SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of November 2019

Commission File Number: 001-36625

 

 

CyberArk Software Ltd.

(Translation of registrant’s name into English)

 

 

CyberArk Software Ltd.

9 Hapsagot St.

Park Ofer 2, POB 3143

Petach-Tikva, 4951041 Israel

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________

 

 

 


EXPLANATORY NOTE

On November 12, 2019, CyberArk Software Ltd. (the “Company”) issued a press release announcing a proposed offering of $500 million principal amount of convertible senior notes (the “Offering”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). A copy of the press release is attached as Exhibit 99.1 to this Report on Form 6-K.

The unaudited financial statements of the Company for the nine months ended September 30, 2018 and 2019 and as of September 30, 2019 are furnished herewith as Exhibit 99.2 to this Report on Form 6-K.

On November 12, 2019, the Company intends to distribute a preliminary offering memorandum (the “Preliminary Offering Memorandum”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act in connection with the Offering. The Preliminary Offering Memorandum contains supplemental disclosure related to the Company’s results of operations and liquidity and capital resources for the nine months ended September 30, 2019. Accordingly, the Company is filing information with this Report on Form 6-K for the purpose of supplementing disclosures contained in the Company’s prior public filings. The supplemental disclosures are filed as Exhibit 99.3 to this Report on Form 6-K.

Other than as indicated below, the information in this Form 6-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.

Exhibits 99.2 and 99.3 to this Report on Form 6-K are hereby incorporated by reference into the Company’s Registration Statements on Form S-8 (File Nos. 333-200367, 333-202850, 333-216755, 333-223729 and 333-230269).

 

2


SIGNATURE

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.

 

Date: November 12, 2019    
    CYBERARK SOFTWARE LTD.
    By:  

/s/ Joshua Siegel

    Name:   Joshua Siegel
    Title:   Chief Financial Officer

 

3


EXHIBIT INDEX

 

Exhibit    Description
99.1    Press release dated November 12, 2019 entitled “CyberArk Software Ltd. Announces Proposed Private Offering of $500 million of Convertible Senior Notes”.
99.2    Unaudited financial statements for CyberArk Software Ltd. for the nine months ended September 30, 2018 and 2019 and as of September 30, 2019.
99.3    Supplemental Company Disclosure.

 

4

EX-99.1

Exhibit 99.1

CyberArk Software Ltd. Announces Proposed Private Offering of $500 million of Convertible Senior Notes

NEWTON, Mass. & PETACH TIKVA, IsraelNovember 12, 2019 – CyberArk Software Ltd. (Nasdaq: CYBR) (“CyberArk”), the global leader in privileged access management, today announced its intention to offer, subject to market conditions and other factors, $500 million aggregate principal amount of Convertible Senior Notes due 2024 (the “Notes”) in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Offering, CyberArk expects to grant the initial purchasers of the Notes a 13-day option to purchase up to an additional $75 million aggregate principal amount of the Notes solely to cover over allotments.

The final terms of the Notes, including the initial conversion price, interest rate and certain other terms, will be determined at the time of pricing of the Offering. When issued, the Notes will be senior, unsecured obligations of CyberArk. The Notes will bear interest payable semi-annually in arrears and will mature on November 15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Prior to May 15, 2024, the Notes will be convertible at the option of holders only upon satisfaction of certain conditions and during certain periods. Thereafter, the Notes will be convertible at any time until the close of business on the third scheduled trading day immediately prior to the maturity date. The Notes will be convertible into cash, ordinary shares of CyberArk or a combination thereof, with the form of consideration determined at CyberArk’s election.

In connection with the pricing of the Notes, CyberArk expects to enter into privately negotiated capped call transactions with one or more of the initial purchasers of the Offering and/or their respective affiliates and/or other financial institutions (in this capacity, the “Option Counterparties”). The capped call transactions are expected generally to reduce the potential dilution to the ordinary shares of CyberArk upon any conversion of Notes and/or to offset any cash payments CyberArk is required to make in excess of the principal amount of the converted Notes, as the case may be, in the event that the market price of the ordinary shares of CyberArk is greater than the strike price of the capped call transactions, with such reduction of potential dilution and/or offset of cash payments subject to a cap.

CyberArk has been advised that, in connection with establishing their initial hedges of the capped call transactions, the Option Counterparties or their respective affiliates expect to enter into various derivative transactions with respect to the ordinary shares of CyberArk and/or purchase ordinary shares of CyberArk concurrently with or shortly after the pricing of the Notes. This activity could have the effect of increasing (or reducing the size of any decrease in) the market price of the ordinary shares or the Notes at that time. In addition, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the ordinary shares and/or by purchasing or selling ordinary shares or other securities of CyberArk in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so following any conversion, repurchase or redemption of the Notes, in each case if CyberArk exercises the relevant election under the capped call transactions). This activity could also cause or avoid an increase or a decrease in the market price of the ordinary shares of CyberArk or the Notes, which could affect the ability of holders of Notes to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of the Notes, it could affect the number of ordinary shares, if any, and value of the consideration that holders of Notes will receive upon conversion of the Notes.

In addition, if any such capped call transaction fails to become effective, whether or not the Offering is completed, the Option Counterparties party thereto may unwind their hedge positions with respect to the ordinary shares of CyberArk, which could adversely affect the value of the ordinary shares of CyberArk and, if the Notes have been issued, the value of the Notes.


