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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16

OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October 2024

Commission file number: 001-36625

CyberArk Software Ltd.

(Translation of registrant’s name into English)

9 Hapsagot St.

Park Ofer 2, P.O. Box 3143

Petach-Tikva 4951041, Israel

Tel: +972 (3) 918-0000

(Address of principal executive offices)

_____________________

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

Form 20-F ☒ Form 40-F ☐

EXPLANATORY NOTE

As previously disclosed, on October 1, 2024, CyberArk Software Ltd. (the “Company”) completed the acquisition of Venafi Holdings, Inc. and Subsidiaries (“Venafi”). The following documents are attached hereto:

•	Exhibit 99.1. Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024.

•	Exhibit 99.2. Operating and Financial Review and Prospects in connection with the Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024.

•	Exhibit 99.3. Unaudited Condensed Consolidated Financial Statements of Venafi as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023.

•	Exhibit 99.4 Audited Consolidated Financial Statements of Venafi as of and for the years ended December 31, 2023 and December 31, 2022.

•	Exhibit 99.5. Unaudited Pro Forma Condensed Combined Financial Information of the Company and Venafi as of June 30, 2024 and for the six months ended June 30, 2024 and for the year ended December 31, 2023.

The Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024 attached as Exhibit 99.1 and the Operating and Financial Review and Prospects in connection with the Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024 attached as Exhibit 99.2 to this Report on Form 6-K are hereby incorporated by reference into the Company’s Registration Statements on Form S-8 (File Nos. 333-200367, 333-202850, 333-216755, 333-223729, 333-230269, 333-236909, 333-254152, 333-254154, 333-263436, 333-270222, 333-270223, 333-277932 and 333-280349).

SIGNATURE

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

	CyberArk Software Ltd.

	By:	/s/ Joshua Siegel
		Name: Joshua Siegel
		Title: Chief Financial Officer

Date: October 22, 2024

EXHIBIT INDEX

Exhibit No.		Document Description
99.1		Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024.
99.2		Operating and Financial Review and Prospects in connection with the Unaudited Condensed Consolidated Financial Statements of the Company as of and for the six months ended June 30, 2024.
99.3		Unaudited Condensed Consolidated Financial Statements of Venafi as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023.
99.4		Audited Consolidated Financial Statements of Venafi as of and for the years ended December 31, 2023 and December 31, 2022.
99.5		Unaudited Pro Forma Condensed Combined Financial Information of the Company and Venafi as of June 30, 2024 and for the six months ended June 30, 2024 and for the year ended December 31, 2023.

Exhibit 99.1

CYBERARK SOFTWARE LTD.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2024

INDEX

	Page

Condensed Consolidated Balance Sheets	F-2 - F-3

Condensed Consolidated Statements of Comprehensive Loss	F-4

Condensed Consolidated Statements of Shareholders' Equity	F-5

Condensed Consolidated Statements of Cash Flows	F-6

Notes to Condensed Consolidated Financial Statements	F-7 - F-19

CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	December 31, 2023		June 30, 2024
			Unaudited

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	355,933	$	641,014
Short-term bank deposits		354,472		231,037
Marketable securities		283,016		528,086
Trade receivables (net of allowance for credit losses of $6 and $50 at December 31, 2023 and June 30, 2024, respectively)		186,472		156,049
Prepaid expenses and other current assets		31,550		34,983

Total current assets		1,211,443		1,591,169

LONG-TERM ASSETS:
Marketable securities		324,548		30,871
Property and equipment, net		16,494		16,477
Intangible assets, net		20,202		16,665
Goodwill		153,241		153,241
Other long-term assets		214,816		227,140
Deferred tax assets		81,464		85,021

Total long-term assets		810,765		529,415

TOTAL ASSETS	$	2,022,208	$	2,120,584

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

F - 2

CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Cont.)

