VARONIS SYSTEMS INC

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We sell substantially all of our products and services to channel partners, including distributors and resellers, which sell to end-user customers, which we refer to in this report as our customers. We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force, has and will continue to play a major role in our ability to grow and to successfully deliver our unique value proposition for enterprise data. While our products serve customers of all sizes, across industries and across geographies, the marketing focus and majority of our sales focus is on targeting organizations with 1,000 users or more who can make larger initial purchases with us and, over time, have a greater potential lifetime value. Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We believe our existing customer base serves as a strong source of incremental future revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns. We will continue our focus on targeting organizations with 1,000 users or more who can make larger purchases with us initially and over time. We are also focused on maintaining a high renewal rate by investing in the quality and reliability of our customer service and support teams to ensure our customers receive value from our products and providing software upgrades and enhancements when and if they are available. Our product offering currently contains coverage for more than 40 of the most critical on-premises and cloud data stores and applications and our renewal rate continued to be over 90% for the six months ended June 30, 2024.

Current wording

We sell substantially all of our products and services to channel partners, including distributors and resellers, which sell to end-user customers, which we refer to in this report as our customers. We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force, has and will continue to play a major role in our ability to grow and to successfully deliver our unique value proposition for enterprise data. While our products serve customers of all sizes, across industries and across geographies, the marketing focus and majority of our sales focus is on targeting organizations with 1,000 users or more who can make larger initial purchases with us and, over time, have a greater potential lifetime value. Our customers span leading firms in the financial services, public, healthcare, industrial, insurance, technology, energy and utilities, consumer and retail, education and construction and engineering sectors. We believe our existing customer base serves as a strong source of incremental future revenues given our broad platform of products, their growing volumes and complexity of enterprise data and related security concerns. We will continue our focus on targeting organizations with 1,000 users or more who can make larger purchases with us initially and over time. We are also focused on maintaining a high renewal rate by investing in the quality and reliability of our customer service and support teams to ensure our customers receive value from our products and providing software upgrades and enhancements when and if they are available. Our product offering currently contains coverage for more than 40 of the most critical on-premises and cloud data stores and applications and our renewal rate continued to be over 90% for the nine months ended September 30, 2024.

Previous wording

We believe there is a significant long-term growth opportunity in both domestic and international markets, which could include any organization that relies on data stored in SaaS applications, IaaS environments, NAS devices, file shares, databases and email servers. For the three and six months ended June 30, 2024, approximately 74% of our revenues were derived from North America, while approximately 22% of our revenues were derived from EMEA and approximately 4% from ROW. Additionally, despite the revenue recognition headwinds from the accounting treatment associated with the positive trend of our increase in SaaS sales and existing customer conversions to SaaS, total revenues still grew approximately 10% for the six months ended June 30, 2024 compared with the six months ended June 30, 2023. We continue to expect expansion in both domestic and international markets to be key components of our long-term growth strategy. Over the last few years, however, our operations around the world were negatively impacted by broader macroeconomic conditions, including a higher inflation and interest rate environment and a general economic slowdown. As a result, we have seen changes in customer buying patterns including, some budgetary tightening and longer renewal cycles, a trend which may continue for the foreseeable future.

Current wording

We believe there is a significant long-term growth opportunity in both domestic and international markets, which could include any organization that relies on data stored in SaaS applications, IaaS environments, NAS devices, file shares, databases and email servers. For the three and nine months ended September 30, 2024, approximately 78% and 76%, respectively, of our revenues were derived from North America, while approximately 19% and 21%, respectively, of our revenues were derived from EMEA and approximately 3% from ROW. Additionally, despite the revenue recognition headwinds from the accounting treatment associated with the positive trend of our increase in SaaS sales and existing customer conversions to SaaS, total revenues still grew approximately 14% for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. We continue to expect expansion in both domestic and international markets to be key components of our long-term growth strategy. Over the last few years, however, our operations around the world were negatively impacted by broader macroeconomic conditions, including a higher inflation and interest rate environment and a general economic slowdown. As a result, we have seen changes in customer buying patterns including, some budgetary tightening and additional scrutiny on enterprise spending, a trend which may continue for the foreseeable future.