CyberArk intends to use a portion of the net proceeds from the Offering to pay the cost of the capped call transactions, and the remaining net proceeds for working capital or other general corporate purposes. CyberArk may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, CyberArk has not entered into any agreements for or otherwise committed to any specific acquisitions at this time. If the initial purchasers exercise their over-allotment option, CyberArk expects to use a portion of the net proceeds from the sale of the additional Notes to enter into additional capped call transactions with the Option Counterparties and the remaining net proceeds for general corporate purposes. Pending these uses, CyberArk intends to invest the net proceeds in high-quality, short-term fixed income instruments which include corporate, financial institution, federal agency or U.S. government obligations.

The Notes will be offered only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The offer and sale of the Notes and the ordinary shares of CyberArk potentially issuable upon conversion of the Notes, if any, have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and unless so registered, the Notes and such ordinary shares, if any, may not be offered or sold in the United States except pursuant to an applicable exemption from such registration requirements.

This press release does not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any offer or sale of, the Notes (or any ordinary shares of CyberArk issuable upon conversion of the Notes) in any state or jurisdiction in which the offer, solicitation, or sale would be unlawful prior to the registration or qualification thereof under the securities laws of any such state or jurisdiction.

About CyberArk Software Ltd.

CyberArk is the global leader in privileged access management, a critical layer of IT security to protect data, infrastructure and assets across the enterprise, in the cloud and throughout the DevOps pipeline. CyberArk delivers the industry’s most complete solution to reduce risk created by privileged credentials and secrets. The company is trusted by the world’s leading organizations, including more than 50 percent of the Fortune 500, to protect against external attackers and malicious insiders. A global company, CyberArk is headquartered in Petach Tikva, Israel, with U.S. headquarters located in Newton, Mass. The company also has offices throughout the Americas, EMEA, Asia Pacific and Japan.

Forward-Looking Statements

This press release contains forward-looking statements, including, among other things, about whether CyberArk will be able to consummate the Offering, the terms of the Offering and the capped call transactions, and expectations regarding actions of the Option Counterparties and their respective affiliates. The words such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms and similar phrases that denote future expectations or intent are intended to identify forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.

The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to differ materially, including (i) changes as a result of market conditions or for other reasons, (ii) the risk that the Offering will not be consummated, (iii) the risk that the capped call transactions will not become effective, and (iv) the impact of general economic, industry or political conditions in the United States or internationally.

 

2


The forward-looking statements contained in this press release are also subject to additional risks, uncertainties, and factors, including those more fully described in CyberArk’s filings with the Securities and Exchange Commission, including its annual report on Form 20-F filed with the Securities and Exchange Commission on March 14, 2019. Further information on potential risks that could affect actual results will be included in the subsequent periodic and current reports and other filings that CyberArk makes with the Securities and Exchange Commission from time to time.

Investor Contact:

Erica Smith

CyberArk

Phone: +1-617-558-2132

ir@cyberark.com

Media Contact:

Liz Campbell

CyberArk

Phone: +1-617-558-2191

press@cyberark.com

 

3

EX-99.2

Exhibit 99.2

CYBERARK SOFTWARE LTD.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2019

INDEX

 

     Page

Condensed Consolidated Balance Sheets

   2 - 3

Condensed Consolidated Statements of Comprehensive Income

   4

Condensed Consolidated Statements of Changes in Shareholders’ Equity

   5

Condensed Consolidated Statements of Cash Flows

   6 - 7

Notes to Condensed Consolidated Financial Statements

   8 - 18

- - - - - - - - - -


CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

U.S. dollars in thousands

 

     December 31,
2018
     September 30,
2019
 
            Unaudited  

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 260,636      $ 346,092  

Short-term bank deposits

     106,399        107,926  

Marketable securities

     59,948        52,573  

Trade receivables (net of allowance for doubtful debt accounts of $38 and $70 at December 31, 2018 and September 30, 2019, respectively)

     48,431        55,506  

Prepaid expenses and other current assets

     6,349        9,777  
  

 

 

    

 

 

 

Total current assets

     481,763        571,874  
  

 

 

    

 

 

 

LONG-TERM ASSETS:

     

Property and equipment, net

     15,120        16,874  

Intangible assets, net

     14,732        10,239  

Goodwill

     82,400        82,400  

Marketable securities

     24,261        48,536  

Other long-term assets

     31,863        69,865  

Deferred tax assets

     23,481        28,128  
  

 

 

    

 

 

 

Total long-term assets

     191,857        256,042  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 673,620      $ 827,916  
  

 

 

    

 

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

2


CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

U.S. dollars in thousands (except share and per share data)

 

     December 31,
2018
    September 30,
2019
 
           Unaudited  

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Trade payables

   $ 4,924     $ 3,967  

Employees and payroll accruals

     32,853       29,339  

Accrued expenses and other current liabilities

     13,271       22,325  

Deferred revenues

     92,375       109,677  
  

 

 

   

 

 

 

Total current liabilities

     143,423       165,308  
  

 

 

   

 

 

 

LONG-TERM LIABILITIES:

    

Deferred revenues

     57,159       67,598  

Other long-term liabilities

     6,268       26,696  
  

 

 

   

 

 

 

Total long-term liabilities

     63,427       94,294  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     206,850       259,602  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

SHAREHOLDERS’ EQUITY:

    

Ordinary shares of NIS 0.01 par value – Authorized: 250,000,000 shares at December 31, 2018 and September 30, 2019; Issued and outstanding: 36,838,523 shares and 37,878,688 shares at December 31, 2018 and September 30, 2019, respectively

     95       98  

Additional paid-in capital

     303,900       361,180  

Accumulated other comprehensive income (loss)

