| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
a.
Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such management estimates and assumptions are related, but not limited to contingent liabilities, income tax uncertainties, deferred taxes, share-based compensation, fair value of assets acquired and liabilities assumed in business combinations, fair value of the convertible senior notes liability, as well as the determination of standalone selling prices in revenue transactions with multiple performance obligations and the estimated period of benefit for deferred contract costs. The Company's management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
b.
Principles of consolidation: The consolidated financial statements include the financial statements of CyberArk Software Ltd. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
c.
Financial statements in U.S. dollars: A majority of the Company's revenues are generated in U.S. dollars. In addition, the equity investments were in U.S. dollars and a substantial portion of the Company's costs are incurred in U.S. dollars. The Company's management believes that the U.S. dollar is the currency of the primary economic environment in which the Company and each of its subsidiaries operates. Thus, the functional and reporting currency of the Company is the U.S. dollar. Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re-measured into U.S. dollars in accordance with Accounting Standard Codification ("ASC") No. 830 "Foreign Currency Matters." All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of comprehensive loss as financial income or expenses, as appropriate.
d.
Cash and cash equivalents: Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less, at the date of purchase.
e.
Short-term bank deposits: Short-term bank deposits are deposits with maturities of greater than three months and remaining maturities of less than one year. As of December 31, 2022 and 2023, the Company's bank deposits are denominated in U.S. dollars (“USD”) and New Israeli Shekels ("NIS"). The USD deposits bear yearly interest at weighted average rates of 5.3% and 6.4%, respectively. The NIS deposits bear yearly interest at weighted average rates of 2.8% and 4.7%, respectively. Short-term bank deposits are presented at their cost, including accrued interest.
f.
Investments in marketable securities: The Company accounts for investments in marketable debt securities in accordance with ASC No. 320, "Investments - Debt Securities". The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company classifies all of its marketable securities as available-for-sale as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss) in shareholders' equity. The Company periodically evaluates its available-for-sale debt securities for impairment in accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. If the amortized cost of an individual security exceeds its fair value, the Company considers its intent to sell the security or whether it is more likely than not that it will be required to sell the security before recovery of its amortized basis. If either of these criteria are met, the Company writes down the security to its fair value and records the impairment charge in the Consolidated Statements of Comprehensive Loss. If neither of these criteria are met, the Company assess' whether credit loss exists. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded, limited by the amount that the fair value is less than the amortized cost basis. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive income. During the years ended December 31, 2021, 2022 and 2023, credit losses were immaterial.
g.
Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:
%
Computers, software and related equipment
20 – 33
Office furniture and equipment
15 – 20
Leasehold improvements
Over the shorter of the related lease period or the life of the asset
h.
Long-lived assets: The long-lived assets of the Company, including finite-lived intangible assets, are reviewed for impairment in accordance with ASC No. 360, "Property, Plant and Equipment", whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2021, 2022 and 2023, no impairment losses have been recognized.
i.
Business combinations: The Company accounts for its business acquisitions in accordance with ASC No. 805, "Business Combinations." While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, these estimates and assumptions are subject to refinement. The total purchase price allocated to the tangible and intangible assets acquired is assigned based on the fair values as of the date of the acquisition. During the measurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Goodwill generated from the business combinations is primarily attributable to synergies between the Company and acquired companies` respective products and services. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
j.
Goodwill and other intangible assets: Goodwill and certain other purchased intangible assets have been recorded in the Company's financial statements as a result of acquisitions. Goodwill represents excess of the purchase price in a business combination over the fair value of identifiable tangible and intangible assets acquired. Goodwill is not amortized, but rather is subject to an impairment test. ASC No. 350, "Intangible-Goodwill and other" requires goodwill to be tested for impairment at least annually and, in certain circumstances, between annual tests. The accounting guidance gives the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit's fair value is less than its carrying amount. If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed. The Company operates as one reporting unit. The Company elects to perform an annual impairment test of goodwill as of October 1 of each year, or more frequently if impairment indicators are present. For the years ended December 31, 2021, 2022 and 2023, no impairment losses were identified. Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, which range from two Amortization is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:
%
Technology
20
Customer relationships
8
Other
33
k.