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

	December 31, 2023			June 30, 2024
				Unaudited

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables	$	10,971		$	6,189
Employees and payroll accruals		95,538			75,909
Accrued expenses and other current liabilities		36,562			37,979
Convertible senior notes, net		572,340			573,824
Deferred revenues		409,219			442,223

Total current liabilities		1,124,630			1,136,124

LONG-TERM LIABILITIES:
Deferred revenues		71,413			75,887
Other long-term liabilities		33,839			31,601

Total long-term liabilities		105,252			107,488

TOTAL LIABILITIES		1,229,882			1,243,612

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.01 par value – Authorized: 250,000,000 shares at June 30, 2024 and December 31, 2023; Issued and outstanding: 43,229,302 shares at June 30, 2024 and 42,255,336 shares at December 31, 2023, respectively		111			113
Additional paid-in capital		827,260			918,948
Accumulated other comprehensive loss		(1,849	)		(1,440	)
Accumulated deficit		(33,196	)		(40,649	)

Total shareholders' equity		792,326			876,972

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,022,208		$	2,120,584

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

F - 3

CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

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

	Six Months Ended June 30,
	Unaudited
	2023			2024
Revenues:
Subscription	$	198,887		$	314,653
Perpetual license		8,972			6,588
Maintenance and professional services		129,689			125,015

		337,548			446,256

Cost of revenues:
Subscription		33,578			43,563
Perpetual license		531			782
Maintenance and professional services		40,630			43,081

		74,739			87,426

Gross profit		262,809			358,830

Operating expenses:

Research and development		105,920			110,470
Sales and marketing		200,517			220,303
General and administrative		42,396			58,411

Total operating expenses		348,833			389,184

Operating loss		(86,024	)		(30,354	)
Financial income, net		21,488			27,399

Loss before taxes on income		(64,536	)		(2,955	)
Tax benefit (taxes on income)		3,730			(4,498	)

Net loss	$	(60,806	)	$	(7,453	)

Basic net loss per ordinary share	$	(1.47	)	$	(0.17	)
Diluted net loss per ordinary share	$	(1.47	)	$	(0.17	)

Other comprehensive income

Change in net unrealized gains on marketable securities:
Net unrealized gains arising during the period		1,764			2,574

		1,764			2,574
Change in unrealized net gain (loss) on cash flow hedges:
Net unrealized losses arising during the period		(4,497	)		(1,503	)
Net gains (losses) reclassified into net loss		4,797			(662	)

		300			(2,165	)

Other comprehensive income, net of taxes of $281 and $56 for the six months ended June 30, 2023, and 2024, respectively		2,064			409

Total comprehensive loss		(58,742	)		(7,044	)

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

F - 4

CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

U.S. dollars in thousands (except share data and unless otherwise indicated)

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

Balance as of January 1, 2023		41,028,571	$	107	$	660,289	$	(15,560	)	$	33,308		$	678,144

Exercise of options and vested RSUs granted to employees		761,042		2		774		-			-			776
Other comprehensive income, net of tax		-		-		-		2,064			-			2,064
Share-based compensation		-		-		64,212		-			-			64,212
Issuance of ordinary shares under employee stock purchase plan		57,032		1		7,502		-			-			7,503
Net loss		-		-		-		-			(60,806	)		(60,806	)

Balance as of June 30, 2023 (Unaudited)		41,846,645	$	110	$	732,777	$	(13,496	)	$	(27,498	)	$	691,893

Exercise of options and vested RSUs granted to employees		346,827		1		10,288		-			-			10,289
Other comprehensive income, net of tax		-		-		-		11,647			-			11,647
Share-based compensation		-		-		76,192		-			-			76,192
Issuance of ordinary shares under employee stock purchase plan		61,864		*		8,003		-			-			8,003
Net loss		-		-		-		-			(5,698	)		(5,698	)

Balance as of December 31, 2023		42,255,336	$	111	$	827,260	$	(1,849	)	$	(33,196	)	$	792,326

