxes in respect of the PSUs.

5.4Equitable Adjustments. The Participant acknowledges that the PSUs are subject to modification and termination in certain events as provided in this Agreement and Section 5 of the Plan.

5.5Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Legal Department at the Company's principal office, and any notice to be given to the Participant shall be addressed to the Participant at the Participant's last address reflected on the Company's records. Any notice which is required to be given to the Participant shall, if the Participant is then deceased, be given to the person entitled to the PSUs pursuant to Section 4.2(a) hereof by written notice under this Section 4.7.

5.6Participant’s Representations. If the Shares issuable hereunder have not been registered under the Securities Act or any applicable state laws on an effective registration statement at the time of such issuance, the Participant shall, if required by the Company, concurrently with such issuance, make such written representations as are deemed necessary or appropriate by the Company and/or its counsel.

5.7Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

5.8Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

5.9Conformity to Securities Laws. The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the PSUs are granted and settled, only in such a manner as to conform to such laws, rules and regulations.

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To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

5.10Amendments and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended, altered or terminated at any time or from time to time by the Administrator or the Board, but no amendment, alteration or termination of this Agreement shall be made that would materially impair the rights of a Participant under the PSUs without such Participant's consent.

5.11Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 4.2 hereof, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.

5.12Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if the Participant is subject to Section 16 of the Exchange Act, then the Plan, the PSUs and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

5.13Entire Agreement. The Plan, the Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof.

5.14Electronic Signature; Electronic Delivery and Acceptance. The Participant's electronic signature of this Agreement shall have the same validity and effect as a signature affixed by hand. The Company may, in its sole discretion, decide to deliver any documents related to the Participant’s current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

5.15Addendum. Notwithstanding any provisions in this Agreement, the PSUs shall be subject to any special provisions set forth in the Country Addendum attached hereto as Exhibit C for the Participant's country of residence, if any. If the Participant relocates to one of the countries included in the Country Addendum or the United States during the term of the PSUs, the special provisions for such country shall apply to Participant to the extent the Company determines that the application of such provisions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Agreement.

5.16Waiver. The Participant acknowledges that a waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Participant.

5.17Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

5.18The Company has received a securities exemption from the Israeli Securities Authority to avoid the requirement to file an Israeli securities prospectus in relation to the Plan. Copies of the Plan and the Form S-8 registration statement for the Plan filed with the

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U.S. Securities and Exchange Commission will be made available by request from the Company’s Legal Department.

5.19Tax Withholding.

(a)The PSUs are intended to be taxed in accordance with Section 102, subject to full and complete compliance with the terms of Section 102. Participants with dual residency for tax purposes may be subject to taxation in several jurisdictions.

(b)Regardless of any action the Company and its Affiliates or, if Participant is an employee, the employer (the "Employer") takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax related items related to Participant's participation in the Plan and legally applicable to Participant ("Tax-Related Items"), Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains Participant's (and in the event of death, the Participant's heirs) responsibility and may exceed the amount actually withheld by the Company or any Affiliate. Participant further acknowledges that the Company, its Affiliates and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the PSUs, including, but not limited to, the grant or vesting of the PSUs, the subsequent sale or transfer of Shares acquired pursuant to the PSUs and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the PSUs to reduce or eliminate Participant's liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company, its Affiliates, the Employer (or former Employer, as applicable) and/or the Trustee may be required to withhold or account for Tax-Related Items in more than one jurisdiction. If Participant is subject to Tax-Related Items in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Employer (or former Employer, as applicable) and/or the Trustee may be required to withhold or account for Tax-Related Items in more than one jurisdiction. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the PSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of Participant's participation in the Plan.

(c)The Company, any Affiliate, the Employer or the Trustee or anyone on their behalf shall not be required to bear the aforementioned Tax-Related Items, directly or indirectly, nor shall they be required to gross up such Tax-Related Items in the Participant's salaries or remuneration.

(d)Without derogating from the aforementioned, the Company, an Affiliate, the Employer or the Trustee shall be entitled to withhold the Tax-Related Items as it deems complies with applicable law and to deduct any Tax-Related Items from payments otherwise due to the Participant from the Company or an Affiliate or the Employer or the Trustee. The ramifications of any future modification of applicable laws regarding the taxation of the PSUs granted to Participant shall apply to the Participant accordingly and the Participant shall bear the full cost thereof, unless such modified laws expressly provide otherwise.

5.20Data Privacy Notice and Consents.

(a)Data Collection and Usage. The Company collects, processes and uses personal data of the Participant, including, but not limited to, his or her name, home address and telephone number, email address, date of birth, social insurance, passport or other identification number (e.g., resident registration number), salary, nationality, job title, any Shares

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or directorships held in the Company, details of all PSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor. If the Company offers the Participant a grant of PSUs under the Plan, then the Company will collect the Participant’s personal data for purposes of allocating stock and implementing, administering and managing the Plan. The Company’s legal basis for the processing of the Participant’s personal data would be his or her consent.

(b)Stock Plan Administration Service Providers. The Company transfers participant data to Morgan Stanley, an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and may share the Participant’s data with another company that serves in a similar manner. The Company’s service provider(s) will open an account for the Participant to receive and trade Shares. The Participant will be asked to agree on separate terms and data processing practices with such service provider(s), which is a condition to the Participant’s ability to participate in the Plan.

(c)International Data Transfers. The Company and its service providers are based in the United States. If the Participant is outside the United States, the Participant should note that his or her country has enacted data privacy laws that are different from the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis for the transfer of the Participant’s personal data is his or her consent.

(d)Data Retention. The Company will use the Participant’s personal data only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan or as required to comply with legal or regulatory obligations, including under tax and securities laws. When the Company no longer needs the Participant’s personal data, which will generally be seven years after the Participant is granted PSUs under the Plan, the Company will remove it from its systems. If the Company keeps data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulations.

(e)Voluntariness and Consequences of Consent Denial or Withdrawal. The Participant’s participation in the Plan and the Participant’s grant of consent is purely voluntary. The Participant may deny or withdraw his or her consent at any time. If the Participant does not consent, or if the Participant withdraws his or her consent, the Participant cannot participate in the Plan. This would not affect the Participant’s salary as an employee or his or her career; the Participant would merely forfeit the opportunities associated with the Plan.

(f)Data Subject Rights. The Participant has a number of rights under data privacy laws in his or her country. Depending on where the Participant is based, the Participant’s rights may include the right to (a) request access or copies of personal data the Company processes, (b) rectification of incorrect data, (c) deletion of data, (d) restrictions on processing, (e) portability of data, (f) lodge complaints with competent authorities in the Participant’s country, and/or (g) request a list with the names and addresses of any potential recipients of the Participant’s personal data. To receive clarification regarding the Participant’s rights or to exercise the Participant’s rights, please contact a local human resources representative.

If the Participant agrees with the data processing practices as described in this notice, he or she should declare his or her consent by clicking “Accept” on the Morgan Stanley award acceptance page.

A-7

5.21Insider-Trading/Market-Abuse Laws. The Participant acknowledges that, depending on his or her country of residence or the country of residence of the Participant’s broker, the Participant may be subject to insider-trading restrictions and/or market-abuse laws, which may affect his or her ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares (e.g., RSUs) or rights linked to the value of Shares during such times as the Participant is considered to have “inside information” regarding the Company, as defined by the laws or regulations in the Participant’s country. Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by the Participant before the Participant possessed inside information. Furthermore, the Participant could be prohibited from (i) disclosing the inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Note that third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Participant acknowledges that it is his or her responsibility to be informed of and compliant with such regulations, and the Participant should speak to his or her personal legal advisor on this matter.