Derivative instruments: ASC No. 815, "Derivative and Hedging," requires companies to recognize all of their derivative instruments as either assets or liabilities on the balance sheet at fair value. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. Gains and losses on the derivatives instruments that are designated and qualify as a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same accounting period in which the designated forecasted transaction or hedged item affects earnings. To hedge against the risk of changes in cash flows mainly resulting from foreign currency salary payments during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted expenses denominated in NIS. These forward and option contracts are designated as cash flow hedges, as defined by ASC No. 815, and are all effective, as their critical terms match underlying transactions being hedged. As of December 31, 2022 and 2023, the amount recorded in accumulated other comprehensive income (loss) from the Company's currency forward and option transactions was $(3,138), net of tax of $(428), and $2,670, net of tax of $364, respectively. As of December 31, 2023, the notional amounts of foreign exchange forward contracts into which the Company entered were $70,953. The foreign exchange forward contracts will expire by November 2024. The fair value of derivative instruments assets balances as of December 31, 2022 and 2023, totaled $49 and $3,074, respectively. The fair value of derivative instruments liabilities balances as of December 31, 2022 and 2023, totaled $3,616 and $40, respectively. The following table presents gains (losses) reclassified from accumulated other comprehensive income (loss) to the statements of comprehensive loss per line item:
Year ended December 31,
2021
2022
2023
Cost of revenues
$
(144
)
$
509
$
590
Research and development
(1,552
)
5,381
6,486
Sales and marketing
(273
)
927
1,104
General and administrative
(389
)
1,358
1,713
Total gains (losses), before tax benefit (taxes on income)
(2,358
)
8,175
9,893
Tax benefit (taxes on income)
283
(981
)
(1,187
)
Total gains (losses), net of tax benefit (taxes on income)
$
(2,075
)
$
7,194
$
8,706 In addition to the derivatives that are designated as hedges as discussed above, the Company enters into certain foreign exchange forward transactions and holds foreign exchange deposits to economically hedge certain net asset balances in Euros, British Pounds Sterling, Canadian Dollars and NIS. Gains and losses related to such derivative instruments are recorded in financial income (expense), net. As of December 31, 2023, with respect to these transactions, the notional amounts of foreign exchange forward contracts into which the Company entered were $58,519. The foreign exchange forward contracts will expire by January 2029. The fair value of derivative instruments assets balances as of December 31, 2022 and 2023, totaled $72 and $6, respectively. The fair value of derivative instruments liabilities balances as of December 31, 2022 and 2023 totaled $1,388 and $996, respectively. For the years ended December 31, 2021, 2022 and 2023, the Company recorded financial income (expense), net from hedging transactions of $2,099, $2,281, and $(1,051), respectively.
l.
Severance pay: The Israeli Severance Pay Law, 1963 ("Severance Pay Law"), specifies that employees are entitled to severance payment, following the termination of their employment. Under the Severance Pay Law, the severance payment is calculated as one month salary for each year of employment, or a portion thereof. The majority of the Company's liability for severance pay is covered by the provisions of Section 14 of the Severance Pay Law ("Section 14"). Under Section 14, employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, made on behalf of the employee with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. As a result, the Company does not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as an asset in the Company's balance sheet. For the Company's employees in Israel who are not subject to Section 14, the Company calculated the liability for severance pay pursuant to the Severance Pay Law based on the most recent salary of these employees multiplied by the number of years of employment as of the balance sheet date. The Company's liability for these employees is fully provided for via monthly deposits with severance pay funds, insurance policies and accruals. The value of these deposits recorded as an asset on the Company's balance sheet under other long-term assets as of December 31, 2022 and 2023 is $4,881 and $5,131, respectively. The amount of accrued severance payable recorded as a liability on the Company's balance sheet under long-term liabilities as of December 31, 2022 and 2023 is $7,769 and $8,337, respectively. Severance expenses for the years ended December 31, 2021, 2022 and 2023, amounted to $6,368, $7,836 and $8,447, respectively.
m.
U.S. defined contribution plan: The U.S. subsidiaries have a 401(k) defined contribution plan covering certain full time and part time employees in the U.S. who meet certain eligibility requirements, excluding leased employees and contractors. All eligible employees may elect to contribute up to an annual maximum of 100% of their annual compensation to the plan through salary deferrals, subject to Internal Revenue Service limits, but not greater than $22.5 per year (for certain employees over 50 years of age the maximum contribution is $30 per year). The U.S. subsidiaries match amounts equal to 100% of the first 3% of the employee's compensation that they contribute to the defined contribution plan and 50% of the next 2% of their compensation that they contribute to the defined contribution plan with a limit of $13.2 per year per employee. For the years ended December 31, 2021, 2022 and 2023, the U.S. subsidiary recorded expenses for matching contributions of $4,386, $5,629 and $6,575, respectively.
n.
