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What changed in VARONIS SYSTEMS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of VARONIS SYSTEMS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+355 added−361 removedSource: 10-K (2024-02-06) vs 10-K (2023-02-07)

Top changes in VARONIS SYSTEMS INC's 2023 10-K

355 paragraphs added · 361 removed · 303 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

82 edited+9 added−8 removed69 unchanged
Biggest changeWe believe our offering provides comprehensive data coverage and we aim to keep pace with the relentless growth and complexity of data. We started in 2005 with coverage for Windows file shares. Today, we offer coverage for more than 40 of the most mission-critical on-premises and cloud data stores and applications.
Biggest changeEnterprises now use many different combinations of data stores and applications, making it difficult to holistically visualize, quantify and control data breach risk without a unified data security platform. We believe our offering's comprehensive data coverage allows organizations to keep pace with the relentless data growth, sprawl and complexity. We started in 2005 with coverage for Windows file shares.
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 securing enterprise data.
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 successfully deliver our unique value proposition for securing enterprise data.
Our metadata analysis technology is built to be highly scalable, allowing our customers to analyze vast amounts of enterprise data. Moreover, our proprietary platform is built with a flexible, modern cloud architecture, allowing customers to seamlessly and transparently expand their data coverage without impacting performance. Threat Detection and Response Threat Detection and Response with User, Data and System Context.
Our metadata analysis technology is built to be highly scalable, allowing our customers to analyze vast amounts of enterprise data. Moreover, our proprietary platform is built with a flexible, modern cloud architecture, allowing customers to expand their data coverage seamlessly and transparently without impacting performance. Threat Detection and Response Threat Detection and Response with User, Data and System Context.
By ensuring least privilege, monitoring all access and alerting on potential misuse, Varonis enables privacy-by-design on data stores containing sensitive and regulated information. Fulfill Data Subject Access Requests ("DSARs") and Protect Consumer Data. Our solutions help fulfill DSARs from file systems on-premises and in the cloud.
By ensuring the least privilege, monitoring all access and alerting on potential misuse, Varonis enables privacy by design on data stores containing sensitive and regulated information. Fulfill Data Subject Access Requests ("DSARs") and Protect Consumer Data. Our solutions help fulfill DSARs from file systems on-premises and in the cloud.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, consumer and retail, energy and utilities, construction and engineering and education sectors. We also believe our existing customers represent significant future revenue opportunities for us.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We also believe our existing customers represent significant future revenue opportunities for us.
Our customers include leading firms in the financial services, public, healthcare, industrial, insurance, technology, consumer and retail, energy and utilities, construction and engineering and education sectors, with hundreds of thousands of employees and petabytes of data.
Our customers include leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors, with hundreds of thousands of employees and petabytes of data.
We host in-person or virtual Varonis Connect! customer events across sales regions, as well as free, online technical webinars in multiple regions.
We host in-person or virtual Varonis Connect! customer events across sales regions, as well as free, online technical webinars across multiple regions.
Visibility and Data Monitoring Capabilities All in One Place. Our solution combines analysis from disparate on-premises and cloud stores, applications and infrastructure and presents them in a single view, even as data storage and user access become more dispersed and complex in hybrid environments. 3 Fast Time to Value and Low Total Cost of Ownership.
Visibility and Data Monitoring Capabilities All in One Place. Our solution combines analysis from disparate on-premises and cloud stores, applications and infrastructure and presents them in a single view, even as data storage and user access become more dispersed and complex in hybrid environments. Fast Time-to-Value and Low Total Cost of Ownership.
While our on-premises subscription licensing will remain the same, we are transitioning away from selling only those licenses, in which we offer an array of modular licenses which customers can purchase individually or as a bundle, to SaaS, which will be sold as platform licenses providing, by default, the functionality of multiple core modules.
While our on-premises subscription licensing will remain the same, we are transitioning away from selling only those licenses, in which we offer an array of modular licenses that customers can purchase individually or as a bundle, to SaaS, which will be sold as platform licenses providing, by default, the functionality of multiple core modules.
Payment to us from the channel partner is typically due within 30 to 60 calendar days of the invoice date. Marketing Our marketing strategy focuses on building our brand and product awareness, increasing customer adoption and demand, communicating advantages and business benefits as well as generating leads for our channel partners and sales force.
Payment to us from the channel partner is typically due within 30 to 60 calendar days of the invoice date. 8 Marketing Our marketing strategy focuses on building our brand and product awareness, increasing customer adoption and demand, communicating advantages and business benefits as well as generating leads for our channel partners and sales force.
We focus our efforts on highly relevant content creation, events, campaigns and activities that can be leveraged by our channel partners worldwide to extend our marketing reach, such as information regarding product awards and technical certifications, security training, regional seminars and conferences, webinars, podcasts and various other demand-generation activities.
We focus our efforts on highly relevant content, events, campaigns and activities that can be leveraged by our channel partners worldwide to extend our marketing reach, such as information regarding product awards and technical certifications, security training, regional seminars and conferences, webinars, podcasts and various other demand-generation activities.
While our products serve customers of all sizes, in all industries and all geographies, the marketing focus and majority of our sales focus is on 2 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.
While our products serve customers of all sizes, in all industries and all 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.
The early success of our license bundles under the OPS model demonstrated that customers want to utilize and benefit from the majority of Varonis’ core functionality from the start. We know that customers who utilize a higher number of licenses see more value upfront through automation and synergy between modules.
The success of our license bundles under the OPS model demonstrated that customers want to utilize and benefit from the majority of Varonis’ core functionality from the start. We know that customers who utilize a higher number of licenses see more value upfront through automation and synergy between modules.
Our belief in our technological advantage stems from us having developed a way to do each of the following: • analyze the relationships between users and data with sophisticated algorithms, including cluster analyses and machine learning; • visualize and depict the analyses in an intuitive manner, including simulating contemplated changes and automatically executing tasks that are becoming increasingly more complex for IT and business personnel; • identify and automatically classify data as sensitive, critical, private or regulated, to help organizations ensure compliance with regulations, including the General Data Protection Regulation ("GDPR") and the California Consumer Privacy Act ("CCPA"); • automate remediation of excessive access to sensitive information across large data stores and cloud applications to safely ensure a Zero Trust or least privilege model; • profile users, devices and data to detect suspicious account behavior and unusual file and email activity using deep analysis of metadata, machine learning and user behavior analytics; • profile cloud configuration and interconnectivity to identify potential exposure and abuse; • generate meaningful, actionable alerts when security-related incidents are detected; • enable security teams to investigate and respond to cyber threats more quickly and conclusively; • automatically respond to severe incidents, such as ransomware, to limit potential impact and reduce recovery times; • provide customers Live Updates to our platform which address the rapidly evolving threats they face; • determine relevant metadata and security information to capture without impacting the enterprise's computing and network infrastructure; • modify and enrich that metadata in a way that makes it comparable and analyzable despite it having originated from disparate IT systems, and create supplemental metadata, as needed, when the existing IT infrastructure’s activity logs are insufficient; • decipher the key functional relationships of metadata, the underlying data, and its creators; and • use those functional relationships to create a graphical depiction, or map, of the data that will endure as enterprises continuously add large volumes of data to their network and storage resources.
Our belief in our technological advantage stems from our having developed a way to do each of the following: • analyze the relationships between users and data with sophisticated algorithms, including cluster analyses and machine learning; • visualize and depict the analyses in an intuitive manner, including simulating contemplated changes and automatically executing tasks that are becoming increasingly more complex for IT and business personnel; • identify and automatically classify data as sensitive, critical, private or regulated, to help organizations ensure compliance with regulations, including the General Data Protection Regulation ("GDPR") and the California Consumer Privacy Act ("CCPA"); • automate remediation of excessive access to sensitive information across large data stores and cloud applications to safely ensure a Zero Trust or least privilege model; • profile users, devices and data to detect suspicious account behavior and unusual file and email activity using deep analysis of metadata, machine learning and user behavior analytics; • profile cloud configurations and interconnectivity to identify potential exposure and abuse; • generate meaningful, actionable alerts when security-related incidents are detected; • enable security teams to investigate and respond to cyber threats more quickly and conclusively with the help of Gen AI; • automatically respond to severe incidents, such as ransomware, to limit the potential impact and reduce recovery times; • provide customers Live Updates to our platform, which address the rapidly evolving threats they face; • determine relevant metadata and security information to capture without impacting the enterprise's computing and network infrastructure; • modify and enrich that metadata in a way that makes it comparable and analyzable despite it having originated from disparate IT systems, and create supplemental metadata, as needed, when the existing IT infrastructure’s activity logs are insufficient; • decipher the key functional relationships of metadata, the underlying data, and its creators; and • use those functional relationships to create a graphical depiction, or map, of the data that will endure as enterprises continuously add large volumes of data to their network and storage resources.
Varonis software enables enterprises of all sizes and industries to protect data stored on-premises and in the cloud, including: sensitive files and emails; confidential personal data belonging to customers, patients and employees; financial records; source code, strategic and product plans; and other intellectual property.
Varonis software enables enterprises of all sizes and industries to protect data stored on-premises and in the cloud, including: sensitive files, emails and databases; confidential personal data belonging to customers, patients and employees; financial records; source code, strategic and product plans; and other intellectual property.
These use cases include: automatic discovery and classification of high-risk, sensitive data; data security posture management; automated remediation of over-exposed data; centralized visibility and risk analysis of enterprise data and monitoring of user behavior and file activity; security monitoring and risk reduction; data breach, insider threat, malware and ransomware detection; automatic response to ransomware and other severe incidents to limit exposure and reduce recovery times; data ownership identification, assignment, and automatic involvement; forensics, reporting and auditing with searchable logs; meeting security policy and compliance regulation; automatic data migration; cloud migration; automation of retention and disposition policies; automatic data quarantine; intelligent archiving; and automated indexing for data subject requests related to privacy and compliance requirements.
These use cases include: automatic discovery and classification of high-risk, sensitive data; data security posture management; SaaS security posture management; automated remediation of over-exposed data; centralized visibility and risk analysis of enterprise data and monitoring of user behavior and file activity; security monitoring and risk reduction; data breach, insider threat, malware and ransomware detection; automatic response to ransomware and other severe incidents to limit exposure and reduce recovery times; data ownership identification, assignment, and automatic involvement; forensics, reporting and auditing with searchable logs; meeting security policy and compliance regulation; automatic data migration; cloud migration; 2 automation of retention and disposition policies; automatic data quarantine; intelligent archiving; and automated indexing for data subject requests related to privacy and compliance requirements.
Data Transport Engine provides an execution engine that unifies the manipulation of data and metadata, translating business decisions and instructions into technical commands, such as data migration or archiving. Data Transport Engine allows both IT and business personnel to standardize and streamline activities for data management and retention. • DatAnswers.
Data Transport Engine provides an execution engine that unifies the manipulation of data and metadata, translating business decisions and instructions into technical commands, such as data migration or archiving. Data Transport Engine allows both IT and business personnel to standardize and streamline activities for data management and retention. 6 • DatAnswers.
That data will include both structured and unstructured data, but unstructured data overwhelmingly dominates, accounting for more than 90% of the data created each year. We expect this significant growth to continue creating a need for technologies that use automation to protect and manage data.
That data will include both structured and unstructured data, but unstructured data overwhelmingly dominates, accounting for more than 90% of the data created each year. We expect this significant growth to continue creating a need for automation technologies to protect and manage data.