5.22Language. If the Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

5.23Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the PSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participantto sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

A-8

EXHIBIT B

PERFORMANCE METRICS

B-1

EXHIBIT C

THE ISRAELI SUB-PLAN

B-2

EXHIBIT D

THE TRUST DEED

B-3

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Yakov Faitelson, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Varonis Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2022	By:	/s/ Yakov Faitelson
		Yakov Faitelson
		Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15(d)-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Guy Melamed, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Varonis Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2022	By:	/s/ Guy Melamed
		Guy Melamed
		Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CEO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Varonis Systems, Inc. (the “Company”) for the quarterly period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Yakov Faitelson, as Chief Executive Officer and President of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Yakov Faitelson
	Yakov Faitelson
	Chief Executive Officer and President (Principal Executive Officer)

Date: May 3, 2022

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CFO PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Varonis Systems, Inc. (the “Company”) for the quarterly period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Guy Melamed, as Chief Financial Officer and Chief Operating Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Guy Melamed
	Guy Melamed
	Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

Date: May 3, 2022

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2022	Apr. 29, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2022
Document Transition Report	false
Entity File Number	001-36324
Entity Registrant Name	VARONIS SYSTEMS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	57-1222280
Entity Address, Address Line One	1250 Broadway, 29th Floor
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10001
City Area Code	877
Local Phone Number	292-8767
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	VRNS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		109,569,674
Entity Central Index Key	0001361113
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 775,719	$ 805,761
Marketable securities	28,372	0
Short-term deposits	0	1,850
Trade receivables (net of allowances of $3,575 and $2,754 at March 31, 2022 and December 31, 2021, respectively)	63,604	117,179
Prepaid expenses and other current assets	35,812	34,417
Total current assets	903,507	959,207
Long-term assets:
Operating lease right-of-use asset	61,351	63,749
Property and equipment, net	39,495	38,298
Intangible assets, net	3,931	4,313
Goodwill	23,135	23,135
Other assets	20,143	19,835
Total long-term assets	148,055	149,330
Total assets	1,051,562	1,108,537
Current liabilities:
Trade payables	4,771	5,324
Accrued expenses and other short-term liabilities	92,560	102,226
Deferred revenues	98,763	104,221
Total current liabilities	196,094	211,771
Long-term liabilities:
Convertible senior notes, net	247,846	225,330
Operating lease liability	65,786	68,694
Deferred revenues	2,378	2,566
Other liabilities	3,680	3,583
Total long-term liabilities	319,690	300,173
Stockholders’ equity:
Common stock of $0.001 par value - Authorized: 200,000,000 shares at March 31, 2022 and December 31, 2021; Issued and outstanding: 109,566,197 shares at March 31, 2022 and 107,509,096 shares at December 31, 2021	110	108
Accumulated other comprehensive income	2,894	6,083
Additional paid-in capital	1,000,493	1,018,005
Accumulated deficit	(467,719)	(427,603)
Total stockholders’ equity	535,778	596,593
Total liabilities and stockholders’ equity	$ 1,051,562	$ 1,108,537

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 3,575	$ 2,754
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	200,000,000	200,000,000
Common stock, issued (in shares)	109,566,197	107,509,096
Common stock, outstanding (in shares)	109,566,197	107,509,096

XML

Unaudited Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Revenues:
Revenue	$ 96,261	$ 74,785
Cost of revenues	17,809	13,482
Gross profit	78,452	61,303
Operating expenses:
Research and development	43,570	30,062
Sales and marketing	64,787	51,493
General and administrative	18,180	13,823
Total operating expenses	126,537	95,378
Operating loss	(48,085)	(34,075)
Financial income (expenses), net	736	(1,022)
Loss before income taxes	(47,349)	(35,097)
Income taxes	(1,414)	(559)
Net loss	$ (48,763)	$ (35,656)
Net loss per share of common stock, basic (in dollars per share)	$ (0.45)	$ (0.36)
Net loss per share of common stock, diluted (in dollars per share)	$ (0.45)	$ (0.36)
Weighted average number of shares used in computing net loss per share of common stock, basic (in shares)	108,204,960	100,246,972
Weighted average number of shares used in computing net loss per share of common stock, diluted (in shares)	108,204,960	100,246,972
Subscriptions
Revenues:
Revenue	$ 68,985	$ 45,114
Maintenance and services
Revenues:
Revenue	$ 27,276	$ 29,671

XML

Unaudited Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Statement of Comprehensive Income [Abstract]
Net loss	$ (48,763)	$ (35,656)
Other comprehensive loss:
Unrealized income (loss) on marketable securities, net of tax	(10)	4
Income on marketable securities reclassified into earnings, net of tax	0	1
Total	(10)	5
Unrealized loss on derivative instruments, net of tax	(2,759)	(3,149)
Income on derivative instruments reclassified into earnings, net of tax	(420)	(2,036)
Total	(3,179)	(5,185)
Total other comprehensive loss	(3,189)	(5,180)
Comprehensive loss	$ (51,952)	$ (40,836)

XML

Unaudited Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Common stock	Additional paid-in capital	Additional paid-in capital Cumulative Effect, Period of Adoption, Adjustment	Accumulated other comprehensive income (loss)	Accumulated deficit	Accumulated deficit Cumulative Effect, Period of Adoption, Adjustment
Beginning balance (in shares) at Dec. 31, 2020			95,456,862
Beginning balance at Dec. 31, 2020	$ 94,071		$ 95	$ 395,347		$ 9,371	$ (310,742)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of Common stock in connection with follow-on offering, net of issuance costs of $17,466 (in shares)			7,961,538
Issuance of Common stock in connection with follow-on offering, net of issuance costs of $17,466	500,034		$ 8	500,026
Stock-based compensation expense	21,379			21,379
Common stock issued under employee stock plans, net (in shares)			2,728,995
Common stock issued under employee stock plans	4,673		$ 3	4,670
Taxes paid related to net share settlement of equity awards	(731)			(731)
Unrealized loss on derivative instruments	(5,185)					(5,185)
Unrealized income on available for sale securities	5					5
Net loss	(35,656)						(35,656)
Ending balance (in shares) at Mar. 31, 2021			106,147,395
Ending balance at Mar. 31, 2021	578,590		$ 106	920,691		4,191	(346,398)
Beginning balance (in shares) at Dec. 31, 2020			95,456,862
Beginning balance at Dec. 31, 2020	94,071		$ 95	395,347		9,371	(310,742)
Ending balance (in shares) at Dec. 31, 2021			107,509,096
Ending balance at Dec. 31, 2021	$ 596,593	$ (22,147)	$ 108	1,018,005	$ (30,794)	6,083	(427,603)	$ 8,647
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Accounting Standards Update [Extensible Enumeration]	Accounting Standards Update 2020-06 [Member]
Stock-based compensation expense	$ 35,998			35,998
Common stock issued under employee stock plans, net (in shares)			2,057,101
Common stock issued under employee stock plans	6,111		$ 2	6,109
Taxes paid related to net share settlement of equity awards	(28,825)			(28,825)
Unrealized loss on derivative instruments	(3,179)					(3,179)
Unrealized income on available for sale securities	(10)					(10)
Net loss	(48,763)						(48,763)
Ending balance (in shares) at Mar. 31, 2022			109,566,197
Ending balance at Mar. 31, 2022	$ 535,778		$ 110	$ 1,000,493		$ 2,894	$ (467,719)

XML

Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows from operating activities:
Net loss	$ (48,763)	$ (35,656)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2,679	2,349
Stock-based compensation	35,998	21,379
Amortization of deferred commissions	6,120	4,157
Noncash operating lease costs	2,326	2,242
Amortization of debt discount and issuance costs	370	1,689
Changes in assets and liabilities:
Trade receivables	53,575	42,927
Prepaid expenses and other current assets	(2,575)	(1,673)
Deferred commissions	(6,942)	(3,873)
Other long-term assets	359	900
Trade payables	(553)	(213)
Accrued expenses and other short-term liabilities	(12,502)	(5,029)
Deferred revenues	(5,646)	(7,618)
Other long-term liabilities	96	(1,198)
Net cash provided by operating activities	24,542	20,383
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities	0	6,036
Investment in marketable securities	(28,372)	0
Proceeds from short-term and long-term deposits	1,850	50,235
Investment in short-term and long-term deposits	(1,853)	(60,000)
Purchases of property and equipment	(3,495)	(1,116)
Net cash used in investing activities	(31,870)	(4,845)
Cash flows from financing activities:
Proceeds from employee stock plans	6,111	4,673
Taxes paid related to net share settlement of equity awards	(28,825)	(731)
Proceeds from follow-on offering, net	0	500,034
Net cash provided by (used in) financing activities	(22,714)	503,976
Increase (decrease) in cash and cash equivalents	(30,042)	519,514
Cash and cash equivalents at beginning of period	805,761	234,092
Cash and cash equivalents at end of period	775,719	753,606
Supplemental disclosure of cash flow information:
Cash paid for income taxes	507	2,822
Cash paid for interest	1,582	1,582
Lease liabilities arising from obtaining right-of-use assets	$ 248	$ 7,785

XML

Unaudited Consolidated Statements of Changes in Stockholders' Equity - (Parenthetical) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Statement of Stockholders' Equity [Abstract]
Issuance costs	$ 17,466

XML

General

3 Months Ended

Mar. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

GENERAL

a. Description of Business:

Varonis Systems, Inc. ("VSI" and together with its subsidiaries, collectively, the “Company” or "Varonis") was incorporated under the laws of the State of Delaware on November 3, 2004, commenced operations on January 1, 2005 and has twelve wholly-owned subsidiaries.