Previous wording

Since inception, we have continued to scale our business and execute on strategic initiatives which we believe have positioned us for durable long-term growth. For the three and six months ended June 30, 2024, we have continued to grow our revenues despite revenue recognition accounting treatment headwinds associated with the increase in SaaS sales and existing customer conversions to SaaS. For the three months ended June 30, 2024 and 2023, SaaS revenues were $44.8 million and $5.7 million, respectively. For the six months ended June 30, 2024 and 2023, SaaS revenues were $78.8 million and $7.7 million, respectively. For the three months ended June 30, 2024 and 2023, our total revenues were $130.3 million and $115.4 million, respectively. For the six months ended June 30, 2024 and 2023, our total revenues were $244.4 million and $222.8 million, respectively. For the three months ended June 30, 2024 and 2023, we had operating losses of $28.8 million and $39.7 million and net losses of $23.9 million and $38.7 million, respectively. For the six months ended June 30, 2024 and 2023, we had operating losses of $76.5 million and $82.8 million and net losses of $64.4 million and $77.0 million, respectively.

Current wording

Since inception, we have continued to scale our business and execute on strategic initiatives which we believe have positioned us for durable long-term growth. For the three and nine months ended September 30, 2024, we have continued to grow our revenues despite revenue recognition accounting treatment headwinds associated with the increase in SaaS sales and existing customer conversions to SaaS. For the three months ended September 30, 2024 and 2023, SaaS revenues were $57.8 million and $13.7 million, respectively. For the nine months ended September 30, 2024 and 2023, SaaS revenues were $136.6 million and $21.4 million, respectively. For the three months ended September 30, 2024 and 2023, our total revenues were $148.1 million and $122.3 million, respectively. For the nine months ended September 30, 2024 and 2023, our total revenues were $392.4 million and $345.1 million, respectively. For the three months ended September 30, 2024 and 2023, we had operating losses of $23.6 million and $29.1 million and net losses of $18.3 million and $23.0 million, respectively. For the nine months ended September 30, 2024 and 2023, we had operating losses of $100.1 million and $112.0 million and net losses of $82.8 million and $100.0 million, respectively.

Previous wording

As of June 30, 2024 and 2023, ARR was $584.2 million and $497.0 million, respectively, an increase of 18% period over period. The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of these contracts is not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period. ARR is not a forecast of future revenues and can be impacted by contract start and end dates and renewal rates. We expect ARR to continue to increase in absolute dollars.

Current wording

As of September 30, 2024 and 2023, ARR was $610.0 million and $517.5 million, respectively, an increase of 18% period over period. The annualized value of contracts is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of these contracts is not determined by reference to historical revenues, deferred revenues or any other GAAP financial measure over any period. ARR is not a forecast of future revenues and can be impacted by contract start and end dates and renewal rates. We expect ARR to continue to increase in absolute dollars.

Previous wording

Over the last two years, we have strategically expanded our offering to include SaaS solutions. Recognizing the established benefits of SaaS for both customers and us, we plan to transition our business to a predominantly SaaS delivery model over the next several years. Due to differences in the revenue recognition accounting treatment, the transition to a SaaS based-business model may produce revenue headwinds which may cause significant variation in the reported revenues for a given period compared to the same period in the previous year. As of June 30, 2024, SaaS as a percentage of total ARR was approximately 36% and we expect this percentage to increase as we continue the transition to a SaaS delivery model.

Current wording

Over the last two years, we have strategically expanded our offering to include SaaS solutions. Recognizing the established benefits of SaaS for both customers and us, we plan to transition our business to a predominantly SaaS delivery model over the next several years. Due to differences in the revenue recognition accounting treatment, the transition to a SaaS based-business model may produce revenue headwinds which may cause significant variation in the reported revenues for a given period compared to the same period in the previous year. As of September 30, 2024, SaaS as a percentage of total ARR was approximately 43% and we expect this percentage to increase as we continue the transition to a SaaS delivery model.

Previous wording

Remaining performance obligations ("RPO") represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future. Our RPO was $514.7 million as of June 30, 2024. We expect RPO to continue to increase in absolute dollars as we transition to a predominately SaaS-based company.

Current wording

Remaining performance obligations ("RPO") represent contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable amounts that will be invoiced in the future. Our RPO was $581.4 million as of September 30, 2024. We expect RPO to continue to increase in absolute dollars as we transition to a predominately SaaS-based company.

Previous wording

Maintenance and Services Revenues. Maintenance and services revenues consist of revenues from maintenance agreements of past perpetual license sales and, to a lesser extent, professional services. Customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available. We recognize the revenues associated with maintenance ratably over the associated contract period. We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the six months ended June 30, 2024 and 2023 continued to be over 90%. We do not expect perpetual license revenues in the future and, therefore, we expect the associated maintenance and support to continue to decline despite the strong renewal rates. We also offer professional services, generally provided on a time and materials basis, focused on training our customers in the use of our products. We recognize the revenues associated with these professional services as we deliver the services, provide the training or when the service term has expired. Professional services have always been a small percentage of our total revenues and we expect it to continue to be a small percentage. As such, maintenance and services revenues are expected to continue to decline.