Exercise of options and vested RSUs granted to employees		917,914		2		3,823		-			-			3,825
Other comprehensive income, net of tax		-		-		-		409			-			409
Share-based compensation		-		-		78,272		-			-			78,272
Issuance of ordinary shares under employee stock purchase plan		55,926		*		9,573		-			-			9,573
Conversion of Convertible Senior Notes		126		*		20		-			-			20
Net loss		-		-		-		-			(7,453	)		(7,453	)

Balance as of June 30, 2024 (Unaudited)		43,229,302	$	113	$	918,948	$	(1,440	)	$	(40,649	)	$	876,972

* Represents an amount lower than $1.

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

F - 5

CYBERARK SOFTWARE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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

	Six Months Ended June 30,
	Unaudited
	2023			2024
Cash flows from operating activities:
Net loss	$	(60,806	)	$	(7,453	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		8,787			8,046
Share-based compensation		63,966			78,030
Amortization of premium and accretion of discount on marketable securities, net		(1,474	)		(3,632	)
Impairment of available-for-sale marketable securities		-			2,674
Deferred income taxes, net		(8,430	)		(314	)
Amortization of debt discount and issuance costs		1,496			1,504
Decrease in trade receivables		15,322			30,423
Increase in prepaid expenses, other current and long-term assets and others		(16,328	)		(16,629	)
Changes in operating lease right-of-use assets		3,865			3,346
Increase (decrease) in trade payables		370			(4,619	)
Increase in short-term and long-term deferred revenue		10,212			37,478
Decrease in employees and payroll accruals		(17,868	)		(12,394	)
Increase in accrued expenses and other current and long-term liabilities		614			671
Changes in operating lease liabilities		(4,773	)		(4,153	)

Net cash provided by (used in) operating activities		(5,047	)		112,978

Cash flows from investing activities:
Investment in short-term and long-term deposits		(87,318	)		(170,820	)
Proceeds from short-term and long-term deposits		178,603			292,675
Investment in marketable securities and other		(228,232	)		(129,480	)
Proceeds from sales and maturities of marketable securities and other		181,569			181,482
Purchase of property and equipment		(3,522	)		(4,485	)

Net cash provided by investing activities		41,100			169,372

Cash flows from financing activities:
Proceeds from (payments of) withholding tax related to employee stock plans		5,213			(7,361	)
Proceeds from exercise of stock options		777			3,845
Proceeds in connection with employee stock purchase plan		7,695			9,771

Net cash provided by financing activities		13,685			6,255

Increase in cash and cash equivalents		49,738			288,605
Effect of exchange rate differences on cash and cash equivalents		(892	)		(3,524	)

Cash and cash equivalents at the beginning of the period		347,338			355,933

Cash and cash equivalents at the end of the period	$	396,184		$	641,014

Non-cash activities:

Lease liabilities arising from obtaining right-of-use-assets	$	582		$	2,583
Non-cash purchase of property and equipment	$	576		$	582

Supplemental disclosure of cash flow activities:

Cash paid for income taxes	$	5,304		$	8,662

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

F - 6

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 1:-

OVERVIEW, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

CyberArk Software Ltd. (together with its subsidiaries, the “Company”) is an Israeli company that develops, markets and sells software-based identity security solutions and services. The Company's solutions and services secure access for any identity – human or machine – to help organizations secure critical business assets, protect their distributed workforce and customers, and accelerate business in the cloud. With CyberArk’s identity security platform, organizations can enable Zero Trust and least privilege with broad visibility, ensuring that every identity can securely access any approved resource, located anywhere, from everywhere – with a single Identity Security Platform. CyberArk has extended intelligent privilege controls across the entire identity lifecycle, for all types of identities. The CyberArk Identity Security Platform enables organizations to secure all identities – including workforce, IT, developers and machines – against cyber threats with intelligent privilege controls.