Convertible senior notes:
For the year ended December 31, 2021, prior to the adoption of ASU 2020-06, the Company allocated the principal amount of the convertible senior notes between its liability and equity component. The liability component at issuance was recognized at fair value, based on the fair value of a similar instrument of similar credit rating and maturity that does not have a conversion feature. The equity component was based on the excess of the principal amount of the convertible senior notes over the fair value of the liability component and is recorded in additional paid-in capital. The equity component, net of issuance costs and deferred tax effects was presented within additional paid-in-capital and was not remeasured. The Company allocated the total issuance costs incurred to the liability and equity components of the convertible senior notes based on the same proportions as the proceeds from the notes. Relating to the convertible senior notes issued in 2019, issuance costs attributable to the liability and equity components were $12.9 million and $2.0 million, respectively. Issuance costs attributable to the liability are netted against the principal balance and are amortized to interest expense using the effective interest method over the contractual term of the notes. The effective interest rate of the liability component of the notes was 3.50%. Issuance costs attributable to the equity component are netted with the equity component in additional paid-in capital. On January 1, 2022, the Company adopted ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40), which simplifies the accounting for convertible senior notes. The new standard reduces the number of accounting models in ASC 470-20 that require separate accounting for non-bifurcated embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as it was not issued at a substantial premium and no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net loss per share calculation for convertible instruments requires the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net earnings per share for convertible instruments. The Company adopted the standard using the modified retrospective method. As a result, the convertible notes' previously recognized equity component was combined with the liability component and the convertible notes are accounted for as a single unit of account. The adoption of ASU 2020-06 resulted in an increase of retained earnings in an amount of $26,602, a decrease of additional paid-in capital in an amount of $65,932, an increase of convertible senior notes, net, in an amount of $46,270 and a decrease of deferred tax liabilities, net, in an amount of $6,940. The impact of adoption on the consolidated statements of comprehensive loss for the years ended December 31, 2022 and 2023 compared to the year ended December 31, 2021 was a decrease in financial expenses by $14,812 and $14,796, respectively. This had the effect of decreasing basic and diluted net loss per share for the years ended December 31, 2022 and 2023 by $0.36 and $0.36, respectively.
o.
Revenue recognition: The Company substantially generates revenues from providing the right to access its SaaS solutions and licensing the rights to use its software products, maintenance and professional services. Subscription revenues include Software as a Service ("SaaS") offerings and on-premises subscription (“Self-hosted subscription”). The Company sells its products through its direct sales force and indirectly through resellers. Payment is typically due within 30 to 90 calendar days of the invoice date. The Company recognizes revenues in accordance with ASC No. 606, "Revenue from Contracts with Customers" ("ASC No. 606"). As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation. The Company enters into contracts that can include combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations and may include an option to provide additional services. Perpetual license are self-hosted subscription and are distinct as the customer can derive the economic benefit of the software without any professional services, updates or technical support. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. The Company does not grant a right of return to its customers. In instances of contracts where revenue recognition differs from the timing of invoicing, the Company generally determined that those contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company's products and services, not to receive or provide financing. The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less. The Company records unbilled receivables from contracts when the revenue recognized exceeds the amount billed to the customer. As of December 31, 2022 and 2023, $10,318 and $20,194 short-term unbilled receivables are included in trade receivables, respectively, and $928 and $1,000 long-term unbilled receivables are included in other long-term assets, respectively. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price. For maintenance, the Company determines the standalone selling price based on the price at which the Company separately sells a renewal contract. For professional services, the Company determines the standalone selling prices based on the prices at which the Company separately sells those services. For SaaS, self-hosted subscription and perpetual license products, the Company determines the standalone selling prices by taking into account available information such as historical selling prices, contract value, geographic location, and the Company's price list and discount policy. The license portion of self-hosted subscription and perpetual license are recognized at the point of time when the license is made available for download by the customer. Maintenance revenue related to perpetual license contracts and the maintenance component of the self-hosted subscription offering as well as SaaS revenues are recognized ratably, on a straight-line basis over the term of the related contract, which is generally one to three years. Professional services revenues substantially are recognized as the services are performed. The following table presents the Company's revenue by category:
Year ended December 31,
2021
2022
2023
SaaS
$
69,303
$
166,361
$
298,331
Self-hosted subscription*
65,325
114,288
173,692
Perpetual license
115,738
49,964
21,037
Maintenance and support
214,036
217,695
207,561
Professional services
38,515
43,402
51,267
$
502,917
$
591,710
$
751,888 * Self-hosted subscription also includes maintenance associated with self-hosted subscriptions. For additional information regarding disaggregated revenues, please refer to Note 16 below. Contract liabilities consist of deferred revenue and include unearned amounts received under maintenance and support contracts and professional services that do not meet the revenue recognition criteria as of the balance sheet date. Contract liabilities also include unearned, invoiced amounts in respect of SaaS and self-hosted subscription contracts whereby there is an unconditional right for the consideration. Deferred revenues are recognized as (or when) the Company performs under the contract. During the year ended December 31, 2023, the Company recognized $318,662 that were included in the deferred revenues balance as of December 31, 2022. Remaining Performance Obligations: Transaction price allocated to remaining performance obligations represents non-cancelable contracts that have not yet been recognized, which includes deferred revenues and amounts not yet received that will be recognized as revenue in future periods. The aggregate amount of the transaction price allocated to remaining performance obligations was $972 million as of December 31, 2023, out of which, the Company expects to recognize approximately 60% in 2024 and the remainder thereafter.