We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls and webcasts.
We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls and webcasts. 11
Our 4 ability to leverage our research and development resources has enabled us to create a new product development engine that we believe can proactively identify and solve enterprise needs and help us further penetrate and grow our markets.
Our ability to leverage our research and development resources has enabled us to create a new product development engine that we believe can proactively identify and solve enterprise needs and help us further penetrate and grow our markets.
We intend to increase, in absolute dollars, our current level of investment in product development in order to enhance existing products to address new use cases and continue to deliver new products.
We intend to increase, in absolute dollars, our current level of investment in product development to enhance existing products to address new use cases and continue to deliver new products.
Moreover, our solution is applicable across most major enterprise data stores and SaaS applications (Windows, UNIX/Linux, Intranets, email systems, Microsoft 365, including SharePoint Online, Teams and OneDrive for Business, Salesforce, AWS, Slack, GitHub, Okta, Google Drive and Box). Actionable Insight and Automation.
Moreover, our solution is applicable across most major enterprise data stores and SaaS applications (Windows, UNIX/Linux, Intranets, email systems, Microsoft 365, including SharePoint Online, Teams and OneDrive for Business, Salesforce, AWS, Azure, Slack, GitHub, Okta, Google Drive and Box). 3 Actionable Insight and Automation.
Our solutions analyze, monitor, detect and report on potential security vulnerabilities: helping companies achieve compliance by creating full audit trails, achieving a least privilege model and locking down sensitive data to only those who need it, and facilitate breach notification and security investigations.
Our solutions analyze, monitor, detect and report on potential security vulnerabilities: helping companies achieve compliance by creating full audit trails, achieving a least privilege model and locking down sensitive data to only those who need it, and facilitating breach notification and security investigations.
Our marketing organization is responsible for branding, content generation, demand generation, field marketing and product marketing, and works with our business operations team to support channel marketing and sales support programs. We provide one-on-one and community education and awareness and promote the 8 expanded use of our software.
Our marketing organization is responsible for branding, content creation, demand generation, field marketing and product marketing, and works with our business operations team to support channel marketing and sales support programs. We provide one-on-one and community education and awareness and promote the expanded use of our software.
Additionally, in 2021, we introduced new data coverage to protect additional cloud applications and infrastructure that were further developed by us after acquiring a provider of software that maps and analyzes relationships between users and data across a number of cloud applications and services.
Additionally, in 2021, we introduced new data coverage to protect additional cloud applications and infrastructure that were further developed by us after acquiring a provider of software that maps and analyzes relationships between users and data across several cloud applications, infrastructure and services.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, consumer and retail, energy and utilities, construction and engineering and education sectors. We believe our existing customer base serves as a strong source of incremental revenues given our broad data coverage, the growing volumes and complexity of their enterprise data and the associated security concerns.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We believe our existing customer base is a strong source of incremental revenues given our broad data coverage, the growing volumes and complexity of their enterprise data and the associated security concerns.
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.
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.
Customers can easily find relevant files, pinpoint who has access and enforce policies to move and quarantine regulated data. Our Growth Strategy Our objective is to be the primary vendor to which enterprises turn to protect their data. The following are key elements of our growth strategy. Extend Our Technological Capabilities Through Innovation and Strategic Transactions.
Customers can easily find relevant files, pinpoint who has access and enforce policies to move and quarantine regulated data. 4 Our Growth Strategy Our objective is to be the primary vendor that enterprises turn to protect their data. The following are key elements of our growth strategy. Extend Our Technological Capabilities Through Innovation and Strategic Transactions.
Seasonality See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality and Quarterly Trends.” Competition While there are some companies which offer certain features similar to those embedded in our solutions, as well as others with which we compete in certain use cases, we believe that we do not currently compete with a company that offers the same breadth of functionalities on the number of platforms and application that we cover.
Seasonality See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality and Quarterly Trends.” 9 Competition While there are some companies which offer certain features similar to those embedded in our solutions, as well as others with which we compete in certain use cases, we believe that we do not currently compete with a company that offers the same breadth of functionalities on the number of data stores and application that we cover.
Grow Our Customer Base. The unabated rise in enterprise data, ubiquitous reliance on digital collaboration and increased cybersecurity concerns continue to drive demand for data protection, compliance and threat detection and response solutions. We intend to capitalize on this demand by targeting new customers, underpenetrated markets and use cases for our solutions.
The unabated rise in enterprise data, ubiquitous reliance on digital collaboration and increased cybersecurity concerns continue to drive demand for data protection, compliance and threat detection and response solutions. We intend to capitalize on this demand by targeting new customers, underpenetrated markets and use cases for our solutions.
Software-as-a-Service ("SaaS") Our SaaS product portfolio currently includes two product lines: (1) our flagship Varonis Data Security Platform, which protects Microsoft 365, Windows file shares, Active Directory, Edge devices (VPN, DNS, proxy) and hybrid NAS storage, and (2) DatAdvantage Cloud, which protects SaaS and IaaS environments such as Salesforce, AWS, Google Drive, Box, GitHub, Zoom, Slack, Jira and Okta. 6 • Varonis Data Security Platform .
Software-as-a-Service ("SaaS") Our SaaS product portfolio currently includes two product lines: (1) our flagship Varonis Data Security Platform, which protects Microsoft 365, Windows file shares, Active Directory, Edge devices (VPN, DNS, proxy), UNIX/Linux and hybrid NAS storage, and (2) DatAdvantage Cloud, which protects SaaS and IaaS environments such as Salesforce, AWS, Azure, Google Drive, Box, GitHub, Zoom, Slack, Jira and Okta. • Varonis Data Security Platform .
Our marketing efforts also include public relations in multiple regions, industry analyst relations, customer marketing, account-based marketing, targeted advertising, extensive content development available through our website and content syndication, and our active blog.
Our marketing efforts also include public relations across multiple regions, industry analyst relations, customer marketing, account-based marketing, targeted advertising, extensive content development available through our website and content syndication, and our active blog.
Therefore, we are drastically simplifying our subscription licensing under SaaS, combining five of our most popular licenses into a single Varonis Data Security Platform license. The Varonis Data Security Platform SaaS license will include, by default, the functionality of five core modules: DatAdvantage, DatAlert, Automation Engine, Data Classification Engine and Data Classification Policy Pack.
Therefore, we drastically simplified our subscription licensing under SaaS, combining five of our most popular licenses into a single Varonis Data Security Platform license. The Varonis Data Security Platform SaaS license will include, by default, the functionality of five core modules: DatAdvantage, DatAlert, Automation Engine, Data Classification Engine and Data Classification Policy Pack.
Profiles users and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise. New UEBA threat models are automatically delivered to customers to guard against evolving tactics used by cybercriminals, insiders, and APTs.
Profiles users and devices and their associated behaviors with respect to systems and data, detects and alerts on meaningful deviations that indicate compromise. New UEBA threat models are automatically delivered to customers to guard against evolving tactics used by cybercriminals, insiders and advanced persistent threats (APTs).
We expect to continue to drive incremental sales from our existing customers through the increased use of our software within our installed base by expanding footprint and usage. We believe our existing customer base serves as a strong source of incremental revenues given our broad product functionality, their growing volume and complexity of enterprise data and the associated security concerns.
We expect to continue to drive incremental sales from our existing customers through the increased use of our software within our installed base by expanding our footprint and usage. We believe our existing customer base is a strong source of incremental revenues given our broad product functionality, the growing volume and complexity of enterprise data and the associated security concerns.
As we continue to innovate by addressing more use cases, adding more data coverage, and providing automated data security outcomes to customers, we expect to see broader and stickier adoption of our platform. In addition, our transition to a predominately SaaS-based business model provides us with a unique opportunity to convert existing customers to SaaS.
As we continue to innovate by addressing more use cases, adding more data coverage, and providing automated data security outcomes to customers, we expect to see broader and stickier adoption of our platform. In addition, our transition to a predominately SaaS delivery model provides us with a unique opportunity to convert existing customers to our SaaS offering.
Services Maintenance and Support of Subscription and Perpetual Licenses Maintenance and support associated with a subscription contract is included in the Subscriptions revenue line of the statement of operations. Maintenance and support associated with perpetual licenses is included in the Maintenance and services line of the statement of operations.
Services Maintenance and Support of Subscription and Perpetual Licenses Maintenance and support associated with a subscription license is included in the Subscriptions revenue line of the statement of operations. Maintenance and support associated with perpetual licenses is included in the Maintenance and services line of the statement of operations.
Data Protection Comprehensive Solution for Managing and Protecting Enterprise Data. Our products enable a broad range of functionality, including data governance, least privilege and Zero Trust, as well as intelligent retention.
Automated Data Security Comprehensive Solution for Managing and Protecting Enterprise Data. Our products enable a broad range of functionality, including data governance, least privilege and Zero Trust, as well as intelligent retention.
Our renewal rate for the year ended December 31, 2022 continued to be over 90%. Our key strategies to ensure a high renewal rate for our products include focusing on the quality and reliability of our customer service and support teams and providing software upgrades and enhancements when available. Grow Sales from Our Newer Licenses and Functionality.
Our renewal rate for the year ended December 31, 2023 continued to be over 90%. Our key strategies to ensure a high renewal rate for our products include focusing on the quality and reliability of our customer service and support teams and providing software upgrades and enhancements when available. Grow Sales from Our New Products and Functionality.
We believe there is a significant opportunity for our platform to address the need for data protection and threat detection and response in international markets. Revenues from Europe, the Middle East and Africa 5 (“EMEA") accounted for 23% and revenues from Rest of World (“ROW”) accounted for 3% of our revenues, respectively, in 2022.
We believe there is a significant opportunity for our platform to address the need for data protection and threat detection and response in international markets. Revenues from Europe, the Middle East and Africa (“EMEA") accounted for 22% and revenues from Rest of World (“ROW”) accounted for 3% of our revenues, respectively, in 2023.
Data continues to grow in new and existing data stores both on-premises and in the cloud, a trend we have seen accelerate as companies around the world undergo a wave of digital transformation initiatives which have significantly impacted how they must approach data security.
Data continues to grow in new and existing data stores both in the cloud and on-premises, a trend we have seen accelerate as companies worldwide undergo a wave of digital transformation initiatives that have significantly impacted how they must approach data security.
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 with new regulations, like GDPR, CCPA and other data privacy laws, and as these functionalities continue to be recognized as 9 critical to protect enterprise data, we may face increased perceived and real competition from other security and classification technologies.
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 with new regulations, and as these functionalities continue to be recognized as critical to protect enterprise data, we may face increased perceived and real competition from other security and classification technologies.
We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force to efficiently identify leads, perform risk assessments and convert them to satisfied customers, 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.
We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force to efficiently identify leads, perform risk assessments and convert them to satisfied customers, 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. 5 Establish Our Data Security Platform as the Industry Standard.
Today, the Varonis Data Security Platform SaaS license includes: ◦ Risk assessment dashboards . Provides customers with real-time visibility of their data security posture across their multi-cloud and on-premises data, helps prioritize remediation efforts, and tracks progress over time. ◦ Data access intelligence .
Today, the Varonis Data Security Platform SaaS license includes: ◦ Data security posture management (DSPM) . Provides customers with real-time visibility of their data security posture across their multi-cloud and on-premises data, helps prioritize remediation efforts, and tracks progress over time. ◦ Data access intelligence .