The Company’s software products and services allow enterprises to manage, analyze, alert and secure enterprise data. Varonis focuses on protecting enterprise data including: sensitive files and emails; confidential customer, patient and employee data; financial records; strategic and product plans; and other intellectual property. Through its products: DatAdvantage (including the Automation Engine), DatAlert (including Varonis Edge), DataPrivilege, Data Classification Engine (including Policy Pack and Data Classification Labels), Data Transport Engine and DatAnswers, the Varonis Data Security Platform detects cyberthreats from both internal and external actors by analyzing data, account activity and user behavior; prevents and limits disaster by locking down sensitive and stale data; and efficiently sustains a secure state with automation. Varonis products address additional important use cases including data protection, data governance, Zero Trust, cybercrime, compliance, data privacy, classification and threat detection and response.

b. Basis of Presentation:

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain amounts in prior periods' financial statements have been recast and reclassified to conform to the current year's presentation.

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2021 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021 filed with the SEC on February 8, 2022 (the “2021 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the 2021 Form 10-K, unless otherwise stated.

c. Revenue Recognition:

The Company generates revenues in the form of software license fees and related maintenance and services fees. Subscription revenues are sold on-premises and are comprised of time-based licenses whereby customers use the Company's software (including support and unspecified upgrades and enhancements when and if they are available) for a specified period. In the second half of 2021, the Company launched its cloud offering that allows customers to use hosted software. Maintenance and services primarily consist of fees for maintenance and services of perpetual license sales (including support and unspecified upgrades and enhancements when and if they are available) and to a lesser extent professional services, which focus on both operationalizing the software and training the Company's customers to fully leverage the use of its products, although the user can benefit from the software without the Company's assistance. The Company sells its products worldwide to a network of distributors and value-added resellers, and payment is typically due within 30 to 60 calendar days of the invoice date.

The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers.” As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

Subscription software and perpetual license revenues are recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. As we have successfully transitioned to a subscription model which has resulted in an immaterial amount of perpetual license revenues, these revenues are included within the subscriptions line of the

consolidated statements of operations. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement. In 2021, the Company launched its cloud offering that allows customers to use hosted software, and its revenue is recognized ratably over the associated contract period. As the Company only introduced these licenses in the second half of 2021, the total associated revenues have not yet been material.

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

Revenues from professional services consist mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service term has expired.

The Company enters into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The license is distinct upon delivery as the customer can derive the economic benefit of the software without any professional services, updates or technical support. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. For maintenance, the Company determines the standalone selling prices based on the price at which the Company separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services. For software licenses, the Company uses the residual approach to determine the standalone selling prices due to the lack of history of selling software license on a standalone basis and the highly variable sales price.

Trade receivables are generally recorded at the invoice amount mostly for a one-year period, net of an allowance for credit losses.

Deferred revenues represent mostly unrecognized fees billed or collected for maintenance and professional services. Deferred revenues are recognized as (or when) the Company performs under the contract. Pursuant to these contracts, customers are not invoiced for subsequent years until the annual renewal occurs. The amount of revenues recognized in the period that was included in the opening deferred revenues balance was $39,029 for the three months ended March 31, 2022.

The Company does not grant a right of return to its customers, except for one of its resellers. In 2021 and for the three months ended March 31, 2022, there were no returns from this reseller.

For information regarding disaggregated revenues, refer to Note 7.

d. Contract Costs:

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

e. Derivative Instruments:

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

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

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following table (in thousands):

 

	Assets (liabilities) as of March 31, 2022 (unaudited)				Assets (liabilities) as of December 31, 2021
	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in prepaid expenses and other current assets	$	97,165	$	2,904	$	115,710	$	6,083
Foreign exchange forward contract derivatives for monetary items included in accrued expenses and other short-term liabilities	$	29,414	$	(30)	$	42,056	$	(62)

The unaudited consolidated statements of operations reflect a gain of $420 and $547 for the three months ended March 31, 2022 and 2021, respectively, related to the effective portion of the cash flow hedges. No material ineffective hedges were recognized for the three months ended March 31, 2022 and 2021 in operating expenses in the consolidated statement of operations.

For the three months ended March 31, 2022 and 2021, the unaudited consolidated statements of operations reflect a gain of $741 and $771, respectively, in financial income (expenses), net, related to the Fair Value Hedging Program.

f. Income Taxes:

The Company operates in the U.S. and in foreign jurisdictions and is subject to taxes in each country or jurisdiction in which it conducts business. Earnings from its non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. To date, on a consolidated basis, the Company has incurred accumulated net losses and has not recorded any U.S. federal tax provision.

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

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

The Company's fiscal 2022 annual effective rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded on its U.S. losses. For the three months ended March 31, 2022 and 2021, the Company recorded income tax expense of $1,414 and $559, respectively, comprised primarily of foreign income taxes.

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

The Company remains open to federal and state examination to the extent net carry-over unused operating losses and tax credit attributable to those years remain unutilized. As of March 31, 2022, the Company's federal tax returns for the years 2010

through the current period, excluding the 2016 tax year which was audited by the Internal Revenue Service, and most state tax returns for the years 2009 through the current period, are still open to examination.

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

g. Cash, Cash Equivalents, Marketable Securities and Short-Term Investments:   

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

The Company considers all high-quality investments purchased with original maturities at the date of purchase greater than three months but less than one year to be short-term. Cash equivalents, marketable securities and deposits are classified as available for sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of financial income (expenses), net in the consolidated statement of operations. Cash, cash equivalents, marketable securities and deposits consist of the following (in thousands):

 

	As of March 31, 2022
	(unaudited)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents
Money market funds	$	384,062	$	—	$	—	$	384,062
Corporate bonds	2,454		—		*)		2,454
Total	$	386,516	$	—	$ *)		$	386,516
Marketable securities
US Treasury securities	$	14,005	$	—	$	(8)	$	13,997
Commercial paper	9,573		—		—		9,573
Corporate bonds	4,804		*)		(2)		4,802
Total	$	28,382	$ *)		$	(10)	$	28,372
Long-term deposits
Term bank deposits	$	1,850	$	—	$	—	$	1,850
Total	$	1,850	$	—	$	—	$	1,850

*) Represents an amount lower than $1 

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

All the marketable securities have a stated effective maturity of less than 12 months as of March 31, 2022.

The gross unrealized gains and losses related to these short-term investments was due primarily to changes in interest rates. Available for sale debt securities with an amortized cost basis in excess of estimated fair value are assessed using the Current Expected Credit losses model to determine what portion of that difference, if any, is caused by expected credit losses. Expected credit losses on available for sale debt securities are recognized in financial income (expenses), net on the consolidated statements of operations. As of March 31, 2022, the Company did not recognize an allowance for credit losses on available for sale marketable securities as any expected credit losses are not material to the consolidated financial statements.

h. Revolving Credit Facility:

On August 21, 2020, the Company entered into a credit and security agreement with KeyBank National Association (the “Credit and Security Agreement”), for a three-year secured revolving credit facility of $70,000 (the “Credit Facility”). The Credit Facility maturity date is the earlier of August 21, 2023 or 90 days prior to the scheduled maturity of any convertible debt securities. The fees incurred in connection with entering into the Credit and Security Agreement are amortized on a straight-line basis over the contractual term of the arrangement. Ongoing fees and interest paid on the used and unused portions of the Credit Facility are expensed as incurred and included within financial income (expenses), net on the consolidated statement of operations. The Credit Facility is secured and the Credit and Security Agreement contains customary covenants and customary events of default provisions.

As of March 31, 2022, the Company had no balance outstanding on the Credit Facility and was in compliance with all financial covenants and non-financial covenants.

i. Basic and Diluted Net Loss Per Share:

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, performance stock units and the shares related to the conversion of the 1.25% Convertible Senior Notes issued by the Company on May 11, 2020 and due August 2025 in an aggregate principal amount of $253,000 (the "2025 Notes"), to the extent dilutive.

Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. There were 9,194,862 and 8,913,594 potentially dilutive shares from the conversion of outstanding stock options, restricted stock units and performance stock units that were not included in the calculation of diluted net loss per share for the period ending March 31, 2022 and 2021, respectively. Additionally, 8,239,254 shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash, shares or a combination thereof. As a result of the adoption of ASU 2020-06, the Company uses the if-converted method for calculating any potential dilutive effect on diluted net income per share, if applicable.

j. Recently Adopted Accounting Pronouncements:

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on earnings per share. The Company adopted this standard on January 1, 2022 using a modified retrospective basis which resulted in a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. For more information, refer to Note 5.

n. Recently Issued Accounting Pronouncements Not Yet Adopted:

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

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Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

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, 2022.

The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2022 and December 31, 2021 by level within the fair value hierarchy (in thousands):

 

	As of March 31, 2022
	(unaudited)								As of December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Financial assets:
Cash equivalents:
Money market funds	$	384,062	$	—	$	—	$	384,062	$	414,942	$	—	$	—	$	414,942
Corporate bonds	—		2,454		—		2,454		—		—		—		—
Marketable securities:
US Treasury securities	13,997		—		—		13,997		—		—		—		—
Commercial paper	—		9,573		—		9,573		—		—		—		—
Corporate bonds	—		4,802		—		4,802		—		—		—		—
Prepaid expenses and other current assets:
Forward foreign exchange contracts	—		2,904		—		2,904		—		6,083		—		6,083
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts	—		(30)		—		(30)		—		(62)		—		(62)
Total financial assets (liabilities)	$	398,059	$	19,703	$	—	$	417,762	$	414,942	$	6,021	$	—	$	420,963

See Note 5 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of the Company's 2025 Notes as of March 31, 2022.

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Leases

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

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, 2022
	(unaudited)
Operating right-of-use assets	$	61,351
Operating lease liabilities, current	$	(9,240)
Operating lease liabilities, long-term	(65,786)
Total operating lease liabilities	$	(75,026)

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

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

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

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

Minimum lease payments for the Company's right-of-use assets over the remaining lease periods as of March 31, 2022, are as follows (in thousands):

	March 31, 2022
	(unaudited)
2022	$	8,329
2023	11,527
2024	9,729
2025	9,767
2026	9,879
Thereafter	34,296
Total undiscounted lease payments	$	83,527
Less: Imputed interest	(8,501)
Present value of lease liabilities	$	75,026

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31, 2022:

Remaining lease term and discount rate:
Weighted average remaining lease term (years)	7.99
Weighted average discount rate	2.87	%

Total operating lease cost for the three months ended March 31, 2022 was $2,309, inclusive of sublease income of $100. Total operating lease cost for the three months ended March 31, 2021 was $1,440.

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

GOODWILL AND INTANGIBLE ASSETS

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

Goodwill

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

There were no additions, impairments or any other changes to the carrying amount of goodwill during the three months ended March 31, 2022 or during prior periods.

Intangible Assets

Total cost and amortization of intangible assets is comprised of the following (in thousands, except useful life):

	Estimated Useful Life	March 31, 2022
Intangible assets, net	(in years)	(unaudited)
Developed technology & trademarks	4	$	6,110
Total intangible assets		6,110
Less: Accumulated amortization		2,179
Total intangible assets, net		$	3,931

Intangible assets are expensed on a straight-line basis over the useful life of the asset. The Company recorded amortization expense of $381 and $384 for the three months ended March 31, 2022 and 2021.

The following table summarizes estimated future amortization expense of our intangible assets as of March 31, 2022 (in thousands):

Years ending December 31,	Amount (unaudited)
2022	1,143
2023	1,525
2024	1,263
Total future amortization expense	$	3,931

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Convertible Senior Notes and Capped Call Transactions

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Convertible Senior Notes and Capped Call Transactions

CONVERTIBLE SENIOR NOTES AND CAPPED CALL TRANSACTIONS

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

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

The initial conversion rate for the 2025 Notes is 32.5668 shares of the Company’s common stock for each $1,000 principal amount of the 2025 Notes, which is equivalent to an initial conversion price of approximately $30.71 per share. The conversion rate is subject to adjustment in specified events. The 2025 Notes are convertible into shares of the Company’s common stock, at the option of a holder, prior to the close of business on the business day immediately preceding February 15, 2025, 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, 2022, 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, 2022 through June 30, 2022. Whether the 2025 Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition. The Company has not received any conversion notices through the issuance date of our consolidated financial statements. Since the Company may elect to repay the 2025 Notes in cash, shares of our common stock, or a combination of both, it has continued to classify the 2025 Notes as long-term debt on its consolidated balance sheet as of March 31, 2022.

The 2025 Notes are not redeemable at the Company’s option prior to August 20, 2023. The Company may redeem the 2025 Notes for cash, at its option, subject to the terms and conditions provided in the Indenture.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2025 Notes into liability and equity components. The carrying amounts of the liability components of the 2025 Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the 2025 Notes. This difference represented the debt discount that was amortized to interest expense using the effective interest rate method. The carrying amount of the equity components representing the conversion option was approximately

$31,779 for the 2025 Notes and were recorded in additional paid-in capital. In addition, the Company allocated transaction costs related to the issuance of the 2025 Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were approximately $6,857 and were being amortized to interest expense at an effective interest method rate of 4.51%. Transaction costs attributable to the equity component were approximately $985 and were netted with the equity component of the 2025 Notes in additional paid-in capital.

Following the adoption of ASU 2020-06 on January 1, 2022, which the Company elected to adopt using a modified retrospective approach, the Company no longer separates the 2025 Notes into liability and equity components. The cumulative effect of the accounting change as of January 1, 2022 was a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. Comparative prior year periods were not adjusted. In connection with the adoption, the Company calculated an effective interest rate of 1.87%.

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

	March 31, 2022
	(unaudited)
Principal	$	253,000
Unamortized issuance costs	(5,154)
Net carrying amount	$	247,846

The interest expense recognized related to the 2025 Notes for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Contractual interest expense	$	791	$	790
Amortization of debt discount	—		1,389
Amortization of debt issuance costs	369		300
Total	$	1,160	$	2,479

As of March 31, 2022, the total estimated fair value of the 2025 Notes was approximately $418,080. 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 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.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2022

Stockholders' Equity Note [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

a. Stock plans:

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

On November 14, 2013, the Company’s board of directors adopted the Varonis Systems, Inc. 2013 Omnibus Equity Incentive Plan (the “2013 Plan”) which was subsequently approved by the Company’s stockholders. The Company initially reserved 5,713,899 shares of common stock for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2013 Plan was increased on January 1, 2016 and has been, and will be, increased on each January 1 thereafter by four percent (4%) of the number of shares of common stock issued and outstanding on each December 31 immediately prior to the date of increase (rounded down to the nearest whole share), but the amount of each increase will be limited to the number of shares of common stock necessary to bring the total number of shares of Common Stock available for grant and issuance under the 2013 Plan to five percent (5%) of the number of shares of common stock issued and outstanding on each December 31. Since January 1, 2016, the share reserve under the 2013 Plan has been automatically increased by an aggregate of 24,217,741 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.

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

A summary of employees’ stock options activities during the three months ended March 31, 2022 is as follows:

 

	Three Months Ended March 31, 2022 (unaudited)
	Number	Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding as of January 1, 2022	803,870	$	7.077	$	33,524	2.747
Granted	—	$	—
Exercised	(3,208)	$	7.123
Forfeited and expired	—	$	—
Options outstanding as of March 31, 2022	800,662	$	7.077	$	32,397	2.501
Options exercisable as of March 31, 2022	786,922	$	7.101	$	31,822	2.407

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, 2022 was $111. As of March 31, 2022, there was $418 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005 Plan, 2013 Plan and Polyrize Plan. This cost is expected to be recognized over a weighted-average period of approximately 1.594 years.

b. The options outstanding as of March 31, 2022 (unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price				Options outstanding as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options outstanding		Options exercisable as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options exercisable
$	4.157	—	5.682	224,661	2.712	$	4.883	210,921	2.377	$	4.821
$	6.503	—	8.077	430,099	2.311	$	7.111	430,099	2.311	$	7.111
		$9.960		120,180	2.896	$	9.960	120,180	2.896	$	9.960
		$13.287		25,722	1.975	$	13.287	25,722	1.975	$	13.287
				800,662	2.501	$	7.077	786,922	2.407	$	7.101

c. Options issued to consultants:

The Company’s outstanding options granted to consultants for services as of March 31, 2022 (unaudited) were as follows:

 