     (939     994  

Retained earnings

     163,714       206,042  
  

 

 

   

 

 

 

Total shareholders’ equity

     466,770       568,314  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $  673,620     $  827,916  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3


CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

U.S. dollars in thousands (except per share data)

 

     Nine months ended
September 30,
 
     2018     2019  
     Unaudited  

Revenues:

    

License

   $  125,745     $  161,353  

Maintenance and professional services

     108,404       142,878  
  

 

 

   

 

 

 
     234,149       304,231  

Cost of revenues:

    

License

     7,521       7,768  

Maintenance and professional services

     27,619       37,998  
  

 

 

   

 

 

 
     35,140       45,766  

Gross profit

     199,009       258,465  
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     41,772       51,590  

Sales and marketing

     107,983       131,229  

General and administrative

     29,483       36,303  
  

 

 

   

 

 

 

Total operating expenses

     179,238       219,122  
  

 

 

   

 

 

 

Operating income

     19,771       39,343  

Financial income, net

     3,473       5,406  
  

 

 

   

 

 

 

Income before taxes on income

     23,244       44,749  

Taxes on income

     (352     (2,421
  

 

 

   

 

 

 

Net income

   $ 22,892     $ 42,328  
  

 

 

   

 

 

 

Basic net income per ordinary share

   $ 0.64     $ 1.13  
  

 

 

   

 

 

 

Diluted net income per ordinary share

   $ 0.62     $ 1.09  
  

 

 

   

 

 

 

Other comprehensive income (loss)

    

Change in unrealized losses on marketable securities:

    

Unrealized gain (loss) arising during the period

     (59     781  
  

 

 

   

 

 

 

Change in unrealized gain on cash flow hedges:

    

Unrealized gain (loss) arising during the period

     (1,371     1,468  

Loss (gain) reclassified into earnings

     746       (316
  

 

 

   

 

 

 
     (625     1,152  

Other comprehensive income (loss), net of taxes of $93 and $(264) for the nine months ended September 30, 2018 and 2019, respectively

     (684     1,933  
  

 

 

   

 

 

 

Total comprehensive income

   $ 22,208     $ 44,261  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4


CYBERARK SOFTWARE LTD.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

U.S. dollars in thousands (except share data)

 

    Ordinary shares     Additional
paid-in
    Accumulated
other
comprehensive
    Retained     Total
shareholders’
 
    Shares     Amount     capital     income (loss)     earnings     equity  

Balance as of January 1, 2018

    35,274,888     $ 91     $ 249,874     $ 107     $ 103,893     $ 353,965  

Cumulative effect adjustment resulting from adoption of new accounting pronouncements

    —         —         —         —         12,749       12,749  

Exercise of options and vested RSUs granted to employees

    1,396,800       4       15,516       —         —         15,520  

Other comprehensive loss, net of tax

    —         —         —         (684     —         (684

Share-based compensation

    —         —         25,697       —         —         25,697  

Net income

    —         —         —         —         22,892       22,892  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2018 (unaudited)

    36,671,688     $ 95     $ 291,087     $ (577   $ 139,534     $ 430,139  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2019

    36,838,523     $ 95     $ 303,900     $ (939   $ 163,714     $ 466,770  

Exercise of options and vested RSUs granted to employees

    1,040,165       3       19,601       —         —         19,604  

Other comprehensive income, net of tax

    —         —         —         1,933       —         1,933  

Share-based compensation

    —         —         37,679       —         —         37,679  

Net income

    —         —         —         —         42,328       42,328  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2019 (unaudited)

    37,878,688     $ 98     $ 361,180     $ 994     $ 206,042     $ 568,314  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5


CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

U.S. dollars in thousands

 

     Nine months ended
September 30,
 
     2018     2019  
     Unaudited  

Cash flows from operating activities:

    

Net income

   $ 22,892     $ 42,328  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     7,327       8,122  

Amortization of premium and accretion of discount on marketable securities, net

     270       (39

Share-based compensation

     25,671       37,486  

Deferred income taxes, net

     (6,669     (4,989

Decrease (increase) in trade receivables

     15,608       (7,075

Increase in prepaid expenses and other current and long-term assets

     (5,646     (12,629

Increase (decrease) in trade payables

     771       (501

Increase in short-term and long-term deferred revenues

     34,298       27,741  

Decrease in employees and payroll accruals

     (2,315     (4,318

Increase (decrease) in accrued expenses and other current and long-term liabilities

     (3,051     2,471  
  

 

 

   

 

 

 

Net cash provided by operating activities

     89,156       88,597  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Investment in short and long-term deposits

     (19,768     (1,821

Investment in marketable securities

     (47,316     (66,883

Proceeds from maturities of marketable securities

     31,198       50,639  

Purchase of property and equipment

     (7,130     (5,389

Payments for business acquisitions, net of cash acquired (Schedule A)

     (18,450     —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (61,466     (23,454
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from withholding tax related to employee stock plans

     2,220       547  

Proceeds from exercise of stock options

     14,038       19,510  
  

 

 

   

 

 

 

Net cash provided by financing activities

     16,258       20,057  
  

 

 

   

 

 

 

Increase in cash, cash equivalents and restricted cash

     43,948       85,200  

Cash, cash equivalents and restricted cash at the beginning of the period

     162,521       261,883  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

   $  206,469   $  347,083  
  

 

 

   

 

 

 

Non-cash activities:

    

Net lease liabilities arising from obtaining right-of-use-assets

   $ —       $ 27,926  

Purchase of property and equipment on credit

   $ 715     $ 1,581  
  

 

 

   

 

 

 

Reconciliation of cash, cash equivalents and restricted cash within the unaudited condensed consolidated balance sheet to the amounts shown in the condensed statements of cash flows above:

    

Cash and cash equivalents

   $ 205,247     $ 346,092  

Restricted cash included in short-term bank deposits

     316       —    

Restricted cash included in other long-term assets

     906       991  
  

 

 

   

 

 

 

Total cash, cash equivalents and restricted cash

   $ 206,469     $ 347,083  
  

 

 

   

 

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

6


CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

U.S. dollars in thousands

 

Schedule A—Payments for businesses acquired (See note 1b.)