Through the use of application programming interfaces (APIs), and other integration work, our solutions also integrate with many providers of solutions in the ecosystem. We will continue to pursue such collaborations wherever they advance our strategic goals, thereby expanding our reach and establishing our platform as the de facto industry standard when it comes to enterprise data. Continue International Expansion.
Using application programming interfaces (APIs), and other integration work, our solutions also integrate with many providers of solutions in the ecosystem. We will continue to pursue such collaborations wherever they advance our strategic goals, thereby expanding our reach and establishing our platform as the de facto industry standard for enterprise data. Continue International Expansion.
We also had 55 patents issued and 42 applications pending for examination in non-U.S. jurisdictions, and two pending Patent Cooperation Treaty (“PCT”) patent applications, all of which are counterparts of our U.S. patent applications. The claims for which we have sought patent protection relate primarily to inventions we have developed for incorporation into our products.
We also had 67 patents issued and 31 applications pending for examination in non-U.S. jurisdictions, and seven pending Patent Cooperation Treaty (“PCT”) patent applications, all of which are counterparts of our U.S. patent applications. The claims for which we have sought patent protection relate primarily to inventions we have developed for incorporation into our products.
The nature and extent of legal protection of our intellectual property rights depends on, among other things, its type and the jurisdiction in which it arises. As of December 31, 2022, we had 85 issued patents and 12 pending patent applications in the United States. Our issued U.S. patents expire between 2025 and 2039.
The nature and extent of legal protection of our intellectual property rights depends on, among other things, its type and the jurisdiction in which it arises. As of December 31, 2023, we had 88 issued patents and 16 pending patent applications in the United States. Our issued U.S. patents expire between 2025 and 2042.
Lastly, we recently announced the availability of our flagship Varonis Data Security Platform as a SaaS, which we believe will be mutually beneficial for us and our customers. We will continue to seek additional opportunities to extend our technological capabilities and grow our business, from continued organic investments in our research and development efforts to technological tuck-in acquisitions.
Lastly, we believe the availability of our flagship Varonis Data Security Platform as a SaaS will mutually benefit us and our customers. We will continue to seek additional opportunities to extend our technological capabilities and grow our business, from continued organic investments in our research and development efforts to technological tuck-in acquisitions. Grow Our Customer Base.
Size of Our Market Opportunity The International Data Corporation’s Global DataSphere Forecast, 2022-2026, predicts that over the next five years, data will grow at a compound annual growth rate of 21% to reach more than 221 zettabytes (or 221 trillion Gigabytes) by 2026.
Size of Our Market Opportunity The International Data Corporation’s Global DataSphere Forecast, 2023-2027, predicts that over the next five years, data will grow at a compound annual growth rate of 28.2% to reach more than 291 zettabytes (or 291 trillion Gigabytes) by 2027.
We believe that we generally compete favorably in each of these categories. We also believe that we distinguish ourselves from others by delivering a single, integrated solution and sophisticated automation to address our customers’ needs regarding security access, governance, privacy and retention with respect to their enterprise data.
We believe that we generally compete favorably in each of these categories. We also believe that we distinguish ourselves from others by delivering a single, integrated solution and sophisticated automation to address our customers’ needs regarding data security, threat detection and response, data privacy and retention.
Employees and Human Capital Resources As of December 31, 2022, we had 2,143 employees and independent contractors who developed, marketed, sold and supported our technology solutions, including 952 in the United States, 708 in Israel and 483 in other countries. We understand that our innovation leadership is ultimately rooted in our people.
Employees and Human Capital Resources As of December 31, 2023, we had 2,233 employees and independent contractors who developed, marketed, sold and supported our technology solutions, including 989 in the United States, 775 in Israel and 469 in other countries. We understand that our innovation leadership is ultimately rooted in our people.
Use of our products has expanded from data governance into areas such as data security, threat detection and response, privacy, accessibility and retention, and we anticipate that customer demand and innovation will drive functionality into additional areas. We regularly release updates to our products which incorporate new features and enhancements to existing ones.
Use of our products has expanded beyond just data security into threat detection and response, data privacy and data lifecycle management, and we anticipate that customer demand and innovation will drive functionality into additional areas. We regularly release updates to our products which incorporate new features and enhancements to existing ones.
Our global well-being programs include a long-standing practice of remote working arrangements, flexible paid time off, life planning benefits, wellness platforms and employee assistance. In addition, we ensure ongoing check-ins with employees by HR and managers to provide additional channels of support. • Promote Sense of Belonging through Diversity and Inclusion Initiatives .
We support the overall well-being of our employees from a physical, emotional, financial and social perspective. Our global well-being programs include a long-standing practice of remote working arrangements, flexible paid time off, life planning benefits, wellness platforms and employee assistance. In addition, we ensure ongoing check-ins with employees by HR and managers to provide additional channels of support.
Expand Our Sales Force. Continuing to expand our sales force will be essential to achieving our customer base expansion goals. Our approach to in-house development of sales representatives through the Varonis Academy have been key to our successful growth in the past and will be central to our growth plan in the future.
Our approach to in-house development of sales representatives through the Varonis Academy have been key to our successful growth in the past and will be central to our growth plan in the future.
For convenience in this report, the terms “Company,” “Varonis,” “we” and “us” may be used to refer to Varonis Systems, Inc. and/or its subsidiaries, except where indicated otherwise. Our telephone number is (877) 292-8767. Overview Varonis is a pioneer in data security and analytics, fighting a different battle than conventional cybersecurity companies.
For convenience in this report, the terms “Company,” “Varonis,” “we” and “us” may be used to refer to Varonis Systems, Inc. and/or its subsidiaries, except where indicated otherwise. Our telephone number is (877) 292-8767.
We continue to introduce additional licenses and enhancements to existing products to support new functionalities and believe these can also be a meaningful contributor to our growth. In October 2020, we announced the acquisition of Polyrize Security Ltd. ("Polyrize"), whose technology was used to the launch of the DatAdvantage Cloud and Data Classification Cloud licenses.
We continue introducing additional products and enhancements to existing products to support new functionalities and believe these can also be a meaningful contributor to our growth. In October 2020, we announced the acquisition of Polyrize Security Ltd.
Our Metadata Framework technology has been architected to process large volumes of enterprise data and the related metadata at a massive scale with minimal demands on the existing IT infrastructure.
Our Metadata Framework technology has been architected to process large volumes of enterprise data and related metadata at a massive scale with minimal demands on the existing IT infrastructure. On October 31, 2022, Varonis announced the availability of our flagship Varonis Data Security Platform as a SaaS.
The Protection Packages currently available for the Varonis Data Security Platform SaaS are: ◦ Microsoft 365 . Includes support for SharePoint Online, OneDrive for Business, Microsoft Teams, and Azure AD. Customers can purchase add-on support for Exchange Online. ◦ Windows & NAS . Includes support for Windows/CIFS-based file shares and NAS storage such as NetApp and Dell EMC.
The Protection Packages currently available for the Varonis Data Security Platform SaaS are: ◦ Microsoft 365 . Includes support for SharePoint Online, OneDrive for Business, Microsoft Teams, and Entra ID (formerly known as Azure AD). Customers can purchase add-on support for Exchange Online. 7 ◦ Windows & NAS .
We support the overall well-being of our employees from a physical, emotional, financial and social perspective. We also regularly seek input from employees, including through broad employee satisfaction and pulse surveys on specific issues, intended to assess our degree of success in promoting an environment where employees are engaged, satisfied, productive and possess a strong understanding of our business goals.
We also regularly seek input from employees, including through broad employee satisfaction and pulse surveys on 10 specific issues, intended to assess our degree of success in promoting an environment where employees are engaged, satisfied, productive and possess a strong understanding of our business goals. • Promote Sense of Belonging through Diversity and Inclusion Initiatives .
In doing so, our platform provides real-time intelligence about an enterprise’s massive volumes of data, making it more secure, accessible and manageable. 1 We believe that the (i) Varonis Data Security Platform technology, (ii) coverage of more than 40 of the most mission-critical on-premises and cloud data stores and applications and (iii) technical experts within the Company who continue to expand and improve our offering are our primary, hard to replicate competitive advantages.
We believe that the (i) Varonis Data Security Platform technology, (ii) coverage of more than 40 of the most mission-critical cloud and on-premises data stores, applications and infrastructure and (iii) technical experts within the Company who continue to expand and improve our offering are our primary, hard to replicate competitive advantages.
Data growth and related security concerns continue across all data stores, and enterprises want to standardize solutions that help them manage, protect and extract more value from their data, wherever it is stored.
Increase Sales to Existing Customers. We believe significant opportunities exist to further expand relationships with existing customers. Data growth and related security concerns continue across all data stores, and enterprises want to standardize solutions that help them manage, protect and extract more value from their data, wherever it is stored.
Our customers are located in over 90 countries and our global workforce operates across cultures, functions, language barriers and time zones to provide them dedicated and ongoing support. 10 • Provide Programs for Employee Recognition .
We work with diversity focused candidate application platforms to increase access to diverse talent. Our customers are located in over 90 countries and our global workforce operates across cultures, functions, language barriers and time zones to provide them dedicated and ongoing support. • Provide Programs for Employee Recognition .
Varonis prevents or limits unauthorized use of sensitive information, detects and prevents potential cyberattacks and limits potential damage by automatically locking down data, allowing access to only those who need it and automating the removal of stale data when it is no longer useful.
Varonis prevents or restricts unauthorized use of sensitive information, detects and stops potential cyberattacks and limits potential damage by automatically locking down data, allowing access to only those who need it, and automating the removal of stale data when it is no longer useful. 1 The Varonis Data Security Platform is driven by a proprietary technology, our Metadata Framework, that extracts critical metadata, or data about data, from an enterprise’s information technology ("IT") infrastructure.
We believe that these trends provide us a long-term opportunity to fulfill our mission of protecting sensitive data for our customers and alleviating the resource pressure that companies are facing through our automation capabilities. Enterprises now use many different combinations of data stores and require varying levels of automated protection.
We believe that these trends provide us with a long-term opportunity to fulfill our mission of protecting sensitive data for our customers and alleviating the resource pressure and skills shortage that companies face through our automation capabilities.
Establish Our Data Security Platform as the Industry Standard. We have worked with several of the leading providers of NAS and hybrid cloud storage, including Dell/EMC, IBM, NetApp, HP, Hitachi and Nasuni in order to expand our market reach and deliver enhanced functionality to our customers. We have worked with these vendors to assure compatibility with their product lines.
We have worked with several of the leading providers of NAS and hybrid cloud storage, including Dell/EMC, IBM and NetApp, as well as the major cloud service providers such as Microsoft, Amazon, Google and Salesforce to expand our market reach and deliver enhanced functionality to our customers. We have worked with these vendors to ensure compatibility with their product lines.
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 sell substantially all our products and services to channel partners, including distributors and resellers, which sell to end-user customers, whom we refer to in this report as our customers. Our products are also available to trial and purchase via the Azure Marketplace, AWS Marketplace, and Salesforce AppExchange.
Our solutions analyze how employee accounts, service accounts and admin accounts use and access data, profile employees’ roles and file contents, baseline “normal” behavior patterns, and alert on significant deviations from profiled behaviors.
Our solutions analyze how employee accounts, service accounts and admin accounts use and access data, profile employees’ roles and file contents, baseline “normal” behavior patterns, and alert on significant deviations from profiled behaviors. Our customers can detect advanced persistent threats ("APTs"), cybercriminals, rogue insiders, attackers that have compromised internal systems and employee accounts, malware, ransomware and other significant threats.