	Number of options outstanding and exercisable as of March 31, 2022	Exercise price per share		Exercisable through
August 2013	4,500	$	7.047	August 2023
March 2014	4,650	$	13.287	March 2024
May 2014	3,000	$	7.337	May 2024
November 2014	7,500	$	7.220	November 2024
February 2016	3,000	$	5.623	February 2026
	22,650

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

A summary of RSUs and PSUs for employees, consultants and non-employee directors of the Company for the three months ended March 31, 2022 (unaudited) is as follows:

 

	Number of shares underlying outstanding RSUs and PSUs	Weighted- average grant date fair value
Unvested balance - January 1, 2022	7,726,125	$	42.53
Granted	3,366,541	$	43.20
Vested	(2,548,923)	$	32.66
Forfeited	(172,193)	$	46.28
Unvested balance – March 31, 2022	8,371,550	$	45.73

As of March 31, 2022, there was $344,959 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 2.696 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 3,004,765 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 consolidated statements of operations as follows (in thousands):

 

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Cost of revenues	$	3,087	$	1,589
Research and development	12,600		7,158
Sales and marketing	13,096		7,742
General and administrative	7,215		4,890
Total	$	35,998	$	21,379

g. Common stock split:

On February 8, 2021, the Company announced a three-for-one split of its common stock to stockholders of record as of the close of business on March 12, 2021. Trading of the Company's common stock began on a split-adjusted basis on March 15, 2021.

h. Follow-on offering:

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

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Geographic Information and Major Customer Data

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Geographic Information and Major Customer Data

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 from licensing of software and sales of professional services, maintenance and technical support (see Note 1 above 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,
	2022		2021
	(unaudited)
Revenues based on customer’s location:
North America	$	69,141	$	52,806
EMEA (*)	24,209		20,234
Rest of World	2,911		1,745
Total revenues	$	96,261	$	74,785

(*)       Sales to customers in France did not exceed 10% of total revenues for the three months ended March 31, 2022 and accounted for 10.3% of total revenues for the three months ended March 31, 2021.

For the three months ended March 31, 2022 and 2021, 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 of		As of
	March 31, 2022		December 31, 2021
	(unaudited)
Long-lived assets by geographic region:
United States	$	42,142	$	43,317
Israel	40,854		40,169
Ireland	15,911		16,341
Other	1,939		2,220
	$	100,846	$	102,047

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General (Policies)

3 Months Ended

Mar. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

b. Basis of Presentation:

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain amounts in prior periods' financial statements have been recast and reclassified to conform to the current year's presentation.

In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present its consolidated financial position, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the 2021 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021 filed with the SEC on February 8, 2022 (the “2021 Form 10-K”). There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2021 included in the 2021 Form 10-K, unless otherwise stated.

Revenue Recognition and Contract Costs

c. Revenue Recognition:

The Company generates revenues in the form of software license fees and related maintenance and services fees. Subscription revenues are sold on-premises and are comprised of time-based licenses whereby customers use the Company's software (including support and unspecified upgrades and enhancements when and if they are available) for a specified period. In the second half of 2021, the Company launched its cloud offering that allows customers to use hosted software. Maintenance and services primarily consist of fees for maintenance and services of perpetual license sales (including support and unspecified upgrades and enhancements when and if they are available) and to a lesser extent professional services, which focus on both operationalizing the software and training the Company's customers to fully leverage the use of its products, although the user can benefit from the software without the Company's assistance. The Company sells its products worldwide to a network of distributors and value-added resellers, and payment is typically due within 30 to 60 calendar days of the invoice date.

The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers.” As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

Subscription software and perpetual license revenues are recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. As we have successfully transitioned to a subscription model which has resulted in an immaterial amount of perpetual license revenues, these revenues are included within the subscriptions line of the

consolidated statements of operations. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement. In 2021, the Company launched its cloud offering that allows customers to use hosted software, and its revenue is recognized ratably over the associated contract period. As the Company only introduced these licenses in the second half of 2021, the total associated revenues have not yet been material.

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

Revenues from professional services consist mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service term has expired.

The Company enters into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The license is distinct upon delivery as the customer can derive the economic benefit of the software without any professional services, updates or technical support. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of the total consideration of the contract. For maintenance, the Company determines the standalone selling prices based on the price at which the Company separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services. For software licenses, the Company uses the residual approach to determine the standalone selling prices due to the lack of history of selling software license on a standalone basis and the highly variable sales price.

Trade receivables are generally recorded at the invoice amount mostly for a one-year period, net of an allowance for credit losses.

Deferred revenues represent mostly unrecognized fees billed or collected for maintenance and professional services. Deferred revenues are recognized as (or when) the Company performs under the contract. Pursuant to these contracts, customers are not invoiced for subsequent years until the annual renewal occurs.

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 consolidated statements of operations.

Derivative Instruments

e. Derivative Instruments:

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

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

Income Taxes

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. To date, on a consolidated basis, the Company has incurred accumulated net losses and has not recorded any U.S. federal tax provision.

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

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

The Company's fiscal 2022 annual effective rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded on its U.S. losses. For the three months ended March 31, 2022 and 2021, the Company recorded income tax expense of $1,414 and $559, respectively, comprised primarily of foreign income taxes.

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

The Company remains open to federal and state examination to the extent net carry-over unused operating losses and tax credit attributable to those years remain unutilized. As of March 31, 2022, the Company's federal tax returns for the years 2010

through the current period, excluding the 2016 tax year which was audited by the Internal Revenue Service, and most state tax returns for the years 2009 through the current period, are still open to examination.

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

Cash, Cash Equivalents, Marketable Securities and Short-term Investments

g. Cash, Cash Equivalents, Marketable Securities and Short-Term Investments:   

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

The Company considers all high-quality investments purchased with original maturities at the date of purchase greater than three months but less than one year to be short-term. Cash equivalents, marketable securities and deposits are classified as available for sale and are, therefore, recorded at fair value on the consolidated balance sheet, with any unrealized gains and losses reported in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in the Company’s consolidated balance sheets, until realized. The Company uses the specific identification method to compute gains and losses on the investments. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included as a component of financial income (expenses), net in the consolidated statement of operations.

Basic and Diluted Net Loss Per Share

i. Basic and Diluted Net Loss Per Share:

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, performance stock units and the shares related to the conversion of the 1.25% Convertible Senior Notes issued by the Company on May 11, 2020 and due August 2025 in an aggregate principal amount of $253,000 (the "2025 Notes"), to the extent dilutive.

Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. There were 9,194,862 and 8,913,594 potentially dilutive shares from the conversion of outstanding stock options, restricted stock units and performance stock units that were not included in the calculation of diluted net loss per share for the period ending March 31, 2022 and 2021, respectively. Additionally, 8,239,254 shares underlying the conversion option of the 2025 Notes are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of the 2025 Notes in cash, shares or a combination thereof. As a result of the adoption of ASU 2020-06, the Company uses the if-converted method for calculating any potential dilutive effect on diluted net income per share, if applicable.

Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted

j. Recently Adopted Accounting Pronouncements:

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on earnings per share. The Company adopted this standard on January 1, 2022 using a modified retrospective basis which resulted in a decrease to accumulated deficit of $8,647, a decrease in additional paid-in capital of $30,794 and an increase in liabilities of $22,147 on its consolidated balance sheets. For more information, refer to Note 5.

n. Recently Issued Accounting Pronouncements Not Yet Adopted:

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

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General (Tables)

3 Months Ended

Mar. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

Derivative instruments measured at fair value and their classification on the consolidated balance sheets are presented in the following table (in thousands):

 

	Assets (liabilities) as of March 31, 2022 (unaudited)				Assets (liabilities) as of December 31, 2021
	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign exchange forward contract derivatives in cash flow hedging relationships included in prepaid expenses and other current assets	$	97,165	$	2,904	$	115,710	$	6,083
Foreign exchange forward contract derivatives for monetary items included in accrued expenses and other short-term liabilities	$	29,414	$	(30)	$	42,056	$	(62)

Cash, Cash Equivalents and Investments

Cash, cash equivalents, marketable securities and deposits consist of the following (in thousands): 

	As of March 31, 2022
	(unaudited)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash and cash equivalents
Money market funds	$	384,062	$	—	$	—	$	384,062
Corporate bonds	2,454		—		*)		2,454
Total	$	386,516	$	—	$ *)		$	386,516
Marketable securities
US Treasury securities	$	14,005	$	—	$	(8)	$	13,997
Commercial paper	9,573		—		—		9,573
Corporate bonds	4,804		*)		(2)		4,802
Total	$	28,382	$ *)		$	(10)	$	28,372
Long-term deposits
Term bank deposits	$	1,850	$	—	$	—	$	1,850
Total	$	1,850	$	—	$	—	$	1,850