Current wording

Maintenance and Services Revenues. Maintenance and services revenues consist of revenues from maintenance agreements of past perpetual license sales and, to a lesser extent, professional services. Customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available. We recognize the revenues associated with maintenance ratably over the associated contract period. We measure the renewal rate for our customers over a 12-month period, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate for each of the nine months ended September 30, 2024 and 2023 continued to be over 90%. We do not expect perpetual license revenues in the future and, therefore, we expect the associated maintenance and support to continue to decline despite the strong renewal rates due to the transition to a predominately SaaS delivery model. We also offer professional services, generally provided on a time and materials basis, focused on training our customers in the use of our products. We recognize the revenues associated with these professional services as we deliver the services, provide the training or when the service term has expired. Professional services have always been a small percentage of our total revenues and we expect it to continue to be a small percentage. As such, maintenance and services revenues are expected to continue to decline.

Previous wording

Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses. Our customers span a broad array of industries and are located in 95 countries.

Current wording

Our products are used by a wide range of enterprises, including Fortune 500 corporations and small and medium-sized businesses. Our customers span a broad array of industries and are located in over 95 countries.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Financial income (expenses), net consists primarily of interest income, foreign exchange gains or losses, amortization of debt issuance costs and interest expense. Interest income represents interest received on our cash, cash equivalents, marketable securities, deposits and amortization of premiums and accretion of discounts related to our investment in available for sale marketable securities. Foreign exchange gains or losses relate to our business activities in foreign countries with different operational reporting currencies. As a result of our business activities in foreign countries, we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business. Amortization of debt issuance costs relate to the Notes we issued in May 2020 and September 2024. Interest expense consists of the contractual interest expenses associated with the Notes.

Previous wording

For the three months ended June 30, 2024, our revenues increased 13% compared to the three months ended June 30, 2023 despite the positive trend of increased SaaS sales and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition. SaaS revenues increased 692% from $5.7 million for the three months ended June 30, 2023 to $44.8 million for the three months ended June 30, 2024 as we progress through our transition to a predominantly SaaS delivery model. The increase in SaaS revenues was driven by new customer acquisitions, existing customers conversions and our high renewal rate. Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the future. ARR was $584.2 million and $497.0 million as of June 30, 2024 and 2023, respectively, representing an increase of 18%. The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the three months ended June 30, 2024 and 2023. We continue to expect less associated maintenance and services revenues in the future.

Current wording

For the three months ended September 30, 2024, our revenues increased 21% compared to the three months ended September 30, 2023 despite the positive trend of increased SaaS sales and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition for sales within the respective periods. SaaS revenues increased 321% from $13.7 million for the three months ended September 30, 2023 to $57.8 million for the three months ended September 30, 2024 as we progress through our transition to a predominantly SaaS delivery model. The increase in SaaS revenues was driven by new customer acquisitions, existing customers conversions and our high renewal rate. Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the future. ARR was $610.0 million and $517.5 million as of September 30, 2024 and 2023, respectively, representing an increase of 18%. The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the three months ended September 30, 2024 and 2023. We continue to expect less associated maintenance and services revenues in the future.

Previous wording

The increase in cost of revenues was primarily related to a $3.1 million increase in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, including our recently introduced MDDR offering, ensure high customer satisfaction and maintain our strong renewal rates. The increase is also due to a $1.9 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

Current wording

The increase in cost of revenues was primarily related to a $3.3 million increase in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, including our recently introduced MDDR offering, ensure high customer satisfaction and maintain our strong renewal rates. The increase is also due to a $2.9 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

Previous wording

The increase in research and development expenses was primarily related to a $0.8 million increase in third-party hosting costs associated with our transition to a SaaS delivery model and an increase of $0.8 million in facilities and allocated overhead costs.

Current wording

The increase in research and development expenses was primarily related to a $6.7 million increase in acquired in-process research and development costs associated with our asset acquisition, a $1.3 million increase in salaries and benefits and stock-based compensation expense, an increase of $0.4 million in facilities and allocated overhead costs and a $0.2 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

Previous wording

The decrease in sales and marketing expenses was primarily related to a $3.5 million decrease in salaries and benefits and stock-based compensation expense and a decrease of $0.3 million in facilities and allocated overhead costs. This is partially offset by an increase of $3.5 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model.