Available Information Our website is located at www.varonis.com, and our investor relations website is located at https://ir.varonis.com. The information posted on our website is not incorporated into this Annual Report on Form 10-K.
The information posted on our website is not incorporated into this Annual Report on Form 10-K.
Research and Development Our research and development efforts are focused primarily on improving and enhancing our existing products, including features and new SaaS functionalities for our products, as well as developing new products.
Research and Development Our research and development efforts are focused primarily on improving and enhancing our existing products, as well as expanding our platform to cover new sources of data and developing new products.
Our solutions address the needs of customers of all sizes, ranging from small and medium sized businesses to large multinational companies with hundreds of thousands of employees and petabytes of data.
Our solutions address the needs of customers of all sizes, ranging from small and medium-sized businesses to large multinational companies with hundreds of thousands of employees and petabytes of data. Although our solutions apply to organizations of all sizes, we have and will continue focusing on targeting larger organizations that can make larger purchases with us initially and over time.
Our Customers We currently have customers in over 90 countries. Our customers span numerous industries and vary greatly in size, ranging from small and medium businesses to large multinational enterprises and government agencies.
The protected resources currently available for DatAdvantage Cloud are Salesforce, Google Drive, Box, AWS (including S3), GitHub, Slack, Zoom, Okta, and Jira. Our Customers We currently have customers in over 90 countries. Our customers span numerous industries and vary greatly in size, ranging from small and medium businesses to large multinational enterprises and government agencies.
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.
Overview Varonis is a leader in data security as, since we started operations in 2005, we recognized that an enterprise's capacity to create and share data far exceeded its capacity to protect it. We believed that rapid data growth combined with increasing information dependence would change the global economy and the risk profiles of corporations and governments.
Given these benefits to our customers, we expect SaaS deployments to grow significantly over the next several years to become the primary driver of our sales as we transition our business to a predominately SaaS-based company. Our software specializes in data protection, threat detection and response, data privacy and compliance.
We expect SaaS deployments to grow significantly over the next several years and become the primary sales driver as we transition our business to a predominately SaaS delivery model.
Customers can purchase add-on support for on-premises Active Directory and Edge devices (VPN, DNS, proxy). ◦ Hybrid . Combined support for the protected resources in the Microsoft 365 and Windows & NAS packages. • Varonis DatAdvantage Cloud. DatAdvantage Cloud is a SaaS platform that helps organizations protect data across SaaS applications and IaaS environments.
Includes support for Windows/CIFS-based file shares and NAS storage such as NetApp and Dell EMC. Customers can purchase add-on support for on-premises Active Directory, UNIX/Linux and Edge devices (VPN, DNS, proxy). ◦ Hybrid . Combined support for the protected resources in the Microsoft 365 and Windows & NAS packages. • Varonis DatAdvantage Cloud.
In addition, we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which offers simpler deployment, faster time-to-value, and groundbreaking new automation capabilities.
Today, we offer coverage for more than 40 of the most mission-critical cloud and on-premises data stores, SaaS applications and cloud infrastructures. In 2022, we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which offers simpler deployment, faster time-to-value, and groundbreaking automation capabilities that help customers prevent data breaches.
We believe it is important to give back and promote community outreach and support through corporate giving and employee volunteerism in the communities in which we live and work. We also provide corporate matching of employee charitable donations and flexible volunteering during work time, letting our employees know that we support the charitable efforts that matter to them.
We also provide corporate matching of employee charitable donations and flexible volunteering during work time, letting our employees know that we support the charitable efforts that matter to them. Available Information Our website is located at www.varonis.com, and our investor relations website is located at https://ir.varonis.com.
Our platform uses this contextual information to map functional relationships among employees, data objects, systems, content and usage.
Our platform uses this contextual information to map functional relationships among employees, data objects, systems, content and usage. In doing so, our platform provides real-time intelligence about an enterprise’s massive volumes of data, making it more secure, accessible and manageable.
Recognizing the complexities of securing data, we have built an integrated platform for security and analytics to simplify and streamline security and data management. The Varonis Data Security Platform helps enterprises protect data against cyberattacks from both external and internal threats. Our technology enables enterprises to analyze data, account activity and user behavior to help detect and prevent attacks.
Recognizing the challenge of protecting data with growing volume, velocity and variety, we have built an integrated platform to simplify and streamline data security, threat detection and response and data privacy and compliance. The Varonis Data Security Platform helps enterprises protect data against cyberattacks from both external and internal threats.
On October 31, 2022, Varonis announced the availability of our flagship Varonis Data Security Platform as a SaaS; prior to this announcement, only the DatAdvantage Cloud licenses were available as a cloud-hosted solution.
On October 31, 2022, we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which was previously only sold as a self-hosted solution. Expand Our Sales Force. Continuing to expand our sales force will be essential to achieving our customer base expansion goals.
DatAdvantage Cloud offers functionality similar to our flagship Varonis Data Security Platform including, but not limited to, data risk assessment dashboards, data classification, data access 7 intelligence, data activity monitoring, data detection and response, and least privilege automation. The protected resources currently available for DatAdvantage Cloud are Salesforce, Google Drive, Box, AWS (including S3), GitHub, Slack, Zoom, Okta, and Jira.
DatAdvantage Cloud is a SaaS platform that helps organizations protect data across SaaS applications and IaaS environments. DatAdvantage Cloud offers functionality similar to our flagship Varonis Data Security Platform including, but not limited to, data security posture management, SaaS security posture management, data classification, data access intelligence, data activity monitoring, data detection and response, and least privilege automation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFailure 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.
Biggest changeOur 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.
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 other companies in our industry; • 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 other companies in our industry; • 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; • 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; • investor confusion with respect to the Company's results of operation during the SaaS transition; • 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, natural disasters or responses to these events.
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 other companies in our industry; • 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 other companies in our industry; • 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; 32 • 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; • investor confusion with respect to the Company's results of operation during the SaaS transition; • 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, natural disasters or responses to these events.
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, infrastructure and legal compliance costs associated with having multiple international operations and a lack of travel due to pandemics; • 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.
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, infrastructure and legal compliance costs associated with having multiple international operations and a lack of travel due to pandemics; 19 • 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.
Our future success will depend in large part on our ability to, among other things: • successfully transition to a SaaS-based business model and manage our introduction of cloud-based solutions; • maintain and expand our business, including our customer base and operations, to support our growth, both domestically and internationally; • develop new products and services and bring products and services in beta to market; • renew customer agreements 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; • hire, integrate, train and retain skilled talent, including members of our sales force and engineers; and • our ability to successfully manage and integrate any acquisitions of businesses.
Our future success will depend in large part on our ability to, among other things: • successfully transition to a SaaS delivery model and manage our introduction of cloud-based solutions; • maintain and expand our business, including our customer base and operations, to support our growth, both domestically and internationally; • develop new products and services and bring products and services in beta to market; • renew customer agreements 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; • hire, integrate, train and retain skilled talent, including members of our sales force and engineers; and • our ability to successfully manage and integrate any acquisitions of businesses.
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; • non-compliance with or an inability to attain the proper certification to conduct business in the public sector; • 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.
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; • non-compliance with or an inability to attain the proper certification to conduct business in the public sector; • 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 21 • delays in the payment of our invoices by public sector payment offices.
We are also subject to U.S. and Israeli economic sanctions laws, which prohibit the shipment of certain products to embargoed or sanctioned countries, sanctioned governments and sanctioned persons. Like with export controls, we take precautions to 21 prevent our products from being provided in violation of these laws, including requiring our business partners to commit to compliance through contractual undertakings.
We are also subject to U.S. and Israeli economic sanctions laws, which prohibit the shipment of certain products to embargoed or sanctioned countries, sanctioned governments and sanctioned persons. Like with export controls, we take precautions to prevent our products from being provided in violation of these laws, including requiring our business partners to commit to compliance through contractual undertakings.
The failure of a third-party provider to prevent service disruptions, data losses or security breaches may require us to issue credits or refunds or indemnify or otherwise be liable to customers or third parties for damages that may occur, and contractual provisions with our third-party providers and public cloud partners may 16 limit our recourse against the third-party provider or public cloud partner responsible for such failure.
The failure of a third-party provider to prevent service disruptions, data losses or security breaches may require us to issue credits or refunds or indemnify or otherwise be liable to customers or third parties for damages that may occur, and contractual provisions with our third-party providers and public cloud partners may limit our recourse against the third-party provider or public cloud partner responsible for such failure.
The expansion of cloud-delivered services (as opposed to traditional on-premises delivery of our products) has and will introduce a number of risks and uncertainties unique to such a shift, which could adversely affect our business, results of operations and financial condition. We recently launched cloud offerings that allow customers to use hosted software.
The expansion of cloud-delivered services (as opposed to traditional on-premises delivery of our products) has and will introduce a number of risks and uncertainties unique to such a shift, which could adversely affect our business, results of operations and financial condition. 16 We recently launched cloud offerings that allow customers to use hosted software.
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.
While we have taken steps to protect the confidential information that we have access to, including confidential information we may obtain through our customer 25 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.
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.
False detection of security breaches, false identification of malicious sources or misidentification of sensitive or regulated information could adversely affect our business. 26 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 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. 24 Interruptions or performance problems, including associated with our website or support website or any caused by cyberattacks, may adversely affect our business.
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.
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.
Significant judgment is required to determine the recognition and measurement attributes prescribed in Accounting Standards Codification 740-10-25 (“ASC 28 740-10-25”). 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.
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 may not always be successful in preventing or repelling unauthorized access to our 14 systems.
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 may not always be successful in preventing or repelling unauthorized access to our systems.
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 25 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.
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.
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.
Our income in certain countries is subject to reduced tax rates provided we meet certain 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.
Violations of laws or key control policies by our employees, independent contractors and channel partners could result in delays in revenue recognition, financial 19 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.
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.
The challenges posed by and the full impact of negative conditions in the general economy on our business and our future performance are difficult to predict and there is a risk that any guidance we provide to the market may turn out to be incorrect. 12 We may face increased competition in our market.
The challenges posed by and the full impact of negative conditions in the general economy on our business and our future performance are difficult to predict and there is a risk that any guidance we provide to the market may turn out to be incorrect. We may face increased competition in our market.
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.
We believe that part of 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.
This activity could also cause or avoid an increase or a decrease in the market price of our common stock. 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.
This activity could also cause or avoid an increase or a decrease in the market price of our common stock. 30 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.
Additionally, the United Kingdom has enacted legislation that 13 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.
Additionally, the United Kingdom has enacted legislation 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.
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 20 customers or renewals, all of which would adversely affect our business, operations and financial results.
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.
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.
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. 18 Our success will depend, in part, on our ability to support new and existing customer growth and maintain customer satisfaction.
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.
Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to 33 negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders.
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.
Demand 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.
In the United States, we have also experienced a higher inflationary environment, which may put further pressure on discretionary spending by our customers, and we may in the future see a lengthening of our sales cycle in the region which could negatively impact our results.
The United States also experienced a higher inflationary environment, which may put pressure on discretionary spending by our customers, and we may in the future see further lengthening of our sales cycle in the region which could negatively impact our results.
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.
However, this strategy might not eliminate our exposure to foreign exchange rate fluctuations and involves 20 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.
While sales in Russia represented 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.
While sales in Russia represented 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 evolving and subjects us to additional regulatory risk and compliance costs.