Basis of presentation:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures, including certain notes required by GAAP on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2023 filed with the SEC on March 13, 2024.

In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2024, the Company’s condensed consolidated statements of comprehensive loss and shareholders’ equity for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. The results for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024 or any other future interim or annual period.

Use of estimates:

The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the condensed 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 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 condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

F - 7

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 1:-

OVERVIEW, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Concentration of credit risks:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables, severance pay funds and derivative instruments.

The majority of the Company's cash and cash equivalents and short-term bank deposits are invested with major banks in Israel and the United States. Such investments in the United States are in excess of insured limits and are not insured in other jurisdictions. Generally, these investments may be redeemed upon demand, and the Company believes that the financial institutions that hold the Company's cash deposits are financially sound and, accordingly, bear minimal risk.

The Company's marketable securities consist of investments, which are highly rated by credit agencies, in government, corporate and government sponsored enterprises debentures. The Company's investment policy limits the amount that the Company may invest in any one type of investment or issuer, in order to reduce credit risk concentrations.

The trade receivables of the Company are mainly derived from sales to a diverse set of customers located primarily in the United States, Europe and Asia. The Company performs ongoing credit evaluations of its customers and, to date, has not experienced any significant losses.

The Company has entered into forward contracts with major banks in Israel to protect against the risk of changes in exchange rates. The derivative instruments hedge a portion of the Company's non-dollar currency exposure.

Significant Accounting Policies:

For a summary of the Company’s significant accounting policies refer to “Note 2. Significant Accounting Policies” of its Annual Report on Form 20-F for the fiscal year ended December 31, 2023. There have been no material changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2023 included in the Annual Report on Form 20-F other than those noted below.

Recently issued accounting standards:

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. In addition, it provides new segment disclosure requirements for entities with a single reportable segment. The guidance will be effective for the Company for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which requires disaggregated information about the effective tax rate reconciliation as well as information on income taxes paid. The guidance will be effective for the Company for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact on its financial statement disclosures.

F - 8

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 2:- REVENUE RECOGNITION:

The following table presents the Company's revenue by category:

	Six Months Ended June 30,
	2023		2024
	(Unaudited)

SaaS	$	130,551	$	209,894
Self-hosted subscription*		68,336		104,759
Perpetual license		8,972		6,588
Maintenance and support		104,826		99,183
Professional services		24,863		25,832

	$	337,548	$	446,256

* Self-hosted subscription also includes maintenance associated with self-hosted subscriptions. For additional information regarding disaggregated revenues, please refer to Note 11 below.

Unbilled Receivable:

The Company records unbilled receivables from contracts when the revenue recognized exceeds the amount billed to the customer. As of December 31, 2023 and June 30, 2024, $20,194, and $22,348 short-term unbilled receivables are included in trade receivables, respectively, and $1,000 and $5,449 long-term unbilled receivables are included in other long-term assets, respectively.

F - 9

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 2:-

REVENUE RECOGNITION (Cont.)

Contract Liabilities:

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 consideration. Deferred revenues are recognized as (or when) the Company performs under the contract. During the six months ended June 30, 2024, the Company recognized $232,883 that were included in the deferred revenues balance as of December 31, 2023.

Remaining Performance Obligations:

Transaction price allocated to remaining performance obligations represents non-cancelable contracts that have not yet been recognized, which include 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 $1,004 million as of June 30, 2024, out of which, the Company expects to recognize approximately 60% during the next 12 months, and the remainder thereafter.

Deferred Contract Costs:

Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are capitalized and amortized over an expected period of benefit.

For the six months ended June 30, 2023 and 2024, the amortization of deferred contract costs included in sales and marketing expenses was $25,807 and $29,464, respectively.

As of December 31, 2023 and June 30, 2024, the Company presented deferred contract costs from contracts which are for periods of less than 12 months of $696 and $429 in prepaid expenses and other current assets, respectively, and deferred contract costs in respect of contracts which are greater than 12 months of $166,733 and $174,732 in other long-term assets, respectively.