Current wording

The increase in sales and marketing expenses was primarily related to an increase of $1.9 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model, a $0.6 million increase in salaries and benefits and stock-based compensation expense and a $0.1 million increase in facilities and allocated overhead costs.

Previous wording

The increase in general and administrative expenses was primarily related to an increase of $0.3 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.

Current wording

The increase in general and administrative expenses was primarily related to an increase of $2.3 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.

Previous wording

The decrease in financial income, net was primarily due to less foreign currency gain, partially offset by higher interest income.

Current wording

The increase in financial income, net was primarily due to higher interest income and foreign currency gains.

Previous wording

Income taxes for the three months ended June 30, 2024, including the decrease in income taxes, were comprised of U.S. and foreign income taxes.

Current wording

Income taxes for the three months ended September 30, 2024, including the increase in income taxes, were comprised of U.S. and foreign income taxes.

Previous wording

The following tables are a summary of our condensed consolidated statements of operations for the six months ended June 30, 2024 and 2023 in dollars and as a percentage of our total revenues.

Current wording

The following tables are a summary of our condensed consolidated statements of operations for the nine months ended September 30, 2024 and 2023 in dollars and as a percentage of our total revenues.

Previous wording

For the six months ended June 30, 2024, our revenues increased 10% compared to the six months ended June 30, 2023 despite the positive trend of increased SaaS sales and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition. SaaS revenues increased 920% from $7.7 million for the six months ended June 30, 2023 to $78.8 million for the six months ended June 30, 2024 as we progress through our transition to a predominantly SaaS delivery model. The increase in SaaS revenues was driven by new customer acquisitions, existing customers conversions and our high renewal rate. Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the future. ARR was $584.2 million and $497.0 million as of June 30, 2024 and 2023, respectively, representing an increase of 18%. The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the six months ended June 30, 2024 and 2023. We continue to expect less associated maintenance and services revenues in the future.

Current wording

For the nine months ended September 30, 2024, our revenues increased 14% compared to the nine months ended September 30, 2023 despite the positive trend of increased SaaS sales and existing customer conversions to SaaS which cause headwinds due to accounting treatment differences in revenue recognition for sales within the respective periods. SaaS revenues increased 537% from $21.4 million for the nine months ended September 30, 2023 to $136.6 million for the nine months ended September 30, 2024 as we progress through our transition to a predominantly SaaS delivery model. The increase in SaaS revenues was driven by new customer acquisitions, existing customers conversions and our high renewal rate. Consequently, there was an expected decrease to term license subscriptions given the aforementioned transition and customer conversions, a trend we expect to continue in the future. ARR was $610.0 million and $517.5 million as of September 30, 2024 and 2023, respectively, representing an increase of 18%. The anticipated decrease in maintenance and services revenues was due to churn and the conversion of existing customers to SaaS despite our renewal rate continuing to be over 90% for each of the nine months ended September 30, 2024 and 2023. We continue to expect less associated maintenance and services revenues in the future.

Previous wording

The increase in cost of revenues was primarily related to an increase of $4.9 million in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, including our recently introduced MDDR offering, ensure high customer satisfaction and maintain our strong renewal rates. The increase is also due to a $3.5 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

Current wording

The increase in cost of revenues was primarily related to an increase of $8.2 million in salaries and benefits and stock-based compensation expense due to increased headcount for customer success personnel to assist with the transition to a SaaS delivery model, including our recently introduced MDDR offering, ensure high customer satisfaction and maintain our strong renewal rates. The increase is also due to a $6.4 million increase in third-party hosting costs associated with our transition to a SaaS delivery model.

Previous wording

The increase in sales and marketing expenses was primarily related to an increase of $5.8 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model. This was partially offset by a decrease of $2.4 million in salaries and benefits and stock-based compensation expense and a $0.8 million decrease in facilities and allocated overhead costs.

Current wording

The increase in sales and marketing expenses was primarily related to an increase of $7.7 million in general sales and marketing expenses, including increased travel, marketing events and third-party hosting costs associated with our transition to a SaaS delivery model. This was partially offset by a decrease of $1.8 million in salaries and benefits and stock-based compensation expense and a $0.7 million decrease in facilities and allocated overhead costs.

Previous wording

The increase in general and administrative expenses was primarily related to an increase of $1.9 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.