Fair value of assets acquired and liabilities assumed at the date of Vaultive’s acquisition was as follows:

 

     Nine months
ended
September 30,
 
     2018  

Working capital, net (excluding $21 of cash and cash equivalents acquired)

   $ (996

Property and equipment

     83  

Goodwill

     13,183  

Other intangible assets

     5,424  

Deferred taxes, net

     756  
  

 

 

 
   $ 18,450  
  

 

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

7


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

NOTE 1: GENERAL

 

  a.

CyberArk Software Ltd. (together with its subsidiaries, the “Company”) is an Israeli company that develops, markets and sells software-based security solutions and services. The Company’s solutions and services enable organizations to safeguard and monitor their privileged accounts, which are those accounts within an organization that have access to the organization’s high value assets and are located across its IT infrastructure. The Company’s software provides customers with the ability to protect, detect, monitor and control access to privileged accounts in order to break the lifecycle of a targeted cyber-attack before it can cause damage to an organization.

 

  b.

In March 2018, the Company acquired all of the share capital of Vaultive, Ltd. (“Vaultive”) for total gross consideration of $18,471. Vaultive specializes in privileged account security in cloud environments. The Company expensed the related acquisition costs of $268 in general and administrative expenses. Pro forma results of operations have not been presented because the acquisition was not material to the Company’s results of operations.

 

  c.

Basis of Presentation and Consolidation:

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2018, included in the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2019. Results for the nine months ended September 30, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019. All intercompany balances and transactions have been eliminated in consolidation.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

 

  a.

There have been no material changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2018 included in the Annual Report on Form 20-F other than those noted below.

 

  b.

Leases:

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842). The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use (“ROU”) asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases.

 

8


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. Annually, all ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases are generally not determinable, therefore the Company uses the Incremental Borrowing Rate (“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option.

The Company sublease certain office spaces to third-parties. Sublease income is recognized over the term of the agreement.

 

  c.

Derivative instruments:

ASC No. 815, “Derivative and Hedging,” requires companies to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value.

For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

To hedge against the risk of changes in cash flows resulting from foreign currency salary payments during the period, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted expenses denominated in NIS. These forward and option contracts are designated as cash flow hedges, as defined by ASC No. 815, and are all effective, as their critical terms match underlying transactions being hedged.

 

9


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

As of December 31, 2018, and September 30, 2019, the amount recorded in accumulated other comprehensive income (loss) from the Company’s currency forward and option transactions was ($727), net of tax of ($99) and $426 net of tax of $58, respectively.

At September 30, 2019, the notional amounts of foreign exchange forward contracts into which the Company entered were $23,477. The foreign exchange forward contracts will expire by April 2020.

The fair value of derivative instruments assets balances as of December 31, 2018 and September 30, 2019, totaled $10 and $484, respectively.

The fair value of derivative instruments liabilities balances as of December 31, 2018 and September 30, 2019, totaled $836 and $0, respectively.

In addition to the derivatives that are designated as hedges as discussed above, the Company enters into certain foreign exchange forward transactions to economically hedge certain account receivables in Euros and GBP. Gains and losses related to such derivative instruments are recorded in financial income (expenses), net. As of September 30, 2019, the notional amounts of foreign exchange forward contracts into which the Company entered were $17,019. The foreign exchange forward contracts will expire by March 2020. The fair value of derivative instruments assets balances as of December 31, 2018 and September 30, 2019, totaled $1,004 and $1,014, respectively.

For the nine months ended September 30, 2018 and 2019, the Company recorded financial income, net from hedging transactions of $680 and $1,031, respectively.

 

  d.

Revenue Recognition:

The Company substantially generates revenues from licensing the rights to use its software products, maintenance and professional services. License revenues include sales of license related products (such as hardware) as well as sales of software as a service (“SaaS”). The Company sells its products through its direct sales force and indirectly through resellers. Payment is typically due within 30 to 90 calendar days of the invoice date.

The Company recognizes revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers” (“ASC No. 606”). 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.

The amount of revenues recognized in the period that was included in the opening deferred revenues balance was $69,378 for the nine months ended September 30, 2019.

The Company records unbilled receivables from contracts when the revenue recognized exceeds the amount billed to the customer. As of September 30, 2019, $10,329 long-term unbilled receivables are included in other long-term assets.

 

10


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

For information regarding disaggregated revenues, please refer to Note 8 below.

Remaining Performance Obligations:

The aggregate amount of the transaction price allocated to remaining performance obligations was $250 million as of September 30, 2019. The Company expects to recognize approximately 55% in the following 12 months from remaining performance obligations as of September 30, 2019 and the remainder thereafter.

 

  e.

Deferred contract costs:

As of September 30, 2019, the Company presented deferred contract costs from contracts which are less than 12 months of $1,412 in prepaid expenses and other current assets and deferred contract costs in respect of contracts which are greater than 12 months of $29,328 in other long-term assets.