*) Represents an amount lower than $1 

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

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2022 and December 31, 2021 by level within the fair value hierarchy (in thousands):

 

	As of March 31, 2022
	(unaudited)								As of December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Financial assets:
Cash equivalents:
Money market funds	$	384,062	$	—	$	—	$	384,062	$	414,942	$	—	$	—	$	414,942
Corporate bonds	—		2,454		—		2,454		—		—		—		—
Marketable securities:
US Treasury securities	13,997		—		—		13,997		—		—		—		—
Commercial paper	—		9,573		—		9,573		—		—		—		—
Corporate bonds	—		4,802		—		4,802		—		—		—		—
Prepaid expenses and other current assets:
Forward foreign exchange contracts	—		2,904		—		2,904		—		6,083		—		6,083
Financial liabilities:
Accrued expenses and other short-term liabilities:
Forward foreign exchange contracts	—		(30)		—		(30)		—		(62)		—		(62)
Total financial assets (liabilities)	$	398,059	$	19,703	$	—	$	417,762	$	414,942	$	6,021	$	—	$	420,963

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Leases (Tables)

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Summary of Right-of-Use Assets and Lease Liabilities

Below is a summary of the Company's operating right-of-use assets and operating lease liabilities (in thousands):

	March 31, 2022
	(unaudited)
Operating right-of-use assets	$	61,351
Operating lease liabilities, current	$	(9,240)
Operating lease liabilities, long-term	(65,786)
Total operating lease liabilities	$	(75,026)

Lessee, Operating Lease, Liability, Maturity

Minimum lease payments for the Company's right-of-use assets over the remaining lease periods as of March 31, 2022, are as follows (in thousands):

	March 31, 2022
	(unaudited)
2022	$	8,329
2023	11,527
2024	9,729
2025	9,767
2026	9,879
Thereafter	34,296
Total undiscounted lease payments	$	83,527
Less: Imputed interest	(8,501)
Present value of lease liabilities	$	75,026

Summary of Weighted Average Remaining Lease Terms and Discount Rates

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31, 2022:

Remaining lease term and discount rate:
Weighted average remaining lease term (years)	7.99
Weighted average discount rate	2.87	%

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

Total cost and amortization of intangible assets is comprised of the following (in thousands, except useful life):

	Estimated Useful Life	March 31, 2022
Intangible assets, net	(in years)	(unaudited)
Developed technology & trademarks	4	$	6,110
Total intangible assets		6,110
Less: Accumulated amortization		2,179
Total intangible assets, net		$	3,931

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The following table summarizes estimated future amortization expense of our intangible assets as of March 31, 2022 (in thousands):

Years ending December 31,	Amount (unaudited)
2022	1,143
2023	1,525
2024	1,263
Total future amortization expense	$	3,931

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Convertible Senior Notes and Capped Call Transactions (Tables)

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Schedule of Net Carrying Amount of Liability and Equity Components of Convertible Notes

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

	March 31, 2022
	(unaudited)
Principal	$	253,000
Unamortized issuance costs	(5,154)
Net carrying amount	$	247,846

Schedule of Interest Expense

The interest expense recognized related to the 2025 Notes for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Contractual interest expense	$	791	$	790
Amortization of debt discount	—		1,389
Amortization of debt issuance costs	369		300
Total	$	1,160	$	2,479

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2022

Stockholders' Equity Note [Abstract]

Share-based Compensation, Stock Options, Activity

A summary of employees’ stock options activities during the three months ended March 31, 2022 is as follows:

 

	Three Months Ended March 31, 2022 (unaudited)
	Number	Weighted average exercise price		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (years)
Options outstanding as of January 1, 2022	803,870	$	7.077	$	33,524	2.747
Granted	—	$	—
Exercised	(3,208)	$	7.123
Forfeited and expired	—	$	—
Options outstanding as of March 31, 2022	800,662	$	7.077	$	32,397	2.501
Options exercisable as of March 31, 2022	786,922	$	7.101	$	31,822	2.407

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

The options outstanding as of March 31, 2022 (unaudited) have been separated into ranges of exercise price as follows:

Range of exercise price				Options outstanding as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options outstanding		Options exercisable as of March 31, 2022	Weighted average remaining contractual life (years)	Weighted average exercise price of options exercisable
$	4.157	—	5.682	224,661	2.712	$	4.883	210,921	2.377	$	4.821
$	6.503	—	8.077	430,099	2.311	$	7.111	430,099	2.311	$	7.111
		$9.960		120,180	2.896	$	9.960	120,180	2.896	$	9.960
		$13.287		25,722	1.975	$	13.287	25,722	1.975	$	13.287
				800,662	2.501	$	7.077	786,922	2.407	$	7.101

Schedule of Stockholders' Equity Note, Warrants or Rights

The Company’s outstanding options granted to consultants for services as of March 31, 2022 (unaudited) were as follows:

 

	Number of options outstanding and exercisable as of March 31, 2022	Exercise price per share		Exercisable through
August 2013	4,500	$	7.047	August 2023
March 2014	4,650	$	13.287	March 2024
May 2014	3,000	$	7.337	May 2024
November 2014	7,500	$	7.220	November 2024
February 2016	3,000	$	5.623	February 2026
	22,650

Schedule of Share-based Payment Arrangement, Restricted Stock Unit and Performance Stock Unit Activity

A summary of RSUs and PSUs for employees, consultants and non-employee directors of the Company for the three months ended March 31, 2022 (unaudited) is as follows:

 

	Number of shares underlying outstanding RSUs and PSUs	Weighted- average grant date fair value
Unvested balance - January 1, 2022	7,726,125	$	42.53
Granted	3,366,541	$	43.20
Vested	(2,548,923)	$	32.66
Forfeited	(172,193)	$	46.28
Unvested balance – March 31, 2022	8,371,550	$	45.73

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The Company recognized stock-based compensation expense in the consolidated statements of operations as follows (in thousands):

 

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Cost of revenues	$	3,087	$	1,589
Research and development	12,600		7,158
Sales and marketing	13,096		7,742
General and administrative	7,215		4,890
Total	$	35,998	$	21,379

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Geographic Information and Major Customer Data (Tables)

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Revenue from External Customers by Geographic Areas

The following is a summary of revenues within geographic areas (in thousands):

 

	Three Months Ended March 31,
	2022		2021
	(unaudited)
Revenues based on customer’s location:
North America	$	69,141	$	52,806
EMEA (*)	24,209		20,234
Rest of World	2,911		1,745
Total revenues	$	96,261	$	74,785

(*)       Sales to customers in France did not exceed 10% of total revenues for the three months ended March 31, 2022 and accounted for 10.3% of total revenues for the three months ended March 31, 2021.

Long-lived Assets by Geographic Areas

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 of		As of
	March 31, 2022		December 31, 2021
	(unaudited)
Long-lived assets by geographic region:
United States	$	42,142	$	43,317
Israel	40,854		40,169
Ireland	15,911		16,341
Other	1,939		2,220
	$	100,846	$	102,047

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General (Details Textual)		3 Months Ended		12 Months Ended
	Aug. 21, 2020 USD ($)	Mar. 31, 2022 USD ($) subsidiary shares	Mar. 31, 2021 USD ($) shares	Dec. 31, 2021 USD ($)	Jan. 01, 2022 USD ($)	May 11, 2020 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operations commenced date		Jan. 01, 2005
Subsidiary or equity method investee, number | subsidiary		12
Deferred revenue, revenue recognized		$ 39,029,000
Sales returns		$ 0		$ 0
Capitalized contract cost, amortization period (years)		4 years
Gain related to the effective portion of the cash flow hedges		$ 420,000	$ 2,036,000
Derivative instruments not designated as hedging instruments, gain, net		741,000	771,000
Income tax expense		1,414,000	$ 559,000
Accumulated deficit		(467,719,000)		(427,603,000)
Additional paid-in capital		$ 1,000,493,000		$ 1,018,005,000
Cumulative Effect, Period of Adoption, Adjustment
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Accumulated deficit					$ 8,647,000
Additional paid-in capital					(30,794,000)
Liabilities					$ 22,147,000
Restricted Stock Units and Stock Options
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Antidilutive securities excluded from computation of Earnings Per Share, amount (in shares) | shares		9,194,862	8,913,594
Foreign Exchange Contract
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Gain related to the effective portion of the cash flow hedges		$ 420,000	$ 547,000
Maintenance
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Revenue, performance obligation, description of timing		one year
Revolving Credit Facility | Line of Credit
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Debt instrument, term	3 years
Line of credit facility, maximum borrowing capacity	$ 70,000,000
2025 Senior Notes | Convertible Debt Securities
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Antidilutive securities excluded from computation of Earnings Per Share, amount (in shares) | shares		8,239,254
2025 Senior Notes | Convertible Debt
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Interest rate, stated percentage						1.25%
Principal amount						$ 253,000