Current wording

The increase in general and administrative expenses was primarily related to an increase of $4.2 million in salaries and benefits and stock-based compensation expense primarily due to increased headcount to support the overall growth of our business.

Previous wording

Income taxes for the six months ended June 30, 2024, including the decrease in income taxes, were comprised of U.S. and foreign income taxes.

Current wording

Income taxes for the nine months ended September 30, 2024, including the decrease in income taxes, were comprised of U.S. and foreign income taxes.

Previous wording

On June 30, 2024, our cash and cash equivalents, short-term marketable securities and short-term deposits of $627.3 million were held for working capital purposes. We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, timing of renewals and renewal rates, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products and enhancements to existing software products, the continuing market acceptance of our software offerings and our use of cash to pay for acquisitions or share repurchases, if any.

Current wording

As of September 30, 2024, our cash and cash equivalents, short-term marketable securities and short-term deposits of $879.0 million were held for working capital purposes. We believe that our existing cash and cash equivalents, short-term marketable securities, short-term deposits and cash flow from operations will be sufficient to fund our operations and capital expenditures for at least the next 12 months. Additionally, as of September 30, 2024, we held $332.3 in long-term marketable securities. Our future capital requirements will depend on many factors, including our rate of revenue growth, timing of renewals and renewal rates, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new geographic locations, the timing of introductions of new software products and enhancements to existing software products, the continuing market acceptance of our software offerings and our use of cash to pay for acquisitions or share repurchases, if any.

Previous wording

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

Current wording

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

Previous wording

For the six months ended June 30, 2024, cash inflows from our operating activities were $68.4 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. Consequently, we end the fourth quarter with our highest accounts receivable balance of any quarter which in turn generates the greatest amount of collections in the following quarter. In addition, there is negative sequential sales in the first quarter, which results in a relatively lower amount collected during the second quarter. These seasonal trends also impact our operating loss because the majority of our expenses are relatively fixed in the short-term. For the six months ended June 30, 2024, cash inflows were $15.9 million from our net loss excluding non-cash charges. Additional sources of cash inflows were from changes in our working capital, including a $46.7 million decrease in accounts receivable. Our days’ sales outstanding (“DSO”) for the three and six months ended June 30, 2024 were 72 and 75, respectively. Other sources of cash inflows were from a $27.0 million increase in deferred revenues, a $1.9 million increase in trade payables and a $0.1 million increase in other long-term liabilities. This was partially offset by a $18.7 million increase in prepaid expenses and other current assets (including deferred commissions), a $4.4 million decrease in accrued expenses and other liabilities and a $0.1 million increase in other long-term assets.

Current wording

For the nine months ended September 30, 2024, cash inflows from our operating activities were $90.9 million. We have observed two seasonal patterns that impact our net cash provided by operating activities. First, a majority of our sales are made during the last three weeks of the quarter. Second, the highest dollar amount of sales of our products and services occurs in the fourth quarter. Consequently, we end the fourth quarter with our highest accounts receivable balance of any quarter which in turn generates the greatest amount of collections in the following quarter. In addition, there is negative sequential sales in the first quarter, which results in a relatively lower amount collected during the second quarter. These seasonal trends also impact our operating loss because the majority of our expenses are relatively fixed in the short-term. For the nine months ended September 30, 2024, cash inflows were $43.5 million from our net loss excluding non-cash and acquired in-process research and development charges. Additional sources of cash inflows were from changes in our working capital, including a $49.9 million decrease in accounts receivable. Our days’ sales outstanding (“DSO”) for the three and nine months ended September 30, 2024 were 69 and 73, respectively. Other sources of cash inflows were from a $37.2 million increase in deferred revenues, a $0.8 million increase in trade payables and a $0.3 million increase in other long-term liabilities. This was partially offset by a $34.7 million increase in prepaid expenses and other short-term assets (including deferred commissions), a $5.9 million decrease in accrued expenses and other liabilities and a $0.1 million increase in other long-term assets.

Previous wording

For the six months ended June 30, 2023, cash inflows from our operating activities were $42.6 million. For the six months ended June 30, 2023, cash inflows were $19.3 million from our net loss excluding non-cash charges. Additional sources of cash inflows were from changes in our working capital, including a $32.3 million decrease in accounts receivable. Our DSO for the three and six months ended June 30, 2023 was 69 and 67, respectively. Other sources of cash inflows were from a $19.3 million increase in deferred revenues and a $2.7 million increase in other long-term liabilities. This was partially offset by a $22.5 million increase in prepaid expenses and other current assets (including deferred commissions), a $5.8 million decrease in accrued expenses and other liabilities, a $2.3 million decrease in trade payables and a $0.4 million increase in other long-term assets.