For the period ended September 30, 2019, the amortization of deferred contract costs was $20,999.

 

  f.

Recently adopted accounting pronouncements:

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). The standard requires the recognition of ROU assets and lease liabilities for all leases. The standard requires a modified retrospective transition approach to recognize and measure leases at the initial application.

The Company adopted the standard as of January 1, 2019, using a modified retrospective transition approach and elected to use the effective date as the date of initial application. The Company adopted the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. As a result, the consolidated balance sheets as of December 31, 2018 were not restated, continue to be reported under ASC 840, which did not require recognition of operating lease assets and liabilities on the balance sheets, and are not comparative.

The standard had a material impact on the Company’s unaudited condensed consolidated balance sheets which resulted in the recognition of ROU assets and lease liabilities of $26.0 million and $26.7 million, respectively, on January 1, 2019, which included reclassifying deferred rent and rent prepayments as components of the ROU assets. The standard did not have a material impact to our unaudited condensed consolidated statements of comprehensive income.

 

11


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  g.

Recently issued accounting standards:

In June 2016, the FASB Issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early adoption permitted and will be applied on a modified retrospective basis. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, simplifying the Test for Goodwill Impairment (Topic 350). This standard eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. This guidance must be applied on a prospective basis. The company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The new standard requires capitalization of the implementation costs incurred in a cloud computing arrangement that is a service contract, with the requirements for capitalization costs incurred to develop or obtain internal-use software. The new standard also requires presenting the capitalized implementation costs and their related amortization and cash flows on the financial statements in consistent with the prepaid amounts and fees related to the associated cloud computing arrangement. Capitalized implementation costs will be required to be amortized over the term of the arrangement, beginning when the module or component of the cloud computing arrangement that is a service contract is ready for its intended use. The standard will be effective for the Company beginning January 1, 2020, with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

 

  h.

Reclassification

Certain comparative figures have been reclassified to conform to the current period presentation.

 

12


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 3: MARKETABLE SECURITIES

The following tables summarize the amortized cost, unrealized gains and losses, and fair value of available-for-sale marketable securities as of December 31, 2018 and September 30, 2019:

 

     December 31, 2018  
     Amortized
cost
     Gross
unrealized
losses*)
     Gross
unrealized
gains
     Fair value  

Corporate debentures

   $ 77,758      $ (228    $ 8      $ 77,538  

U.S. Agencies debentures

     6,692        (23      2        6,671  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 84,450      $ (251    $ 10      $ 84,209  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

*)

Out of the unrealized losses, an amount of $149 has been in a continuous unrealized loss position for twelve months or longer.

 

     September 30, 2019  
     (Unaudited)  
     Amortized
cost
     Gross
unrealized
losses*)
     Gross
unrealized
gains
     Fair value  

Corporate debentures

   $ 97,596      $ (37    $ 663      $ 98,222  

U.S. Agencies debentures

     2,868        (2      21        2,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 100,464      $ (39    $ 684      $ 101,109  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

*)

Out of the unrealized losses, an amount of $11 has been in a continuous unrealized loss position for twelve months or longer.

The following table summarizes the amortized cost and fair value of available-for-sale marketable securities as of December 31, 2018 and September 30, 2019, by contractual years-to maturity:

 

     December 31, 2018      September 30, 2019
(Unaudited)
 
     Amortized
cost
     Fair
value
     Amortized
cost
     Fair value  

Due within one year

   $ 60,062      $ 59,948      $ 52,455      $ 52,573  

Due between one and four years

     24,388        24,261        48,009        48,536  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 84,450      $ 84,209      $ 100,464      $ 101,109  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 4: FAIR VALUE MEASUREMENTS

The following tables present the fair value of money market funds and marketable securities as of December 31, 2018 and September 30, 2019:

 

     December 31, 2018      September 30, 2019  
    

 

     (Unaudited)  
     Level 1      Level 2      Total      Level 1      Level 2      Total  

Cash equivalents:

                 

Money market funds

   $ 335      $ —        $ 335      $ 22,983      $ —        $ 22,983  

Marketable securities:

                 

Corporate debentures

     —          77,538        77,538        —          98,222        98,222  

U.S. Agencies debentures

     —          6,671        6,671        —          2,887        2,887  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 335      $ 84,209      $ 84,544      $ 22,983      $ 101,109      $ 124,092  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 5: LEASES

The Company entered into operating leases primarily for offices. The leases have remaining lease terms of up to 7 years, some of which may include options to extend the leases for up to 7 years.

The components of lease expenses were as follows:

 

     Nine Months Ended
September 30, 2019
 
     (Unaudited)  

Operating lease expenses

   $ 4,384  

Short-term lease expenses

     588  

Sub-lease income

     (204
  

 

 

 

Total net lease expenses

   $  4,768  
  

 

 

 

Supplemental balance sheet information related to operating leases is as follows:

 

     As of September 30,
2019

(Unaudited)
 

Operating lease ROU assets

   $ 23,830  

Operating lease liabilities, current

   $ 5,854  

Operating lease liabilities, long-term

   $ 19,687  

Weighted average remaining lease term (in years)

     5.0  

Weighted average discount rate

     1.7

 

14


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 5: LEASES (Cont.)