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. 17 We have a relatively short history operating our business at its current scale.
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.
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.
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, Singapore dollar and the New Israeli Shekel.
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.
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.
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.
Given our 34 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.
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.
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 27 technology or intellectual property rights.
During the evaluation and testing process, if we identify one or more material 34 weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
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.
In addition, the anticipated conversion of the 2025 Notes could depress the market price of our common stock. 29 The fundamental change provisions of the 2025 Notes may delay or prevent an otherwise beneficial takeover attempt of us.
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.
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; • 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. 22 We may not succeed in addressing these or other risks or any other problems encountered in connection with the integration of any acquired business.
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; • 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.
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.
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 and war.
This SaaS strategy may give rise to a number of risks, including the following: • our revenues and operating margins may fluctuate more than anticipated over the short-term as a result of this strategy; • if new or current customers desire only self-hosted licenses our SaaS sales may lag behind our expectations; • the shift to a SaaS strategy may raise concerns among our customer base, including concerns regarding changes to pricing over time and access to data once a subscription has expired; • 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; • our shift to a SaaS business model may result in confusion among new or existing customers (which can slow adoption rates), resellers and investors; • 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; • we may incur sales compensation costs at a higher than forecasted rate if the pace of our subscription transition is faster than anticipated; and • our sales force may struggle with the transition which may lead to increased turnover rates and lower headcount.
This SaaS strategy may give rise to a number of risks, including the following: • our revenues and operating margins may fluctuate more than anticipated over the short-term as a result of this strategy; • if new or current customers desire only self-hosted licenses our SaaS sales may lag behind our expectations; • the shift to a SaaS strategy may raise concerns among our customer base, including concerns regarding changes to pricing over time and access to data once a subscription has expired; • 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; • our shift to a SaaS business model may result in confusion among new or existing customers (which can slow adoption rates), resellers and investors; • 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; • we may incur hosting costs at a higher than forecasted rate or our SaaS platform can operate less efficiently than anticipated; • we may incur sales compensation costs at a higher than forecasted rate if the pace of our subscription transition is faster than anticipated; and • our sales force may struggle with the transition which may lead to increased turnover rates and lower headcount.
Enterprises may not recognize the need for our products or, if they do, may not decide that they need a solution 11 that offers the range of functionalities that we offer.
Enterprises may not recognize the need for our products or, if they do, may not decide that they need a solution that offers the range of functionalities that we offer.
These agreements may not effectively prevent unauthorized 26 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.
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.
Continued political instability and war in these regions, and any other areas in the world where we have operations, may affect our business and operations in those and other neighboring regions.
Continued political and social instability and war in these regions, and any other areas in the world where we have operations, may affect our business and operations in those and other neighboring regions.
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.
Moreover, governments may 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.
In addition, acts of terrorism could cause disruptions in our business or the business of channel partners, customers or the economy as a whole.
In addition, acts of terrorism or war could cause disruptions in our business or the business of channel partners, customers or the economy as a whole.
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, 2022, the tax benefit that we have been utilizing for our Israeli subsidiary terminated.
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, 2023, the tax benefit that we have been utilizing for our Israeli subsidiary terminated.
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.
Finally, even if we are successful, our relationships with channel partners may not result in greater customer usage of our products 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.
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 do business and have operations in Brazil and Ukraine.
We operate on a global basis and political, social, economic and security conditions in countries in which we operate may limit our ability to develop and sell our products. Specifically, we do business and have operations in Israel, Brazil and Ukraine.
Our transition to a SaaS-based business model, and the additional demands involved in selling our platform, 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.
Our transition to a SaaS delivery model, and the additional demands involved in selling our platform, 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.
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.
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 agreements or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby adversely affecting our results of operations.
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.
Risks Related to the 2025 Notes 29 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.
In addition, the transition to a SaaS-based business 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.
In addition, the transition to a SaaS delivery 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.
While we extend our technological capabilities though innovation and strategic transactions, including our recently announced cloud-based solutions, 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.
While we extend our technological capabilities though innovation and strategic transactions, including our recently announced Managed Data Detection and Response and cloud-based solutions, 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.
Historically, we have generated the majority of our revenues from customers in North America. For the year ended December 31, 2022, approximately 74% 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.
Historically, we have generated the majority of our revenues from customers in North America. For the year ended December 31, 2023, approximately 75% 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.
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.
We are exposed to collection and credit risks, which could impact our operating results. Our trade receivable 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.
In 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.
In 2023, we generated substantially all of our revenues from sales of DatAdvantage, DatAlert, Data Classification Engine, DataPrivilege and Data Transport Engine. We expect to continue to derive the majority of our revenues from sales relating to these products in the future. As such, market acceptance of these products is critical to our continued success.
We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of December 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 9.1 million shares of our common stock.
We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of December 31, 2023, 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 8.8 million shares of our common stock.
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.
To the extent purchases of 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 12 spending on our software.
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: • satisfy existing customers and attract new customers; • 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; • 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; • continue to capitalize on the transition to a subscription-based business model and manage our introduction of cloud-based solutions; and • 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.
Although our business has experienced significant growth in the past, we may not be able to continue to grow at the same rate, or at all. 17 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: • satisfy existing customers and attract new customers; • 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; • 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; • continue to capitalize on the transition to a subscription-based business model and manage our introduction of cloud-based solutions; and • 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.
As of December 31, 2022, we had $253.0 million outstanding aggregate principal amount of 2025 Notes.
As of December 31, 2023, we had $253.0 million outstanding aggregate principal amount of 2025 Notes.
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.
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.
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.
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, our ability to grow our business, sell our software and maintain our reputation may be adversely affected.
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.
Because we derive the vast majority of our revenues and cash flows from sales of 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.
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.
We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. As a leader in the cyber industry, we may be an attractive target for cyber attackers or other data thieves.
We have incurred net losses in each year since our inception, including a net loss of $124.5 million, $116.9 million and $94.0 million in each of the years ended December 31, 2022, 2021 and 2020, respectively.
We have incurred net losses in each year since our inception, including a net loss of $100.9 million, $124.5 million and $116.9 million in each of the years ended December 31, 2023, 2022 and 2021, respectively.
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 could disrupt our business and adversely affect our results of operations, financial condition and cash flows. 22 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.
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.
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.
Negative conditions in the general economy both in the United States and abroad, including inflationary pressure, recession, currency fluctuations and a higher interest rate environment, 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, 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.
Negative conditions in the general economy both in the United States and abroad, including inflationary pressure, recession, currency fluctuations and a higher interest rate environment, changes in gross domestic product growth, instability in connection with the upcoming presidential election in the United States, potential future government shutdowns, the federal government’s failure to raise the debt ceiling, financial and credit market fluctuations, the imposition of trade barriers and restrictions such as tariffs, political deadlock, restrictions on travel, natural catastrophes, warfare 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.
Our ability as an organization to successfully acquire and integrate technologies or businesses is limited. 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.
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.
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 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 depends on our future cash flow performance.
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.
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.
As a result, there has been increasing budgetary tightening and we have started to see longer sales cycles in the region and our results of operations to date have been negatively impacted.
As a result, there has been some budgetary tightening and we have started to see longer sales cycles in the region which may negatively impact our results of operations.
As of December 31, 2022, we had 85 issued patents in the United States and 12 pending U.S. patent applications. We also had 55 patents issued and 42 applications pending for examination in non-U.S. jurisdictions, and two pending PCT patent applications, all of which are counterparts of our U.S. patent applications. We may file additional patent applications in the future.
As of December 31, 2023, we had 88 issued patents in the United States and 16 pending U.S. patent applications. We also had 67 patents issued and 31 applications pending for examination in non-U.S. jurisdictions, and seven pending PCT patent applications, all of which are counterparts of our U.S. patent applications. We may file additional patent applications in the future.
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.
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. 15 Our quarterly results of operations have fluctuated and may fluctuate significantly due to variability in our revenues which could adversely impact our stock price.
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.
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. Some open source software may include generative AI software or other software that incorporates or relies on generative AI.
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 agreements or not buy additional products in the future, which could adversely affect our future results of operations.
If our technical support, customer success or professional services are not satisfactory to our customers, they may not renew their 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.
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.
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 use cases, specifically data migration, data subject access requests and Active Directory security.
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.
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.
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.
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. 23 Failure to retain, attract and recruit highly qualified personnel could adversely affect our business, operating results, financial condition and growth prospects.
To the extent that this provision is not deferred, modified or repealed, and once our available NOLs are fully utilized, we would incur an increase in our tax expenses and a decrease in our cash flows provided by operations. We conduct our operations in several jurisdictions worldwide and report our taxable income based on our business operations in those jurisdictions.
To the extent that this provision is not deferred, modified or repealed, and once our available NOLs or tax credits are fully utilized, we would incur a significant increase in our tax expenses and a decrease in our cash flows provided by operations.
For example, our operations, and the operations of our customers and partners, were affected by the COVID-19 pandemic and efforts to control its spread, including by mandatory business closures and capacity limitations imposed by the jurisdictions in which we operate. Similar restrictions in the future could negatively affect our business.
For example, our operations, and the operations of our customers and partners, were affected by geopolitical turmoil and sanctions caused by the war between Russia and Ukraine, and the COVID-19 pandemic and efforts to control its spread, including by mandatory business closures and capacity limitations imposed by the jurisdictions in which we operate.
Additionally, we must optimally price our products in light of marketplace conditions, our costs and customer demand. This transition may have negative revenue and earnings implications, including on our quarterly results of operations.
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. This transition may have negative revenue and earnings implications, including on our quarterly results of operations.
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. 33 We may require additional capital to support our business growth, and this capital might not be available on acceptable terms, or at all.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, we have an office in New York City and smaller offices in France, the United Kingdom, Oregon, Arizona, Australia, Germany, the Netherlands, Singapore and Luxembourg which serve as regional sales offices and some of which are customer support centers. All of our office space is leased, the majority of which is under long-term leases with varying expiration dates.
Biggest changeAdditionally, we have an office in New York City and smaller offices in Arizona, France, the United Kingdom, Oregon, Australia, Germany, Virginia, the Netherlands, Singapore and Luxembourg which serve as regional sales offices and some of which are customer support centers. Our office space is primarily leased, the majority of which is under long-term leases with varying expiration dates.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCompany/Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Varonis Systems, Inc. $ 100.00 $ 108.96 $ 160.06 $ 336.99 $ 301.42 $ 147.93 NASDAQ Composite $ 100.00 $ 96.12 $ 129.97 $ 186.69 $ 226.63 $ 151.61 NASDAQ Computer $ 100.00 $ 96.32 $ 144.80 $ 217.17 $ 299.39 $ 192.28 Purchase of Equity Securities by Issuer and Affiliated Purchasers In October 2022, our board of directors authorized a share repurchase program of up to $100.0 million of our common stock (the “Share Repurchase Program”).
Biggest changeCompany/Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Varonis Systems, Inc. $ 100.00 $ 146.90 $ 309.28 $ 276.64 $ 135.77 $ 256.79 NASDAQ Composite $ 100.00 $ 135.23 $ 194.24 $ 235.78 $ 157.74 $ 226.24 NASDAQ Computer $ 100.00 $ 150.34 $ 225.48 $ 310.84 $ 199.64 $ 332.34 Purchase of Equity Securities by Issuer and Affiliated Purchasers In October 2022, our board of directors authorized a share repurchase program of up to $100.0 million of our common stock (the “Share Repurchase Program”).