F - 10

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 3:- DERIVATIVE INSTRUMENTS

The company instituted a foreign currency cash flow hedging program to hedge against the risk of changes in cash flows mainly resulting from foreign currency salary payments during the year. 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, 2023 and June 30, 2024, the amount recorded in accumulated other comprehensive loss from the Company's currency forward and option transactions was $2,670, net of tax of $364, and $505, net of tax of $69, respectively.

As of June 30, 2024, the notional amounts of foreign exchange forward and swap contracts into which the Company entered were $48,840. The foreign exchange forward contracts will expire by December 2024. The fair value of derivative instruments assets balances as of December 31, 2023 and June 30, 2024, totaled $3,074 and $674, respectively. The fair value of derivative instruments liabilities balances as of December 31, 2023 and June 30, 2024, totaled $40 and $100, respectively.

The following table presents gains (losses) reclassified from accumulated other comprehensive loss to the statements of comprehensive loss per line item:

	Six Months Ended June 30,
	2023			2024
	(Unaudited)

Cost of revenues	$	328		$	(44	)
Research and development		3,588			(494	)
Sales and marketing		598			(83	)
General and administrative		938			(131	)

Total gains (losses), before tax benefit (taxes on income)		5,452			(752	)
Tax benefit (taxes on income)		(654	)		90

Total gains (losses), net of tax benefit (taxes on income)	$	4,798		$	(662	)

In addition to the derivatives that are designated as hedges as discussed above, the Company enters into certain foreign exchange forward and swap transactions and holds foreign exchange deposits to economically hedge certain net asset balances in Euros, British Pounds Sterling, and NIS. Gains and losses related to such derivative instruments are recorded in financial income (expense), net. As of June 30, 2024, with respect to these transactions, the notional amounts of foreign exchange forward contracts into which the Company entered were $65,233. The foreign exchange forward contracts will expire by January 2029.

The fair value of derivative instruments assets balances as of December 31, 2023 and June 30, 2024, totaled $6 and $1,099, respectively. The fair value of derivative instruments liabilities balances as of December 31, 2023 and June 30, 2024, totaled $996 and $21, respectively. For the six months ended June 30, 2023 and 2024, the Company recorded financial income (expense), net from hedging transactions of $(539) and $2,179, respectively.

F - 11

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 4:-

MARKETABLE SECURITIES

The following tables summarize the amortized cost, unrealized gains and losses, and fair value of available-for-sale marketable securities as of December 31, 2023 and June 30, 2024:

	December 31, 2023
	Amortized cost		Gross unrealized losses			Gross unrealized gains		Fair value

Corporate debentures	$	324,485	$	(4,998	)	$	357	$	319,844
Government debentures		288,214		(828	)		334		287,720

Total	$	612,699	$	(5,826	)	$	691	$	607,564

	June 30, 2024 (Unaudited)
	Amortized cost		Gross unrealized losses			Gross unrealized gains		Fair value

Corporate debentures	$	354,874	$	(2,247	)	$	38	$	352,665
Government debentures		206,293		(3	)		2		206,292

Total	$	561,167	$	(2,250	)	$	40	$	558,957

The following table summarizes the continuous unrealized loss position and fair value of available-for-sale marketable securities as of December 31, 2023 and June 30, 2024, by duration of continuous unrealized loss:

	December 31, 2023					June 30, 2024 (Unaudited)
	Gross unrealized losses			Fair value		Gross unrealized losses			Fair value

Continuous unrealized loss position for less than 12 months	$	(590	)	$	186,910	$	-		$	-
Continuous unrealized loss position for more than 12 months		(5,236	)		190,560		(2,250	)		49,345

	$	(5,826	)	$	377,470	$	(2,250	)	$	49,345

F - 12

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


NOTE 4:-	MARKETABLE SECURITIES (Cont.)