 

Minimum lease payments for the Company’s ROU assets over the remaining lease periods as of September 30, 2019, are as follows:

 

     As of September 30,
2019

(Unaudited)
 

2019

   $ 1,463  

2020

     5,911  

2021

     5,533  

2022

     5,401  

2023

     4,670  

Thereafter

     3,688  
  

 

 

 

Total undiscounted lease payments

   $  26,666  

Less: imputed interest

     (1,125
  

 

 

 

Present value of lease liabilities

   $ 25,541  
  

 

 

 

As of September 30, 2019, The Company has an additional operating lease commitment of $1.6 million for an extension to the offices in Israel, which has not yet commenced. The operating lease commitment will commence on April 1, 2020, with a lease term of approximately four years.

NOTE 6: SHAREHOLDERS’ EQUITY

 

  a.

Ordinary shares:

The ordinary shares of the Company confer upon the holders the right to receive notices of and to participate and vote in general meetings of the Company, rights to receive dividends and rights to participate in distribution of assets upon liquidation.

 

  b.

Share-based compensation:

Under the Company’s 2014 share incentive plan (the “2014 Plan”), options, restricted stock unit (“RSU”), performance stock units (“PSU”) and other share-based awards may be granted to employees, officers, non-employee consultants and directors of the Company.

Under the 2014 Plan, as of September 30, 2019, an aggregate number of 889,615 ordinary shares were reserved for future grant. Any share underlying an award that is cancelled, terminated or forfeited for any reason without having been exercised will automatically be available for grant under the 2014 Plan.

 

15


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 6: SHAREHOLDERS’ EQUITY (Cont.)

 

The total share-based compensation expense related to all of the Company’s equity-based awards, recognized for nine months ended September 30, 2018 and 2019 is comprised as follows:

 

     Nine Months Ended
September 30,
 
     2018      2019  
     (Unaudited)  

Cost of revenues

   $ 2,370      $ 3,888  

Research and development

     5,748        7,613  

Sales and marketing

     9,061        14,512  

General and administrative

     8,492        11,473  
  

 

 

    

 

 

 

Total share-based compensation expense

   $ 25,671      $ 37,486  
  

 

 

    

 

 

 

The total unrecognized compensation cost amounted to $148,343 as of September 30, 2019 and is expected to be recognized over a weighted average period of 2.61 years.

 

  c.

Options granted to employees:

A summary of the activity in options granted to employees for the nine months ended September 30, 2019 is as follows:

 

     Amount
of
options
     Weighted
average
exercise
price
     Weighted
average
remaining
contractual
term

(in years)
     Aggregate
intrinsic
value
 

Balance as of December 31, 2018

     1,476,610      $ 46.40        7.30      $ 40,968  

Granted

     86,000      $ 115.17        

Exercised

     (520,200    $ 37.69        

Forfeited

     (23,283    $ 48.42        
  

 

 

          

Balance as of September 30, 2019

     1,019,127      $ 56.60        7.15      $ 44,049  
  

 

 

          

Exercisable as of September 30, 2019

     626,938      $ 51.29        6.48      $ 30,471  
  

 

 

          

 

16


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 6: SHAREHOLDERS’ EQUITY (Cont.)

 

  d.

A summary of RSUs and PSUs activity for the period ended September 30, 2019 is as follows:

 

     Amount of
RSUs and PSUs
     Weighted
average grant
date fair value
 

Unvested as of December 31, 2018

     1,721,620      $ 56.15  

Granted

     795,950      $ 119.97  

Vested

     (519,965    $ 55.62  

Forfeited

     (67,750    $ 68.51  
  

 

 

    

Unvested as of September 30, 2019

     1,929,855      $ 82.18  
  

 

 

    

The total fair value of RSUs and PSUs vested (based on fair value of the Company’s ordinary shares at vesting date) during the nine months ended September 30, 2018 and 2019 was $20,186 and $60,150 respectively.

NOTE 7: BASIC AND DILUTED NET INCOME PER SHARE

 

     Nine Months Ended
September 30,
 
     2018      2019  
     (Unaudited)  

Numerator:

     

Net income available to shareholders of ordinary shares

   $ 22,892      $ 42,328  
  

 

 

    

 

 

 

Denominator:

     

Shares used in computing basic net income per ordinary shares

     35,981,177        37,460,829  
  

 

 

    

 

 

 
     Nine Months Ended
September 30,
 
     2018      2019  
     (Unaudited)  

Numerator:

     

Net income available to shareholders of ordinary shares

   $ 22,892      $ 42,328  
  

 

 

    

 

 

 

Denominator:

     

Shares used in computing diluted net income per ordinary shares

     36,894,457        38,831,275  
  

 

 

    

 

 

 

The total weighted average number of shares related to outstanding options, RSUs and PSUs that have been excluded from the calculation of diluted net income per ordinary share was 1,415,716 and 381,246 for nine months ended September 30, 2018, and 2019, respectively.

 

17


CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

U.S. dollars in thousands (except share and per share data)

 

NOTE 8: SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION

 

  a.

The Company applies ASC No. 280, “Segment Reporting.” The Company operates in one reportable segment.

The total revenues are attributed to geographic areas based on the location of the Company’s channel partners which are considered as end customers, as well as direct customers of the Company.

 

  b.