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General - Derivative Instruments Measured at Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Cash Flow Hedging | Prepaid Expenses and Other Current Assets
Derivative [Line Items]
Notional Amount	$ 97,165	$ 115,710
Derivative assets, fair value	2,904	6,083
Fair Value Hedging | Prepaid Expenses and Other Current Assets and Accrued Expenses and Other Short-Term Liabilities
Derivative [Line Items]
Notional Amount	29,414	42,056
Derivative liability, fair value	$ (30)	$ (62)

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General - Cash, Cash Equivalents and Short-term Investments (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Cash and cash equivalents
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 386,516	$ 414,942
Gross Unrealized Gains	0	0
Gross Unrealized Losses		0
Fair Value	386,516	414,942
Cash and cash equivalents | Money market funds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	384,062	414,942
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	384,062	414,942
Cash and cash equivalents | Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	2,454
Gross Unrealized Gains	0
Fair Value	2,454
Marketable securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	28,382
Gross Unrealized Losses	(10)
Fair Value	28,372
Marketable securities | US Treasury securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	14,005
Gross Unrealized Gains	0
Gross Unrealized Losses	(8)
Fair Value	13,997
Marketable securities | Commercial paper
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	9,573
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	9,573
Marketable securities | Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,804
Gross Unrealized Losses	(2)
Fair Value	4,802
Long-term deposits
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,850
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	1,850
Long-term deposits | Term bank deposits
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,850
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	$ 1,850
Short-term deposits
Debt Securities, Available-for-sale [Line Items]
Amortized Cost		1,850
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Fair Value		1,850
Short-term deposits | Term bank deposits
Debt Securities, Available-for-sale [Line Items]
Amortized Cost		1,850
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Fair Value		$ 1,850

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Fair Value Measurements - Assets and Liabilities Measured at Fair Value (Details) - Fair Value, Recurring - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets (liabilities)	$ 417,762	$ 420,963
Forward foreign exchange contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset, current	2,904	6,083
Derivative liabilities	(30)	(62)
US Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	13,997	0
Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	9,573	0
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	4,802	0
Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	384,062	414,942
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	2,454	0
Level I
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets (liabilities)	398,059	414,942
Level I | Forward foreign exchange contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset, current	0	0
Derivative liabilities	0	0
Level I | US Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	13,997	0
Level I | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level I | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level I | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	384,062	414,942
Level I | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level II
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets (liabilities)	19,703	6,021
Level II | Forward foreign exchange contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset, current	2,904	6,083
Derivative liabilities	(30)	(62)
Level II | US Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level II | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	9,573	0
Level II | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	4,802	0
Level II | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level II | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	2,454	0
Level III
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets (liabilities)	0	0
Level III | Forward foreign exchange contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset, current	0	0
Derivative liabilities	0	0
Level III | US Treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level III | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level III | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0	0
Level III | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level III | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 0	$ 0

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Leases - Summary of Right-of-Use Assets and Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Leases [Abstract]
Operating lease right-of-use asset	$ 61,351	$ 63,749
Operating lease liabilities, current	(9,240)
Operating lease liabilities, long-term	(65,786)	$ (68,694)
Total operating lease liabilities	$ (75,026)

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Leases - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Leases [Abstract]
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued expenses and other short-term liabilities
Operating lease cost	$ 2,309	$ 1,440
Sublease income	$ 100

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Leases - Minimum Lease Payments for Right-of-Use Assets (Details) $ in Thousands	Mar. 31, 2022 USD ($)
Leases [Abstract]
2022	$ 8,329
2023	11,527
2024	9,729
2025	9,767
2026	9,879
Thereafter	34,296
Total undiscounted lease payments	83,527
Less: Imputed interest	(8,501)
Present value of lease liabilities	$ 75,026

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Leases - Summary of Weighted Average Remaining Lease Terms and Discount Rates (Details)	Mar. 31, 2022
Leases [Abstract]
Weighted average remaining lease term (years)	7 years 11 months 26 days
Weighted average discount rate	2.87%

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Goodwill and Intangible Assets - Cost and Amortization of Intangible Assets (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	$ 6,110
Less: Accumulated amortization	2,179
Total intangible assets, net	$ 3,931
Developed technology & trademarks
Finite-Lived Intangible Assets [Line Items]
Estimated Useful Life (in years)	4 years
Total intangible assets	$ 6,110

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Goodwill and Intangible Assets - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 381	$ 384

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Goodwill and Intangible Assets - Estimated Future Amortization Expense (Details) $ in Thousands	Mar. 31, 2022 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2022	$ 1,143
2023	1,525
2024	1,263
Total intangible assets, net	$ 3,931

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Convertible Senior Notes and Capped Call Transactions - Narrative (Details)		3 Months Ended
	May 11, 2020 USD ($)	Mar. 31, 2022 USD ($) $ / shares	Jan. 01, 2022 USD ($)	Dec. 31, 2021 USD ($)
Debt Instrument [Line Items]
Accumulated deficit		$ (467,719,000)		$ (427,603,000)
Additional paid-in capital		$ 1,000,493,000		1,018,005,000
Cap price (in dollars per share) | $ / shares		$ 47.24
Cumulative Effect, Period of Adoption, Adjustment
Debt Instrument [Line Items]
Accumulated deficit			$ 8,647,000
Additional paid-in capital			(30,794,000)
Liabilities			$ 22,147,000
2025 Senior Notes
Debt Instrument [Line Items]
Fair value of the notes		$ 418,080,000
Convertible Debt
Debt Instrument [Line Items]
Purchases of capped calls	$ 29,348,000
Convertible Debt | 2025 Senior Notes
Debt Instrument [Line Items]
Principal amount excluding purchasers' option	220,000,000
Additional amount included in principal from exercised options	33,000,000
Proceeds from issuance of convertible senior notes, net of issuance costs	$ 245,158,000
Interest rate, stated percentage	1.25%
Debt instrument, convertible, conversion ratio		0.0325668
Initial conversion price (in dollars per share) | $ / shares		$ 30.71
Carrying amount of equity component				31,779,000
Debt issuance costs of liability component				$ 6,857,000
Interest rate, effective percentage			1.87%	4.51%
Convertible Debt | 2025 Senior Notes | Additional paid-in capital
Debt Instrument [Line Items]
Debt issuance costs of equity component				$ 985,000

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Convertible Senior Notes and Capped Call Transactions - Schedule of Convertible Notes (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Debt Instrument [Line Items]
Net carrying amount	$ 247,846	$ 225,330
2025 Senior Notes
Debt Instrument [Line Items]
Principal	253,000
Unamortized issuance costs	(5,154)
Net carrying amount	$ 247,846

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Convertible Senior Notes and Capped Call Transactions - Schedule of Interest Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Debt Disclosure [Abstract]
Contractual interest expense	$ 791	$ 790
Amortization of debt discount	0	1,389
Amortization of debt issuance costs	369	300
Total	$ 1,160	$ 2,479