The following table summarizes the amortized cost and fair value of available-for-sale marketable securities as of December 31, 2023 and June 30, 2024, by contractual years-to maturity:

	December 31, 2023				June 30, 2024 (Unaudited)
	Amortized cost		Fair value		Amortized cost		Fair value

Due within one year	$	285,012	$	283,016	$	528,669	$	528,086
Due between one and four years		327,687		324,548		32,498		30,871

	$	612,699	$	607,564	$	561,167	$	558,957

NOTE 5:- FAIR VALUE MEASUREMENTS

The carrying values of cash and cash equivalents, short-term bank deposits, trade receivables, prepaid expenses and other long-term and current assets, trade payables, employees and payroll accruals and accrued expenses and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

The following tables present the fair value of money market funds and marketable securities as of December 31, 2023 and June 30, 2024:

	December 31, 2023						June 30, 2024 (Unaudited)
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	315,784	$	-	$	315,784	$	463,120	$	-	$	463,120
Corporate debentures and commercial paper		-		1,001		1,001		-		1,398		1,398
Government debentures		-		1,194		1,194		-		11,861		11,861

Marketable securities:
Corporate debentures and commercial paper		-		319,844		319,844		-		352,665		352,665
Government debentures		-		287,720		287,720		-		206,292		206,292

Total money market funds and marketable securities measured at fair value	$	315,784	$	609,759	$	925,543	$	463,120	$	572,216	$	1,035,336

As of June 30, 2024, the estimated fair value of the Company's convertible senior notes was $992.3 million. The fair value was determined based on the closing quoted price of the convertible senior notes as of the last day of trading for the period and is considered Level 2 measurement. The fair value of the convertible senior notes is primarily affected by the trading price of the Company’s ordinary shares and market interest rates.

NOTE 6:-

NON-CANCELABLE MATERIAL PURCHASE OBLIGATIONS

The Company entered into non-cancelable material agreements for the receipt of cloud infrastructure services and subscription-based cloud services. Future payments under non-cancelable material purchase obligations as of June 30, 2024 (Unaudited) are as follows:

2024		28,978
2025		54,681
2026		60,326
2027		48,750

	$	192,735

F - 13

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 7:-

CONVERTIBLE SENIOR NOTES, NET

The net carrying amount of the liability of the convertible senior notes issued by the company in 2019 (“Convertible Notes") as of December 31, 2023 and June 30, 2024 is as follows:

	December 31, 2023			June 30, 2024
				(Unaudited)
Liability component:

Remaining principal amount	$	575,000		$	574,980
Unamortized issuance costs		(2,660	)		(1,156	)

Net carrying amount	$	572,340		$	573,824

Interest expense related to the Convertible Notes was as follows:

	Six Months Ended June 30,
	2023		2024
	(Unaudited)

Amortization of debt issuance costs	$	1,496	$	1,504

Total interest expense recognized	$	1,496	$	1,504

During the six months ended June 30, 2024, the conditions allowing holders of the Convertible Notes to convert were met. The Company has received and settled an immaterial amount of conversion notices from the holders. As of December 31, 2023 and June 30, 2024, the Convertible Notes are classified as current liability.

Subsequent to June 30, 2024, approximately $72 million in aggregate principal amount of the Convertible Notes were converted or had been submitted by the holders for conversion and were settled during the fiscal quarters ending September 30, 2024 and December 31, 2024.

F - 14

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 8:- REVOLVING CREDIT FACILITY

On June 25, 2024, the Company entered into a revolving credit facility agreement (“Credit Facility”) with Bank Leumi le-Israel B.M. (“Lender”). The Credit Facility enables the Company to withdraw up to $250 million and matures on June 24, 2026.