The following tables present total revenues for the periods ended September 30, 2018 and 2019 and long-lived assets as of December 31, 2018 and September 30, 2019:

Revenues:

 

     Nine months ended
September 30,
 
     2018      2019  
     (Unaudited)  

United States

   $ 132,423      $ 170,694  

Israel

     4,604        5,411  

United Kingdom

     17,737        23,745  

Europe, the Middle East and Africa *)

     48,159        54,646  

Other

     31,226        49,735  
  

 

 

    

 

 

 
   $ 234,149      $ 304,231  
  

 

 

    

 

 

 

Long-lived assets:

 

     As of
December 31,
2018
     As of
September 30,
2019
 
    

 

     Unaudited  

United States

   $ 4,502      $ 3,917  

Israel

     9,161        11,729  

United Kingdom

     944        849  

Europe, the Middle East and Africa *)

     126        94  

Other

     387        285  
  

 

 

    

 

 

 
   $ 15,120      $ 16,874  
  

 

 

    

 

 

 

 

*)

Excluding United Kingdom and Israel

- - - - - - - - -

 

18

EX-99.3

Exhibit 99.3

Financial Results for the Third Quarter Ended September 30, 2019

On November 6, 2019, we announced our financial results for the third quarter ended September 30, 2019. You should read the following discussion and analysis of our financial condition and results of operations for the third quarter ended September 30, 2019 together with our consolidated financial statements and related notes and other financial information. This discussion and analysis may contain forward-looking statements based upon current expectations that involves risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those factors discussed in our public filings with the SEC, including the information provided under the caption “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2018. Our financial statements have been prepared in accordance with U.S. GAAP. Results for the nine months ended September 30, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019.

Comparison of Period to Period Results of Operations

Revenues

Revenues increased by $70.1 million, or 29.9%, from $234.1 million in the nine months ended September 30, 2018 to $304.2 million in the nine months ended September 30, 2019. This increase was due to increased sales of our solutions driving growth in both our license revenues and our maintenance and professional services revenues. Revenues growth was largest in the United States, where revenues increased by $38.3 million and in the rest of the world with an increase of $18.5 million compared to $13.3 million in the EMEA. The significant increase in revenues primarily resulted from a higher volume of deals, including large transactions of greater than $1.0 million each that together accounted for $39.5 million. Multiple large transactions or even a single large transaction in a specific period could materially impact relative growth rates among our different regions for a particular period. We increased our number of customers from approximately 4,450 as of December 31, 2018 to more than 5,000 as of September 30, 2019.

License revenues increased by $35.6 million, or 28.3%, from $125.7 million in the nine months ended September 30, 2018 to $161.4 million in the nine months ended September 30, 2019. In the nine months ended September 30, 2019, approximately 65% of license revenues were generated from sales to customers from whom we had generated revenues before this period. Substantially all of the license revenue growth resulted from increased sales of our Core Privileged Access Security as well as strong growth from Application Access Manager.

Maintenance and professional services revenues increased by $34.5 million, or 31.8%, from $108.4 million in the nine months ended September 30, 2018 to $142.9 million in the nine months ended September 30, 2019. Maintenance revenues increased by $26.5 million from $89.4 million in the nine months ended September 30, 2018 to $115.9 million in the nine months ended September 30, 2019, with renewals accounting for approximately $12.5 million and initial maintenance contracts for approximately $14.0 million, respectively, of this increase. Professional services revenues increased by $8.0 million from $19.0 million in the nine months ended September 30, 2018 to $27.0 million in the nine months ended September 30, 2019, primarily due to the provision of more services to customers.


The United States is our biggest market, with the balance of our revenues generated from the EMEA region and the rest of the world, including Canada, Central and South America, as well as the Asia Pacific and Japan region. The following table sets forth the geographic breakdown of our revenues in dollars for the periods indicated:

 

     Nine Months Ended September 30,  
     2018     2019  
     (in thousands)  
     Amount      % of
Revenues
    Amount      % of
Revenues
 

United States

   $ 132,423        56.6   $ 170,694        56.1

EMEA

     70,501        30.1     83,802        27.6

Rest of World

     31,225        13.3     49,735        16.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenues

   $ 234,149        100.0   $ 304,231        100.0

Cost of Revenues

Cost of license revenues increased by $0.3 million, or 3.3%, from $7.5 million in the nine months ended September 30, 2018 to $7.8 million in the nine months ended September 30, 2019. The increase in cost of license revenues was driven primarily from hosting costs.

Cost of maintenance and professional services revenues increased by $10.4 million, or 37.6%, from $27.6 million in the nine months ended September 30, 2018 to $38.0 million in the nine months ended September 30, 2019. The increase in cost of maintenance and professional services revenues was driven primarily by a $4.9 million increase in personnel costs and related expenses as our technical support and professional services headcount grew and a $5.4 million increase in the use of third party consultants for services rendered.

Gross Profit

Gross profit increased by $59.5 million, or 29.9%, from $199.0 million in the nine months ended September 30, 2018 to $258.5 million in the nine months ended September 30, 2019. Gross margins were 85.0% for the nine months ended September 30, 2018 consistent with nine months ended September 30, 2019.


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, employee benefits (including commissions and bonuses) and share-based compensation expense. Operating expenses also include allocated overhead costs for facilities as well as depreciation and amortization. Allocated costs for facilities primarily consist of rent and office maintenance and utilities. We expect personnel and all allocated costs to continue to increase in absolute dollars as we hire new employees and add facilities to continue to grow our business.

Research and Development. Research and development expenses increased by $9.8 million, or 23.5%, from $41.8 million in the nine months ended September 30, 2018 to $51.6 million in the nine months ended September 30, 2019. This increase was primarily attributable to a $6.9 million increase in personnel costs and related expenses, as we increased our research and development team headcount to support continued investment in our future product and service offerings. The increase was also attributable to a $0.8 million increase in the use of third party consultants and to a $0.8 million increase in software and related expenses.