Current wording

For the nine months ended September 30, 2023, cash inflows from our operating activities were $49.0 million. For the nine months ended September 30, 2023, cash inflows were $37.1 million from our net loss excluding non-cash charges. Additional sources of cash inflows were from changes in our working capital, including a $33.6 million increase in deferred revenues and a $24.9 million decrease in accounts receivable. Our DSO for the three and nine months ended September 30, 2023 was 75 and 69, respectively. Other sources of cash inflows were from a $3.1 million increase in other long-term liabilities. This was partially offset by a $29.5 million increase in prepaid expenses and other short-term assets (including deferred commissions), a $17.7 million decrease in accrued expenses and other liabilities, a $1.6 million decrease in trade payables and a $1.0 million increase in other long-term assets.

Previous wording

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.

Current wording

Our investing activities consist primarily of capital expenditures to purchase property and equipment, including leasehold improvements, purchase in-process research and development, 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.

Previous wording

During the six months ended June 30, 2023, net cash provided by investing activities of $9.9 million was primarily attributable to net proceeds of $51.4 million in deposits. This was partially offset by net investments of $38.8 million in marketable securities and $2.6 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements.

Current wording

During the nine months ended September 30, 2024, net cash used in investing activities of $412.8 million was primarily attributable to net investments of $419.7 million in marketable securities, $6.7 million for in-process research and development and $2.3 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements. This was partially offset by net proceeds of $15.8 million in deposits.

Previous wording

During the six months ended June 30, 2024, net cash used in investing activities of $117.0 million was primarily attributable to net investments of $121.0 million in marketable securities and $1.1 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements. This was partially offset by net proceeds of $5.1 million in deposits.

Current wording

During the nine months ended September 30, 2023, net cash used in investing activities of $253.4 million was primarily attributable net investments of $302.8 million in marketable securities and $2.9 million in capital expenditures to support our growth during the period including hardware, software, office equipment and leasehold improvements. This was partially offset by net proceeds of $52.3 million in deposits.

Previous wording

For the six months ended June 30, 2024, net cash used in financing activities of $26.8 million was attributable to $36.6 million in taxes paid related to net share settlement of equity awards, partially offset by $9.8 million of proceeds from employee stock plans.

Current wording

For the nine months ended September 30, 2024, net cash provided by financing activities of $373.4 million was attributable to $450.1 million of net proceeds from the issuance of convertible senior notes and $16.1 million of proceeds from employee stock plans, partially offset by $55.5 million related to purchases of capped calls associated with the convertible senior notes and $37.3 million in taxes paid related to net share settlement of equity awards.

Previous wording

For the six months ended June 30, 2023, net cash used in financing activities of $21.1 million was attributable to $19.4 million in taxes paid related to net share settlement of equity awards and $7.6 million of repurchases of common stock, partially offset by $5.9 million of proceeds from employee stock plans.

Current wording

For the nine months ended September 30, 2023, net cash used in financing activities of $52.1 million was attributable to $43.5 million of repurchases of common stock and $20.0 million in taxes paid related to net share settlement of equity awards, partially offset by $11.3 million of proceeds from employee stock plans.

Previous wording

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

Current wording

On May 11, 2020, we issued $253.0 million aggregate principal amount of Notes (the "2025 Notes"). The net proceeds from the offering, after deducting issuance costs, were approximately $245.2 million. In connection with the issuance of the 2025 Notes, we used $29.3 million of the net proceeds to enter into Capped Call Transactions.

Previous wording

We have obligations related to unrecognized tax benefit liabilities totaling $25.7 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. We also have a contractual minimum purchase commitment with a service provider through August 31, 2025 totaling $3.1 million and an additional $49.5 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.

Current wording

We have obligations related to unrecognized tax benefit liabilities totaling $28.5 million and others related to severance pay, which have been excluded from the table above as we do not believe it is practicable to make reliable estimates of the periods in which payments for these obligations will be made. We also have a contractual minimum purchase commitment with a service provider through August 31, 2027 totaling $9.9 million due in the next 12 months and $21.0 million due thereafter and an additional $43.0 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.

Previous wording

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

Current wording

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. Adoption of this ASU will not have a material effect on our consolidated financial statements and we are currently evaluating the effect on our disclosures.