The borrowings under the Credit Facility bear interest at a base rate plus a spread of 0.8% to 1.8%, or a three month Secured Overnight Financing Rate (“SOFR”) plus a spread of 2.45% to 4%. The ongoing fee on undrawn amounts is 0.7%.

The Credit Facility requires the Company to maintain at all times a minimum amount of $150 million unrestricted Cash and Cash equivalents, of which a minimum amount of $60 million is in the loan account. In addition, the Company is required to maintain a maximum quarterly net debt to adjusted EBITDA ratio of 4.5, stepping down to 2.5 over time. Non-compliance with a financial covenant may be cured by the next consecutive quarter. In addition, the Credit Facility limits the Company’s ability and the ability of its subsidiaries to, among other things, undergo a change in control, merge or consolidate, make acquisitions and incur pledges.

As of June 30, 2024, the Company has no outstanding amounts under the Credit Facility and was in compliance with all financial covenants.

NOTE 9:-

SHAREHOLDERS' EQUITY

Ordinary shares:

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

Share-based compensation:

The 2024 Share Incentive Plan (the “2024 Plan”) was adopted by our board of directors and became effective on June 1, 2024. 1,787,022 ordinary shares reserved for issuance were transferred from the 2014 Share Incentive Plan to the 2024 Plan.

The maximum aggregate number of shares that may be issued pursuant to awards under this 2024 Plan is the sum of (a) 1,786,992 ordinary shares, plus (b) on January 1 of each calendar year commencing in 2025, a number of ordinary shares equal to the lesser of: (i) an amount determined by the Board, if so determined prior to the January 1 of the calendar year in which the increase will occur, (ii) 4% of the total number of ordinary shares of the Company outstanding on December 31 of the immediately preceding calendar year, and (iii) 4,000,000 ordinary shares.

On January 1, 2021, the Company’s Employee Share Purchase Plan (“ESPP”) became effective. The ESPP enables eligible employees of the Company and its designated subsidiaries to elect to have payroll deductions made during a six-month offering period in an amount not exceeding 15% of the gross base compensation which the employees receive. The applicable purchase price will be no less than 85% of the lesser of the fair market value of the Company’s ordinary shares on the first day or the last day of the purchase period. The total number of ordinary shares initially reserved under the ESPP as of January 1, 2021 was 125,000 shares (the “ESPP Share Pool”). On January 1 of each year between 2022 and 2026, the ESPP Share Pool will be increased by a number of ordinary shares equal to the lower of (i) 1,000,000 ordinary shares, (ii) 1% of the Company’s outstanding ordinary shares on December 31 of the immediately preceding calendar year, and (iii) a lesser number of ordinary shares determined by the Company’s board of directors.

F - 15

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


NOTE 9:-	SHAREHOLDERS' EQUITY (Cont.)

Under the 2024 Plan, options, restricted stock units (“RSUs”), performance share units (“PSUs”) and other share-based awards may be granted to employees, officers, non-employee consultants and directors of the Company.

Under the 2024 Plan and ESPP, as of June 30, 2024, an aggregate number of 1,981,068 ordinary shares were reserved for future grant. Any share under the 2024 Plan underlying an award that is cancelled, terminated or forfeited for any reason without having been exercised will automatically be available for grant under the 2024 Plan.

The total share-based compensation expense related to all of the Company's equity-based awards, recognized for six months ended June 30, 2023 and 2024 is comprised as follows:

	Six Months Ended June 30,
	2023		2024
	(Unaudited)

Cost of revenues	$	8,332	$	10,233
Research and development		13,930		15,717
Sales and marketing		28,190		31,791
General and administrative		13,514		20,289

Total share-based compensation expense	$	63,966	$	78,030

The total unrecognized compensation cost amounted to $373,649 as of June 30, 2024 and is expected to be recognized over a weighted average period of 2.84 years.

Options granted to employees:

There were no options granted, forfeited or expired during the six months ended June 30, 2024.