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Stockholders' Equity (Details Textual) $ / shares in Units, $ in Thousands						3 Months Ended	75 Months Ended	99 Months Ended
	Feb. 16, 2021 USD ($) $ / shares shares	Feb. 08, 2021	Jun. 30, 2015 shares	Dec. 31, 2013 shares	Nov. 14, 2013 shares	Mar. 31, 2022 USD ($) shares	Mar. 31, 2022 USD ($) shares	Mar. 31, 2022 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)						0
Exercises in period, intrinsic value | $						$ 111
Compensation cost not yet recognized, options | $						$ 418	$ 418	$ 418
Stock split, conversion ratio		3
Public Stock Offering
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of stock, number of shares issued in transaction	7,961,538
Sale of stock, price per share (in dollars per share) | $ / shares	$ 65.00
Sale of stock, consideration received on transaction | $	$ 500,034
Payments of stock issuance costs | $	$ 17,466
Public Stock Offering - Additional Optional Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Sale of stock, number of shares issued in transaction	1,038,459
Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost not yet recognized, period for recognition						1 year 7 months 2 days
Restricted Stock Units and Performance Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost not yet recognized, period for recognition						2 years 8 months 12 days
Compensation cost not yet recognized, non-option | $						$ 344,959	$ 344,959	$ 344,959
The 2005 Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future issuance (in shares)				14,139,957
Granted (in shares)								0
Shares available for grant (in shares)						0	0	0
The 2005 Stock Plan | Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period (in years)				4 years
The 2013 Omnibus Equity Award Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future issuance (in shares)					5,713,899
Vesting period (in years)					4 years
Percentage of outstanding stock reserved for grant					4.00%
Percentage of outstanding stock maximum					5.00%
Capital shares reserved for future issuance, annual increase, maximum (in shares)						24,217,741	24,217,741	24,217,741
2015 ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum employee subscription rate			15.00%
Purchase price of common stock, percent			85.00%
Number of shares authorized (in shares)			1,500,000
Percent of shares increase, employee stock purchase plan			1.00%
Common stock availability threshold, Employee Stock Purchase Plan			2.00%
Shares increase threshold, employee stock purchase plan (in shares)			1,200,000
Number of additional shares authorized (in shares)							3,004,765

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Stockholders' Equity - Stock Options Activities (Details) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 USD ($) $ / shares shares
Number
Options outstanding, Balance (in shares) | shares	803,870
Granted (in shares) | shares	0
Exercised (in shares) | shares	(3,208)
Forfeited and expired (in shares) | shares	0
Options outstanding, Balance (in shares) | shares	800,662	803,870
Weighted average exercise price
Options outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 7.077
Granted, weighted average exercise price (in dollars per share) | $ / shares	0
Exercised, weighted average exercise price (in dollars per share) | $ / shares	7.123
Forfeited and expired, weighted average exercise price (in dollars per share) | $ / shares	0
Options outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 7.077	$ 7.077
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Options exercisable at the end of the year (in shares) | shares	786,922
Options exercisable at the end of the year, weighted average exercise price (in dollars per share) | $ / shares	$ 7.101
Options outstanding, aggregate intrinsic value | $	$ 32,397	$ 33,524
Options exercisable at the end of the year, aggregate intrinsic value | $	$ 31,822
Options outstanding, weighted average remaining contractual life (Year)	2 years 6 months	2 years 9 months
Options exercisable at the end of the year, weighted average remaining contractual life (Year)	2 years 4 months 28 days

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Stockholders' Equity - Options Outstanding Separated Into Range of Exercise Price (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average exercise price (in dollars per share)	$ 7.077
Options outstanding, exercise price range (in shares)	800,662
Options outstanding, weighted average remaining contractual life (Year)	2 years 6 months	2 years 9 months
Options exercisable, exercise price range (in shares)	786,922
Options exercisable, weighted average remaining contractual life (years)	2 years 4 months 28 days
Weighted average exercise price of options exercisable, exercise price range (in dollars per share)	$ 7.101
Range One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Lower range of exercise price (in dollars per share)	4.157
Weighted average exercise price (in dollars per share)	4.883
Upper range of exercise price (in dollars per share)	$ 5.682
Options outstanding, exercise price range (in shares)	224,661
Options outstanding, weighted average remaining contractual life, exercise price range (Year)	2 years 8 months 15 days
Options exercisable, exercise price range (in shares)	210,921
Options exercisable, weighted average remaining contractual life, exercise price range (years)	2 years 4 months 17 days
Weighted average exercise price of options exercisable, exercise price range (in dollars per share)	$ 4.821
Range Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Lower range of exercise price (in dollars per share)	6.503
Weighted average exercise price (in dollars per share)	7.111
Upper range of exercise price (in dollars per share)	$ 8.077
Options outstanding, exercise price range (in shares)	430,099
Options outstanding, weighted average remaining contractual life, exercise price range (Year)	2 years 3 months 21 days
Options exercisable, exercise price range (in shares)	430,099
Options exercisable, weighted average remaining contractual life, exercise price range (years)	2 years 3 months 21 days
Weighted average exercise price of options exercisable, exercise price range (in dollars per share)	$ 7.111
Range Three
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average exercise price (in dollars per share)	$ 9.960
Options outstanding, exercise price range (in shares)	120,180
Options outstanding, weighted average remaining contractual life, exercise price range (Year)	2 years 10 months 24 days
Options exercisable, exercise price range (in shares)	120,180
Options exercisable, weighted average remaining contractual life, exercise price range (years)	2 years 10 months 24 days
Weighted average exercise price of options exercisable, exercise price range (in dollars per share)	$ 9.960
Range Four
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average exercise price (in dollars per share)	$ 13.287
Options outstanding, exercise price range (in shares)	25,722
Options outstanding, weighted average remaining contractual life, exercise price range (Year)	1 year 11 months 23 days
Options exercisable, exercise price range (in shares)	25,722
Options exercisable, weighted average remaining contractual life, exercise price range (years)	1 year 11 months 23 days
Weighted average exercise price of options exercisable, exercise price range (in dollars per share)	$ 13.287

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Stockholders' Equity - Outstanding Options Granted to Consultants for Sales and Pre-marketing Services (Details)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 0
Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	22,650
August 2013 | Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	4,500
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 7.047
Exercisable through	August 2023
March 2014 | Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	4,650
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 13.287
Exercisable through	March 2024
May 2014 | Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	3,000
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 7.337
Exercisable through	May 2024
November 2014 | Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	7,500
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 7.220
Exercisable through	November 2024
February 2016 | Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options for shares of common stock (in shares) | shares	3,000
Granted, weighted average exercise price (in dollars per share) | $ / shares	$ 5.623
Exercisable through	February 2026

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Stockholders' Equity - Restricted Stock Unit and Performance Stock Unit Activity (Details) - Restricted Stock Units and Performance Stock Units	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Number of shares underlying outstanding RSUs and PSUs
Beginning Balance, restricted stock units and performance stock units (in shares) | shares	7,726,125
Granted, restricted stock units and performance stock units (in shares) | shares	3,366,541
Vested, restricted stock units and performance stock units (in shares) | shares	(2,548,923)
Forfeited, restricted stock units and performance stock units (in shares) | shares	(172,193)
Ending Balance, restricted stock units and performance stock units (in shares) | shares	8,371,550
Weighted- average grant date fair value
Beginning Balance, weighted average grant date fair value on restricted stock units and performance stock units (in dollars per share) | $ / shares	$ 42.53
Granted, weighted average grant date fair value on restricted stock units and performance stock units (in dollars per share) | $ / shares	43.20
Vested, weighted average grant date fair value on restricted stock units and performance stock units (in dollars per share) | $ / shares	32.66
Forfeited, weighted average grant date fair value on restricted stock units and performance stock units (in dollars per share) | $ / shares	46.28
Ending Balance, weighted average grant date fair value on restricted stock units and performance stock units (in dollars per share) | $ / shares	$ 45.73

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Stockholders' Equity - Non-cash Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	$ 35,998	$ 21,379
Cost of revenues
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	3,087	1,589
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	12,600	7,158
Sales and marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	13,096	7,742
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	$ 7,215	$ 4,890

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Geographic Information and Major Customer Data (Details Textual) - segment	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Segment Reporting [Abstract]
Number of reportable segments	1
Revenue Benchmark | Geographic Concentration Risk | France
Segment Reporting Information [Line Items]
Concentration risk, percentage		10.30%

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Geographic Information and Major Customer Data - Revenues Within Geographical Areas (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Segment Reporting Information [Line Items]
Revenue	$ 96,261	$ 74,785
North America
Segment Reporting Information [Line Items]
Revenue	69,141	52,806
EMEA
Segment Reporting Information [Line Items]
Revenue	24,209	20,234
Rest of World
Segment Reporting Information [Line Items]
Revenue	$ 2,911	$ 1,745

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Geographic Information and Major Customer Data - Long-lived Assets by Geographic Region (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Segment Reporting Information [Line Items]
Long-lived assets	$ 100,846	$ 102,047
United States
Segment Reporting Information [Line Items]
Long-lived assets	42,142	43,317
Israel
Segment Reporting Information [Line Items]
Long-lived assets	40,854	40,169
Ireland
Segment Reporting Information [Line Items]
Long-lived assets	15,911	16,341
Other
Segment Reporting Information [Line Items]
Long-lived assets	$ 1,939	$ 2,220