Such shares were issued in reliance upon the exemption from registration available under Regulation S as the issuance of our securities was to individuals that were non-U.S. persons. 36 STOCK PERFORMANCE GRAPH The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
Such shares were issued in reliance upon the exemption from registration available under Regulation S as the issuance of our securities was to individuals that were non-U.S. persons. 38 STOCK PERFORMANCE GRAPH The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Computer Index. The chart assumes $100 was invested at the close of market on December 31, 2017 in our common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Computer Index. The chart assumes $100 was invested at the close of market on December 31, 2018 in our common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
Under the Share Repurchase Program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program will 37 expire on October 31, 2023.
Under the Share Repurchase Program, we were authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program 39 expired on October 31, 2023.
Stockholders As of January 18, 2023, there were six stockholders of record of our common stock, including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. Issuance of Unregistered Securities On October 28, 2022, we issued 21,060 shares of our Common Stock to a founder of Polyrize.
Stockholders As of January 24, 2024 there were six stockholders of record of our common stock, including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. Issuance of Unregistered Securities On October 30, 2023, we issued 34,401 shares of our Common Stock to a founder of Polyrize.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. The closing price of our common stock on December 30, 2022, the last trading day of our 2022 fiscal year, was $23.94 per share.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. The closing price of our common stock on December 29, 2023, the last trading day of our 2023 fiscal year, was $45.28 per share.
Removed
The number of shares to be purchased and the timing of purchases will be based on the Company's trading windows, available liquidity, and general business and market conditions.
Added
We completed our intended repurchases under the Share Repurchase Program as of September 30, 2023 and, therefore, do not have any share repurchase activity during the quarter ended December 31, 2023.
Removed
The following table summarizes the share repurchase activity during the quarter ended December 31, 2022: Period Total Number of Shares Purchased (in thousands) Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) October 1 - October 31 — $ — — 100,000 November 1 - November 30 2,350 $ 18.95 2,350 55,470 December 1 - December 31 564 $ 21.12 564 43,555 (1) Average price paid per share includes costs associated with the repurchases.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2022 2021 2020 (in thousands) Statement of Operations Data: Revenues: Subscriptions $ 366,144 $ 270,832 $ 162,661 Maintenance and services 107,490 119,302 130,028 Total revenues 473,634 390,134 292,689 Cost of revenues 69,836 59,399 44,261 Gross profit 403,798 330,735 248,428 Operating expenses: Research and development 177,881 137,882 99,363 Sales and marketing 275,090 230,314 179,902 General and administrative 72,055 61,233 47,578 Total operating expenses 525,026 429,429 326,843 Operating loss (121,228) (98,694) (78,415) Financial income (expenses), net 10,413 (12,145) (7,483) Loss before income taxes (110,815) (110,839) (85,898) Income taxes (13,703) (6,022) (8,112) Net loss $ (124,518) $ (116,861) $ (94,010) 42 Year Ended December 31, 2022 2021 2020 (as a percentage of total revenues) Statement of Operations Data: Revenues: Subscriptions 77.3 % 69.4 % 55.6 % Maintenance and services 22.7 30.6 44.4 Total revenues 100.0 100.0 100.0 Cost of revenues 14.7 15.2 15.1 Gross profit 85.3 84.8 84.9 Operating expenses: Research and development 37.6 35.4 33.9 Sales and marketing 58.1 59.0 61.5 General and administrative 15.2 15.7 16.3 Total operating expenses 110.9 110.1 111.7 Operating loss (25.6) (25.3) (26.8) Financial income (expenses), net 2.2 (3.1) (2.5) Loss before income taxes (23.4) (28.4) (29.3) Income taxes (2.9) (1.6) (2.8) Net loss (26.3) % (30.0) % (32.1) % Comparison of Years Ended December 31, 2022 and 2021 Revenues Year Ended December 31, 2022 2021 % Change (in thousands) Revenues: Subscriptions $ 366,144 $ 270,832 35.2 % Maintenance and services 107,490 119,302 (9.9) % Total revenues $ 473,634 $ 390,134 21.4 % Year Ended December 31, 2022 2021 (as a percentage of total revenues) Revenues: Subscriptions 77.3 % 69.4 % Maintenance and services 22.7 % 30.6 % Total revenues 100.0 % 100.0 % 43 Subscription revenues increased 35% from $270.8 million for the year ended December 31, 2021 to $366.1 million for the year ended December 31, 2022.
Biggest changeYear Ended December 31, 2023 2022 2021 (in thousands) Statement of Operations Data: Revenues: Subscriptions $ 400,907 $ 366,144 $ 270,832 Maintenance and services 98,253 107,490 119,302 Total revenues 499,160 473,634 390,134 Cost of revenues 71,751 69,836 59,399 Gross profit 427,409 403,798 330,735 Operating expenses: Research and development 183,838 177,881 137,882 Sales and marketing 277,893 275,090 230,314 General and administrative 82,901 72,055 61,233 Total operating expenses 544,632 525,026 429,429 Operating loss (117,223) (121,228) (98,694) Financial income (expense), net 30,305 10,413 (12,145) Loss before income taxes (86,918) (110,815) (110,839) Income taxes (13,998) (13,703) (6,022) Net loss $ (100,916) $ (124,518) $ (116,861) 44 Year Ended December 31, 2023 2022 2021 (as a percentage of total revenues) Statement of Operations Data: Revenues: Subscriptions 80.3 % 77.3 % 69.4 % Maintenance and services 19.7 22.7 30.6 Total revenues 100.0 100.0 100.0 Cost of revenues 14.4 14.7 15.2 Gross profit 85.6 85.3 84.8 Operating expenses: Research and development 36.8 37.6 35.4 Sales and marketing 55.7 58.1 59.0 General and administrative 16.6 15.2 15.7 Total operating expenses 109.1 110.9 110.1 Operating loss (23.5) (25.6) (25.3) Financial income (expense), net 6.1 2.2 (3.1) Loss before income taxes (17.4) (23.4) (28.4) Income taxes (2.8) (2.9) (1.6) Net loss (20.2) % (26.3) % (30.0) % Comparison of Years Ended December 31, 2023 and 2022 Revenues Year Ended December 31, 2023 2022 % Change (in thousands) Revenues: Subscriptions $ 400,907 $ 366,144 9.5 % Maintenance and services 98,253 107,490 (8.6) % Total revenues $ 499,160 $ 473,634 5.4 % Year Ended December 31, 2023 2022 (as a percentage of total revenues) Revenues: Subscriptions 80.3 % 77.3 % Maintenance and services 19.7 % 22.7 % Total revenues 100.0 % 100.0 % 45 For the year ended December 31, 2023, our revenues increased 5% compared to the year ended December 31, 2022 despite the positive trend of increased SaaS mix and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, consumer and retail, energy and utilities, construction and engineering 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.
Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We believe our existing customer base serves as a strong source of incremental future revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns.
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, maintenance contracts and SaaS contracts in effect at the end of that period.
Key Performance Indicators and Recent Business Highlights Annual Recurring Revenues Annual recurring revenues is a key performance indicator defined as the annualized value of active term-based subscription license contracts, SaaS contracts and maintenance contracts in effect at the end of that period.
Financing Activities In 2022, net cash used in financing activities of $75.6 million was attributable to $56.4 million of repurchases of common stock and $31.1 million in taxes paid related to net share settlement of equity awards, partially offset by $11.9 million of proceeds from employee stock plans.
In 2022, net cash used in financing activities of $75.6 million was attributable to $56.4 million of repurchases of common stock and $31.1 million in taxes paid related to net share settlement of equity awards, partially offset by $11.9 million of proceeds from employee stock plans.
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.
We believe that our 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.
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 our customers to fully leverage the use of our products, although the user can benefit from the software without our assistance.
Maintenance and services primarily consist of fees for maintenance of past perpetual license sales (including support and unspecified upgrades and enhancements when and if they are available) and to a lesser extent professional services, which focus on both operationalizing the software and training our customers to fully leverage the use of our products, although the user can benefit from the software without our assistance.
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.
Maintenance and services revenues consist of revenues from maintenance agreements of past perpetual license sales and, to a lesser extent, professional services. Customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available. We recognize the revenues associated with maintenance ratably over the associated contract period.
Convertible Senior Notes: We account for our convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options." Prior to the adoption of ASU 2020-06 on January 1, 2022, we separated the Notes into liability and equity components.
Convertible Senior Notes: We account for our convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options." Prior to the adoption of ASU 2020-06 on January 1, 2022, we separated the 2025 Notes into liability and equity components.
Subscription licenses 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.
Subscription licenses are sold on-premises and are recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement.
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 will continue our focus on targeting 40 organizations with 1,000 users or more who can make larger purchases with us initially and over time.
We expect the impact of these seasonal patterns to decline as we sell more of our SaaS offering to new customers and transition our existing customers to our SaaS platform. The majority of our expenses are personnel-related costs, which consist of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) 45 and stock-based compensation.
We expect the impact of these seasonal patterns to decline as we sell more of our SaaS offering to new customers and transition our existing customers to our SaaS platform. The majority of our expenses are personnel-related costs, which consist of salaries (including payroll tax expense related to stock-based compensation), 47 employee benefits (including commissions and bonuses) and stock-based compensation.
As a result, we have not experienced significant seasonal fluctuations in the timing of expenses from period to period. Liquidity and Capital Resources The following table shows our liquidity and capital resources as of and our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2022 and 2021.
As a result, we have not experienced significant seasonal fluctuations in the timing of expenses from period to period. Liquidity and Capital Resources The following table shows our liquidity and capital resources and our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2023 and 2022.
We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the years ended December 31, 2022, 2021 and 2020 continued to be over 90%.
We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the years ended December 31, 2023, 2022 and 2021 continued to be over 90%.
Contractual Payment Obligations 47 Our principal commitments primarily consist of obligations under leases for office space and motor vehicles.
Contractual Payment Obligations Our principal commitments primarily consist of obligations under leases for office space and motor vehicles.
Our inability or failure to do so could harm our business, financial condition and results of operations. Comparison of Years Ended December 31, 2021 and 2020 For a comparison of our results of operations for the years ended December 31, 2021 and 2020, see “ Part II, Item 7.
Our inability or failure to do so could harm our business, financial condition and results of operations. Comparison of Years Ended December 31, 2022 and 2021 For a comparison of our results of operations for the years ended December 31, 2022 and 2021, see “ Part II, Item 7.
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.
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.
We recognize compensation expenses for the value of our equity awards granted based on the straight-line method over the requisite service period of each of the awards. In addition, we grant performance stock units to certain employees under the 2013 Plan.
We recognize compensation expenses for the value of our equity awards granted based on the straight-line method over the requisite service period of each of the awards. In addition, we grant performance stock units to certain employees.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 8, 2022, which discussion is herein incorporated by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 7, 2023, which discussion is herein incorporated by reference.
For a discussion of our liquidity and capital resources as of and our cash flow activities for the fiscal year ended December 31, 2020, see “ Part II, Item 7.
For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended December 31, 2021, see “ Part II, Item 7.
We have seen and expect to continue to see insignificant perpetual license revenues in the future and, therefore, we expect the associated maintenance and support to continue to decline despite the strong renewal rates. We also offer professional services, generally provided on a time and materials basis, focused on training our customers in the use of our products.