p.
Deferred contract costs: The Company pays sales commissions primarily to sales and certain management personnel based on their attainment of certain predetermined sales goals. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid for initial contracts, which are not commensurate with sales commissions paid for renewal contracts, are capitalized and amortized over an expected period of benefit. Based on its technology, customer contracts and other factors, the Company has determined the expected period of benefit to be approximately five years. Sales commissions for initial contracts, which are commensurate with sales commissions paid for renewal contracts, are capitalized and amortized correspondingly to the recognized revenue of the related initial contracts. Sales commissions for renewal contracts are capitalized and amortized over the related contractual renewal period and aligned with the revenue recognized from these contracts. Amortization expense of these costs are substantially included in sales and marketing expenses. For the year ended December 31, 2022 and 2023, the amortization of deferred contract costs was $45,254 and $56,071, respectively. As of December 31, 2022 and 2023, the Company presented deferred contract costs from contracts which are for periods of less than 12 months of $1,713 and $696 in prepaid expenses and other current assets, respectively, and deferred contract costs in respect of contracts which are greater than 12 months of $138,907 and $166,733 in other long-term assets, respectively.
q.
Trade Receivables and Allowances: Trade receivables include original invoiced amounts less an allowance for any potential uncollectible amounts and less invoiced amounts from maintenance and professional services contracts which haven't been recognized yet. Trade receivables also include unbilled receivables amounts that will be paid in the following year. The Company makes estimates of expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The estimated credit loss allowance is recorded as general and administrative expenses on the Company's consolidated statements of comprehensive loss.
r.
Leases: In accordance with (ASU) No. 2016-02, "Leases" (Topic 842)", the Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability and a right-of-use ("ROU") asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases is generally not determinable, therefore the Company uses its Incremental Borrowing Rate ("IBR") based on the information available at commencement date in determining the present value of lease payments. The Company's IBR is estimated to approximate the interest rate for collateralized borrowing with similar terms and payments and in economic environments where the leased asset is located. Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option. Payments under the Company's lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease right-of-use assets and liabilities. Variable lease payments are primarily comprised of payments affected by common area maintenance and utility charges.
s.
Research and development costs: Research and development costs are charged to the statements of comprehensive loss as incurred except to the extent that such costs are associated with internal-use software that qualifies for capitalization. ASC No. 985-20, "Software - Costs of Software to Be Sold, Leased, or Marketed," requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release, have been insignificant.
t.
Internal use software and website development cost: The Company capitalizes qualifying costs associated with the development of its website and incurred during the application development stage related to software developed for internal-use in accordance with ASC No. 350-40 "Internal-use Software" ("ASC No. 350-40"). These costs are capitalized based on qualifying criteria. Such costs are amortized over the software's estimated life of three The Company also capitalizes implementation costs incurred in a cloud computing arrangement that is a service contract. The capitalized implementation costs and their related amortization and cash flows are presented on the financial statements in consistent with the prepaid amounts and fees related to the associated cloud computing arrangement. Capitalized implementation costs are amortized over the term of the arrangement, beginning when the module or component of the cloud computing arrangement that is a service contract is ready for its intended use. The Company recognized an impairment of internal use software in the amount of $2,067 in the year ended December 31, 2023. The impairment is presented under cost of subscriptions revenues
u.
Advertising and marketing expenses: Advertising and marketing expenses consist primarily of marketing campaigns and tradeshows. Advertising and marketing expenses are charged to the statement of comprehensive loss, as incurred. Advertising and marketing expenses for the years ended December 31, 2021, 2022 and 2023, amounted to $27,504, $34,438 and $35,625, respectively.
v.
Share-based compensation: The Company accounts for share-based compensation in accordance with ASC No. 718, "Compensation - Stock Compensation" ("ASC No. 718"). ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option |