Sales and Marketing. Sales and marketing expenses increased by $23.2 million, or 21.5%, from $108.0 million in the nine months ended September 30, 2018 to $131.2 million in the nine months ended September 30, 2019. This increase was primarily attributable to an $18.1 million increase in personnel costs and related expenses due to increased headcount in all regions to expand our sales and marketing organization. The increase was also attributable to a $3.1 million increase in expenses related to our marketing programs.

General and Administrative. General and administrative expenses increased by $6.8 million, or 23.1%, from $29.5 million in the nine months ended September 30, 2018 to $36.3 million in the nine months ended September 30, 2019. This increase was primarily attributable to an increase of $5.7 million in personnel costs and related expenses due to increased headcount coupled with a $0.4 million increase in services fees due to external legal counsels, accounting and insurance costs and a $0.5 million increase in depreciation of fixed assets expenses.

Financial Income, Net. Financial income, net changed by $1.9 million from $3.5 million of income in the nine months ended September 30, 2018 to $5.4 million of income in the nine months ended September 30, 2019. This change resulted primarily from an increase of $3.8 million in interest income from investments in marketable securities and short and long-term bank deposits, offset by a $1.8 million loss from foreign currency exchange differences.

Taxes on Income. Taxes on income increased from $0.4 million in the nine months ended September 30, 2018 to $2.4 million in the nine months ended September 30, 2019. Our effective tax rate was 1.5% in the nine months ended September 30, 2018 and 5.4% in the nine months ended September 30, 2019. The higher effective tax rate in the nine months ended September 30, 2019 in comparison to the nine months ended September 30, 2018 was mainly attributable to excess tax benefit related to share based compensation, which lowered the effective tax rate in the nine months ended September 30, 2018, partially offset by intra-entity intellectual property transfer tax expenses.

Liquidity and Capital Resources

As of September 30, 2019, we had $555.1 million of cash, cash equivalents, short-term bank deposits and marketable securities. This compared with cash, cash equivalents, short-term bank deposits and marketable securities of $451.2 million as of December 31, 2018. We believe that our existing cash, cash equivalents, short-term bank deposits and marketable securities 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, 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 and the continuing market acceptance of our software offerings.


A substantial source of our net cash provided by operating activities is our deferred revenues, which is included on our consolidated balance sheet as a liability. The majority of our deferred revenues consist of the unrecognized portion of upfront payments associated with maintenance and professional services and Software as a Service (“SaaS”) that are recognized over time. We assess our liquidity, in part, through an analysis of our short and long term deferred revenues that have not yet been recognized as revenues together with our other sources of liquidity. Revenues from maintenance and support contracts are recognized ratably on a straight line basis over the term of the related contract which is typically one year and, to a lesser extent, three years, and from professional services as services are performed. Thus, since we frequently recognize revenues in subsequent periods to when certain payments may be received, an increase in deferred revenues adds to the liquidity of our operations.

Net Cash Provided by Operating Activities

Our cash flows historically have reflected our net income coupled with changes in our non-cash working capital and other non-cash charges. During the nine months ended September 30, 2018 and 2019, operating activities provided $89.2 million and $88.6 million in cash, respectively.

The $88.6 million in cash for the nine months ended September 30, 2019 was a result of $42.3 million of net income, adjusted by $37.5 million of non-cash charges related to share-based compensation expenses, $8.1 million related to depreciation and amortization expenses and change of $12.7 million in non-cash working capital, offset by a $5.0 million increase in deferred tax assets and by $7.0 million net change of other long term assets and liabilities. The change of $12.7 million in non-cash working capital was due to a $17.3 million increase in short-term deferred revenues and an increase of $9.9 million in accrued expenses and other current liabilities, offset by an increase of $7.1 million in trade receivables, decrease of $4.3 million in employees and payroll accruals and a net increase of $3.1 million in other current assets.

The $89.2 million in cash for the nine months ended September 30, 2018 was a result of $22.9 million of net income, adjusted by $25.7 million of non-cash charges related to share-based compensation expenses, $7.3 million related to depreciation and amortization expenses, change of $32.2 million in non-cash working capital and $7.8 million net change of other long term assets and liabilities, offset by a $6.7 million increase in deferred tax assets. The change of $32.2 million in non-cash working capital was due to a $20.7 million increase in short-term deferred revenues and decrease of $15.6 million in trade receivables, offset by a net decrease of $4.1 million in other current liabilities.

During the nine months ended September 30, 2018 and 2019, our days’ sales outstanding, or DSO, was 35 days and 59 days, respectively. The increase of the DSO was due to long-term unbilled receivables from contracts that the revenue recognized exceeded the amount billed to customers and due to better linearity of the deals over the nine months ended September 30, 2018.

Net Cash Used in Investing Activities

Our investing activities have consisted primarily of investment in, and proceeds from, short-term and long-term deposits, investment in, and proceeds from marketable securities, business acquisitions and purchase of property and equipment. Net cash used in investing activities was $61.5 million and $23.5 million for the nine months periods ended September 30, 2018 and 2019, respectively.

The decrease of $38.0 million in net cash used in investing activities in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was due to a net decrease of $17.8 million in investments in short and long term deposits and marketable securities, a decrease of $18.5 million in payments for business acquisitions, net of cash acquired and a decrease of $1.7 million in capital expenditures.


Net Cash Provided by Financing Activities

Our financing activities have consisted of proceeds from the exercise of share options and proceed from withholding tax related to employee stock plans. Net cash provided by financing activities was $16.3 million and $20.1 million for the nine months periods ended September 30, 2018 and 2019, respectively. Net cash provided by financing activities was attributable to an increase in proceeds from exercise of stock options granted to employees.