We do not expect perpetual license revenues in the future and, therefore, we expect the associated maintenance and support to continue to decline despite the strong renewal rates. We also offer professional services, generally provided on a time and materials basis, focused on training our customers in the use of our products.
This was partially offset by a $28.2 million increase in prepaid expenses and other current assets (including deferred commissions) and a $18.8 million increase in accounts receivable. Our days’ sales outstanding (“DSO”) for the three months and year ended December 31, 2022 was 79 and 70, respectively.
This was partially offset by a $28.2 million 48 increase in prepaid expenses and other current assets (including deferred commissions) and a $18.8 million increase in accounts receivable. Our DSO for the three months and year ended December 31, 2022 was 79 and 70, respectively.
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.
Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, as well as marketing and business development costs, travel expenses, third-party hosting fees, training and education and allocated overhead costs.
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; third-party hosting fees; travel expenses; and allocated overhead costs for facilities, IT and depreciation.
Cost of Revenues, Gross Profit and Gross Margin Cost of revenues consist primarily of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation for our customer support, customer success and services employees; third-party hosting fees; amortization of acquired intangible assets; travel expenses; and allocated overhead costs for facilities, IT and depreciation.
The anticipated decrease in maintenance and services revenues was due to churn despite our renewal rate continuing to be over 90% for each of the years ended December 31, 2022 and 2021, as well as newer licenses providing remediation in more automated ways, requiring less professional services time.
The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to subscription licenses despite our renewal rate continuing to be over 90% for each of the years ended December 31, 2023 and 2022, as well as newer solutions providing remediation in more automated ways, requiring less professional services.
Subscription license contracts, maintenance contracts and SaaS 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 December 31, 2022, 2021 and 2020, ARR was $465.1 million, $387.1 million and $287.3 million, respectively, an increase of 20% and 35% period over period.
Subscription license contracts, SaaS contracts and maintenance contracts are annualized by dividing the total contract value by the number of days in the term and multiplying the result by 365. As of December 31, 2023, 2022 and 2021, ARR was $543.0 million, $465.1 million and $387.1 million, respectively, an increase of 17% and 20% period over period.
Compensation expense for performance stock units with financial performance measures is measured using the fair value at the date of grant and recorded over each vesting period, and may be adjusted over the vesting period based on interim estimates of performance against the pre-set objectives.
Compensation expense for performance stock units with financial performance measures is measured using the fair value at the date of grant and recorded over each vesting period, and may be adjusted over the vesting period based on interim estimates of performance against the pre-set objectives. We account for forfeitures as they occur for all stock-based awards.
In the second half of 2021, we launched our first SaaS offering, introducing products and support for cloud applications and infrastructure. On October 31, 2022 we announced the availability of the Varonis Data Security Platform under a SaaS delivery model, which was previously only sold as an on-premises solution.
In the second half of 2021, we launched our first SaaS offering, introducing new products and support for several cloud applications and infrastructure. On October 31, 2022 we announced the availability of our flagship Varonis Data Security Platform as a SaaS, which was previously only sold as a self-hosted solution.
We are also focused on maintaining a high renewal rate by 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. Our self-hosted product suite currently contains more than 40 licenses.
We are also focused on maintaining a high renewal rate by 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.
Given these benefits, we plan to transition our business to a predominately SaaS-based company over the next several years. We expect our flagship Varonis Data Security Platform as a SaaS to grow significantly over this time and become the primary driver of our revenues.
Recognizing the potential of a SaaS business model, we plan to transition to a predominately SaaS delivery model over the next several years. We expect our flagship Varonis Data Security Platform as a SaaS to grow significantly over this time and become the primary driver of our revenues.
For the years ended December 31, 2022, 2021 and 2020, we had operating losses of $121.2 million, $98.7 million and $78.4 million and net losses of $124.5 million, $116.9 million and $94.0 million, respectively.
For the years ended December 31, 2023, 2022 and 2021, we had operating losses $117.2 million, $121.2 million and $98.7 million and net losses of $100.9 million, $124.5 million and $116.9 million, respectively.
Under the Share Repurchase Program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.
Under the Share Repurchase Program, we were authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. We have completed our intended repurchases and the Share Repurchase Program expired on October 31, 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 8, 2022, which comparative information is herein incorporated by reference. Seasonality and Quarterly Trends Our quarterly results reflect seasonality in the sale of our products and services.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 7, 2023, which comparative information is herein incorporated by reference.
Aggregate minimum rental commitments under non-cancelable leases as of December 31, 2022 for the upcoming years were as follows: Payments Due by Period 2023 2024 2025 2026 2027 Thereafter Total (in thousands) Operating lease obligations $ 11,674 $ 10,246 $ 9,643 $ 9,418 $ 9,624 $ 23,663 $ 74,268 We have obligations related to unrecognized tax benefit liabilities totaling $17.3 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.
Aggregate minimum rental commitments under non-cancelable leases as of December 31, 2023 for the upcoming years were as follows: Payments Due by Period 2024 2025 2026 2027 2028 Thereafter Total (in thousands) Operating lease obligations $ 11,839 $ 11,276 $ 9,956 $ 9,844 $ 9,791 $ 14,057 $ 66,763 49 We have obligations related to unrecognized tax benefit liabilities totaling $23.7 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.
Income Taxes Year Ended December 31, 2022 2021 % Change (in thousands) Income taxes $ (13,703) $ (6,022) (127.5) % Income taxes for the year ended December 31, 2022, including the increase in income taxes, were comprised of U.S. and foreign income taxes.
Income Taxes Year Ended December 31, 2023 2022 % Change (in thousands) Income taxes $ (13,998) $ (13,703) (2.2) % Income taxes for the year ended December 31, 2023, including the increase in income taxes, were comprised of foreign and U.S. income taxes.
These seasonal trends also impact our operating loss because the majority of our expenses are relatively fixed in the short-term. For 2022, sources of cash inflows were $63.2 million, which included our net loss of $124.5 million, offset by non-cash charges of $187.7 million.
These seasonal trends also impact our operating loss because the majority of our expenses are relatively fixed in the short-term. For 2023, sources of cash inflows were $73.8 million, which included our net loss of $100.9 million, offset by non-cash charges of $174.7 million.
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.
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 expect to fund these obligations with cash flows from operations and cash on our balance sheet. Off-Balance Sheet Arrangements As of December 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.
Off-Balance Sheet Arrangements As of December 31, 2023, 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.
General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel. Other expenses are comprised of legal, accounting and other consultant fees and other corporate expenses and allocated overhead.
General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, legal, human resources and administrative personnel. Other expenses are comprised of legal, accounting and other consultant fees and other corporate expenses and allocated overhead. We expect that general and administrative expenses will increase in absolute dollars as we expand our operations.
The increase in general and administrative expenses was primarily related to an increase of $7.7 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 $1.3 million increase in other expenses and facilities and allocated overhead costs.
The increase in general and administrative expenses was primarily related to an increase of $10.9 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.
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 term of the maintenance contract is usually one year. Renewals of maintenance contracts create new performance obligations that are satisfied over the new term with the revenues recognized ratably over the contract period. Revenues from professional services consist mostly of time and material services.
ARR was $465.1 million and $387.1 million as of December 31, 2022 and 2021, respectively, representing an increase of 20%.
ARR was $543.0 million and $465.1 million as of December 31, 2023 and 2022, respectively, representing an increase of 17%.
Year Ended December 31, 2022 2021 (in thousands) Net cash provided by operating activities $ 11,871 $ 7,178 Net cash provided by (used in) investing activities (374,251) 54,379 Net cash provided by (used in) financing activities (75,581) 510,112 Increase (decrease) in cash and cash equivalents $ (437,961) $ 571,669 On December 31, 2022, our cash and cash equivalents, marketable securities and short-term deposits of $732.5 million were held for working capital purposes.
Year Ended December 31, 2023 2022 (in thousands) Net cash provided by operating activities $ 59,416 $ 11,871 Net cash used in investing activities (143,076) (374,251) Net cash used in financing activities (53,400) (75,581) Decrease in cash and cash equivalents $ (137,060) $ (437,961) On December 31, 2023, our cash and cash equivalents, short-term marketable securities and short-term deposits of $533.7 million were held for working capital purposes.
The Transition to a SaaS-Based Business Model Enterprises now use many different combinations of on-premises and cloud data stores, SaaS applications and IaaS environments and this complexity requires a greater level of automated protection. We believe our offering provides comprehensive data coverage and we aim to keep pace with the relentless growth and complexity of data.
Enterprises now use many different combinations of on-premises and cloud data stores, SaaS applications and IaaS environments and this complexity requires a greater level of automated protection. We believe our offering provides comprehensive data coverage and our ability to address this demand will become key driver of our growth.
For the year ended December 31, 2022, approximately 74% of our revenues were derived from North America, while approximately 23% of our revenues were derived from EMEA and approximately 3% from ROW. Additionally, total revenues grew approximately 21% for the year ended December 31, 2022.
For the year ended December 31, 2023, approximately 75% of our revenues were derived from North America, while approximately 22% of our revenues were derived from EMEA and approximately 3% from ROW.
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. 39 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.
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.
We believe there is a significant long-term growth opportunity in both domestic and international markets, which could include any organization that uses file shares, SaaS applications, intranets and email for collaboration.
We believe there is a significant long-term growth opportunity in both domestic and international markets, which could include any organization that relies on data stored in SaaS applications, IaaS environments, NAS devices, file shares, databases and email servers.
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. 40 Year Ended December 31, 2022 2021 2020 (as a percentage of total revenues) Revenues: Subscriptions 77.3 % 69.4 % 55.6 % Maintenance and services 22.7 % 30.6 % 44.4 % Total revenues 100.0 % 100.0 % 100.0 % Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses.
Year Ended December 31, 2023 2022 2021 (as a percentage of total revenues) Revenues: Subscriptions 80.3 % 77.3 % 69.4 % Maintenance and services 19.7 % 22.7 % 30.6 % Total revenues 100.0 % 100.0 % 100.0 % 42 Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses.
Trade receivables are generally recorded at the invoice amount mostly for a one-year period, net of an allowance for credit losses. Deferred revenues represent mostly unrecognized fees billed or collected for maintenance. Deferred revenues are recognized as (or when) we perform under the contract. Pursuant to these contracts, customers are not invoiced for subsequent years until the annual renewal occurs.
Deferred revenues represent mostly unrecognized fees billed or collected for SaaS and maintenance. Deferred revenues are recognized as (or when) we perform under the contract. Pursuant to these contracts, customers are generally not invoiced for subsequent years until the annual renewal occurs.
Our customers span a broad array of industries and are located in over 90 countries. Cost of Revenues, Gross Profit and Gross Margin Our cost of revenues consists of cost of maintenance and services revenues.
Our customers span a broad array of industries and are located in over 90 countries.
Based on our technology, customer contracts and other factors, we have 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.
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.
Transaction costs attributable to the equity component were approximately $1.0 million 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 we elected to adopt using a modified retrospective approach, we no longer separates the 2025 Notes into liability and equity components.
Following the adoption of ASU 2020-06 on January 1, 2022, which we elected to adopt using a modified retrospective approach, we no longer separate the 2025 Notes into liability and equity components.
The increase in subscription revenues was driven by existing customers expanding their licenses, new customer acquisitions and our high renewal rate. Total revenues increased approximately 21% for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Subscription revenues increased 9% from $366.1 million for the year ended December 31, 2022 to $400.9 million for the year ended December 31, 2023. The increase in subscription revenues was driven by existing customers expanding their deployment, new customer acquisitions and our high renewal rate.
Due to the timing of renewals, renewal rates and the transition to a predominately SaaS business model, we could produce significant variation in the revenues we recognize in a given period. We are focused on acquiring new customers and increasing revenues from our existing customers. Maintenance and Services Revenues .
Conversions from a license sold on-premises to our SaaS offering are accounted for on a pro-rata prospective basis. Due to the transition to a predominately SaaS business model, the timing of renewals and renewal rates, we could produce significant variation in the revenues we recognize in a given period. Maintenance and Services Revenues.
Historically, we have experienced a pattern of increased sales in the fourth quarter. This trend makes it difficult to achieve sequential revenue growth in the first quarter of the following year.
Seasonality and Quarterly Trends When selling on-premises subscription products, our quarterly results reflect seasonality in the sale of our products and services. Historically, we have experienced a pattern of increased sales in the fourth quarter. This trend makes it difficult to achieve sequential revenue growth in the first quarter of the following year.
Operating Expenses Year Ended December 31, 2022 2021 % Change (in thousands) Operating expenses: Research and development $ 177,881 $ 137,882 29.0 % Sales and marketing 275,090 230,314 19.4 % General and administrative 72,055 61,233 17.7 % Total operating expenses $ 525,026 $ 429,429 22.3 % Year Ended December 31, 2022 2021 (as a percentage of total revenues) Operating expenses: Research and development 37.6 % 35.4 % Sales and marketing 58.1 % 59.0 % General and administrative 15.2 % 15.7 % Total operating expenses 110.9 % 110.1 % The increase in research and development expenses was primarily related to an increase of $34.3 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.
Operating Expenses Year Ended December 31, 2023 2022 % Change (in thousands) Operating expenses: Research and development $ 183,838 $ 177,881 3.3 % Sales and marketing 277,893 275,090 1.0 % General and administrative 82,901 72,055 15.1 % Total operating expenses $ 544,632 $ 525,026 3.7 % Year Ended December 31, 2023 2022 (as a percentage of total revenues) Operating expenses: Research and development 36.8 % 37.6 % Sales and marketing 55.7 % 58.1 % General and administrative 16.6 % 15.2 % Total operating expenses 109.1 % 110.9 % The increase in research and development expenses was primarily related to a $2.6 million increase in salaries and benefits and stock-based compensation expense for our employees as part of our focus on enhancing and developing our existing and new products.
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, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months.
We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months.
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, deposits and amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities.
Financial Income (Expenses), Net Financial income (expenses), net consists primarily of interest income, foreign exchange gains or losses, amortization of debt discount and issuance costs and interest expense. Interest income represents interest received on our cash, cash equivalents, marketable securities, deposits and amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities.
Additional sources of cash inflows were from changes in our working capital, including a $5.9 million increase in accrued expenses and other liabilities, a $5.4 million increase in deferred revenues, a $4.5 million increase in trade payables, a $1.6 million increase in other long-term 46 liabilities and a $1.4 million decrease in other long-term assets.
Additional sources of cash inflows were from changes in our working capital, including a $69.9 million increase in deferred revenues and a $0.5 million increase in other long-term liabilities. This was partially offset by a $43.4 million increase in prepaid expenses and other current assets (including deferred commissions) and a $33.1 million increase in accounts receivable.
Subscription software that is sold on-premises is recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. As we now have an immaterial amount of perpetual license revenues, these revenues are included within the subscriptions line of the consolidated statements of operations.
Subscription software that is sold on-premises is recognized at the point in time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement and is included within the subscriptions line of the consolidated statements of operations.
In 2021, net cash provided by financing activities of $510.1 million was attributable to $500.0 million of net proceeds from a public follow-on offering of equity and $11.1 million of proceeds from employee stock plans, partially offset by $1.0 million in taxes paid related to net share settlement of equity awards.
Financing Activities In 2023, net cash used in financing activities of $53.4 million was attributable to $43.5 million of repurchases of common stock and $21.4 million in taxes paid related to net share settlement of equity awards, partially offset by $11.5 million of proceeds from employee stock plans.
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.
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 the years ended December 31, 2022, 2021 and 2020, subscription revenues were $366.1 million, $270.8 million and $162.7 million, respectively, representing year-over-year growth of 35% and 67%. For the years ended December 31, 2022, 2021 and 2020, our total revenues were $473.6 million, $390.1 million and $292.7 million, respectively, representing year-over-year growth of 21% and 33%.
For the years ended December 31, 2023, 2022 and 2021, our subscription revenues were $400.9 million, $366.1 million and $270.8 million, respectively. For the years ended December 31, 2023, 2022 and 2021, our total revenues were $499.2 million, $473.6 million and $390.1 million, respectively.
This was partially offset by $10.5 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements mainly in connection with existing office space.
During 2023, net cash used in investing activities of $143.1 million was primarily attributable to net investments of $216.6 million in marketable securities and $5.1 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements mainly in connection with existing office space.
Because of our history of operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards. Our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods.
Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax. Because of our history of operating losses, we have established a full valuation allowance against potential future benefits for deferred tax assets, including loss carryforwards.
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.
For 2023, cash provided by operating activities were $59.4 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.
We also have a contractual minimum purchase commitment with a service provider through August 31, 2025 totaling $1.1 million due in the next 12 months and $6.3 million due thereafter and an additional $67.0 million contractual minimum purchase commitment with another service provider through December 31, 2026 with no specified annual commitments.
We also have a contractual minimum purchase commitment with a service provider through August 31, 2025 totaling $3.1 million and an additional $52.9 million contractual minimum purchase commitment with another service provider through December 31, 2026 with no specified annual commitments. We expect to fund these obligations with cash flows from operations and cash on our balance sheet.
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.
Operating Expenses Operating expenses are classified into three categories: research and development, sales and marketing and general and administrative. For each category, the largest component is personnel costs, which consists of salaries (including payroll tax expense related to stock-based compensation), employee benefits (including commissions and bonuses) and stock-based compensation.
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, our move to a SaaS-based business model and programs and expenses that play a critical role in our subscription-based business model and our overall renewals.
We recognize expenses related to these costs as they are incurred and expect that these costs will increase in absolute dollars as we continue to invest in our customer success and support teams, move to a SaaS delivery model and support the underlying programs that play a critical role in maintaining our high renewal rate.
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 Subscription Revenues . Subscription revenues consist primarily of subscription licenses and SaaS revenues.
ARR is not a forecast 41 of future revenues and can be impacted by contract start and end dates and renewal rates. We expect ARR to continue to increase in absolute dollars. Transition to SaaS Delivery Model and SaaS as a Percentage of ARR Over the last two years, we have strategically expanded our offering to include SaaS solutions.
We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Results of Operations The following tables are a summary of our consolidated statements of operations in dollars and as a percentage of our total revenues.
Results of Operations The following tables are a summary of our consolidated statements of operations in dollars and as a percentage of our total revenues.
We enter 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 performance obligations are satisfied, and revenues are recognized, when the services are provided or once the service term has expired. We enter into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.
For professional services, we determine the standalone selling prices based on the price at which we separately sell those services. For software licenses, we use 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.
For software licenses included in subscription licenses, we use 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.
We continue to expand our domestic and international operations as part of our long-term growth strategy.
We continue to expect expansion in both domestic and international markets to be key components of our long-term growth strategy.
We continue to expect sales growth in North America and international expansion to be key components of our long-term growth strategy. During 2022, however, our operations in EMEA were negatively impacted by the broader macroeconomic conditions in the region, including a higher inflation environment, the weakening of the Euro and the Pound Sterling and the exit of our Russia business.
During 2022 and throughout 2023, however, our operations around the world were negatively impacted by the broader macroeconomic conditions, including a higher inflation and interest rate environment, a general economic slowdown, the weakening of the Euro and the Pound Sterling and the exit of our Russia business.
We allocate the transaction price to each performance obligation based on our relative standalone selling price out of the total consideration of the contract. For maintenance, we determine the standalone selling prices based on the price at which we separately sell a renewal contract.
For maintenance included in subscription licenses, we determine the standalone selling prices based on the price at which we separately sell a renewal contract. For professional services, we determine the standalone selling prices based on the price at which we separately sell those services.
Other sources of cash outflows were from a $9.1 million decrease in accrued expenses and other liabilities, a $2.4 million decrease in trade payables. For 2021, cash provided by operating activities were $7.2 million. For 2021, sources of cash inflows were $33.0 million, which included our net loss of $116.9 million, offset by non-cash charges of $149.9 million.
For 2022, cash provided by operating activities were $11.9 million. For 2022, sources of cash inflows were $63.2 million, which included our net loss of $124.5 million, offset by non-cash charges of $187.7 million.
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.
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 our technology, customer contracts and other factors, we have determined the expected period of benefit to be approximately four years.
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.
We recognize the revenues associated with these professional services as we deliver the services, provide the training or when the service term has expired. Professional services have always been a small percentage of our total revenues and we expect it to continue to be a small percentage as our newer solutions can provide remediation in more automated ways.
The increase was also due to a $5.6 million increase in facilities and allocated overhead costs and a $3.8 million increase related to marketing related expenses.
The increase is also due to a $2.1 million increase in third-party hosting costs associated with our transition to a SaaS delivery model and a $1.3 million increase in facilities and allocated overhead costs. 46 The increase in sales and marketing expenses was primarily related to a $3.3 million increase in third-party hosting costs associated with our transition to a SaaS delivery model and a $1.5 million increase related to general sales and marketing expenses, including increased travel and marketing events.
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.
In the future, we expect to continue to incur capital expenditures to support our expanding operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur 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.
Biggest changeWe 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.
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 expenses denominated in foreign currencies consist primarily of personnel and overhead costs from our international operations.
Our expenses are generally denominated in the currencies in which our operations are located, primarily the U.S. dollar and NIS, and to a lesser extent the Euro, Pound Sterling, Canadian dollar, Australian dollar and Singapore dollar. Our expenses denominated in foreign currencies consist primarily of personnel and overhead costs from our international operations.
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.
During 2023, 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.
Item 7A. 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.
Item 7A. 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.
As of December 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. 51
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. 53
The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes in the underlying hedged item which impacts financial income (expenses), net. We do not use derivative financial instruments for trading or speculative purposes.
The effect of exchange rate changes on foreign currency forward contracts is expected to offset the effect of exchange rate changes in the underlying hedged item which impacts financial income (expenses), net.
We do not hold financial instruments for trading or speculative purposes Market Risk 50 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.
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.
Interest Rate Risk We had cash and cash equivalents, marketable securities and short-term deposits of $732.5 million as of December 31, 2022. We hold our cash and cash equivalents, marketable securities and short-term deposits for working capital purposes.
We do not use derivative financial instruments for trading or speculative purposes. 52 Interest Rate Risk We had cash and cash equivalents, short-term marketable securities and short-term deposits of $533.7 million as of December 31, 2023. We hold our cash and cash equivalents, short-term marketable securities and short-term deposits for working capital purposes.
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 years ended December 31, 2022 and 2021 were earned in non-U.S. dollar denominated currencies, mainly in the Euro and Pound Sterling.
Foreign Currency Exchange Risk Approximately one quarter of our revenues for the years ended December 31, 2023 and 2022 were earned in non-U.S. dollar denominated currencies, mainly in the Euro and Pound Sterling.

Other VRNS 10-K year-over-year comparisons