A summary of the activity in options to employees for the six months ended June 30, 2024 is as follows:

	Amount of options		Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value

Balance as of December 31, 2023		244,787	$	78.85		4.24	$	34,320

Exercised		55,710		68.65			$	10,159

Balance as of June 30, 2024		189,077	$	81.85		3.84	$	36,221

Exercisable as of June 30, 2024		178,579	$	77.78		3.58	$	34,938

F - 16

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


NOTE 9:-	SHAREHOLDERS' EQUITY (Cont.)

The expected volatility of the Company’s ordinary shares is based on the Company’s historical volatility. The expected option term represents the period of time that options granted are expected to be outstanding, based upon historical experience.

A summary of RSUs and PSUs activity for the year ended June 30, 2024 is as follows:

	Amount of RSUs and PSUs		Weighted average grant date fair value

Unvested as of December 31, 2023		2,639,337	$	136.15

Granted		791,173		236.28
Vested		862,204		127.6
Forfeited		70,435		142.41

Unvested as of June 30, 2024		2,497,871	$	170.64

The total fair value of RSUs and PSUs vested (based on fair value of the Company's ordinary shares at vesting date) during the six months ended June 30, 2024 was $213,213.

The amount of unvested PSU as of June 30, 2024 is 332,130.

The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of the Company’s ordinary shares to be issued under the ESPP started on June 1, 2024:

	Six Months Ended June 30,
ESPP	2024

Expected volatility		28.23	%
Expected dividends		0	%
Expected term (in years)		0.5
Risk free rate		5.39	%

F - 17

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 10:-

BASIC AND DILUTED NET LOSS PER SHARE

	Six Months Ended June 30,
	2023			2024
	(Unaudited)
Numerator:

Net loss available to shareholders of ordinary shares	$	(60,806	)	$	(7,453	)

Denominator:
Shares used in computing basic and diluted net loss per ordinary shares		41,384,895			42,689,375

The total weighted average number of shares related to outstanding options, RSUs and PSUs that have been excluded from the computation of diluted net loss per ordinary share due to their antidilutive effect was 2,818,249 and 2,944,384 for the six months ended June 30, 2023 and 2024, respectively.

Additionally, approximately 3.6 million shares underlying the Convertible Notes are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive.

NOTE 11:-

SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION

The Company identifies operating segments in accordance with ASC Topic 280, "Segment Reporting". Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the chief operating decision maker in making decisions regarding resource allocation and evaluating financial performance. The Company determined it operates in one reportable segment as the Company's chief operating decision maker is the Chief Executive Officer who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

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

The following table presents total revenues for the six months ended June 30, 2023 and 2024:

F - 18

CYBERARK SOFTWARE LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 11:-

SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)

Revenues:

	Six Months Ended June 30,
	2023		2024
	(Unaudited)

United States	$	182,549	$	218,793
Israel		3,235		4,214
United Kingdom		21,934		25,655
Europe, the Middle East and Africa *		71,741		114,071
Other		58,089		83,523
	$	337,548	$	446,256

For the six months ended June 30, 2023 and 2024, no single customer contributed more than 10% to the Company's total revenues.

* Excluding United Kingdom and Israel

NOTE 12:-

SUBSEQUENT EVENTS

On October 1, 2024, the Company completed the acquisition of Venafi Holdings, Inc., a leader in machine identity management, and its subsidiaries (collectively, “Venafi”). This acquisition will combine Venafi’s machine identity management capabilities with the Company’s leading identity security capabilities to establish a unified platform for end-to-end machine identity security at enterprise scale.

The Company will account for the acquisition as a business combination in accordance with ASC No. 805, “Business Combinations”. The purchase consideration transferred to Venafi amounted to $1.66 billion in a combination of $1.02 billion in cash and $0.64 billion of Company ordinary shares. Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Venafi`s technology into the Company’s portfolio.

F - 19

EX-99.2 3 exhibit_99-2.htm EXHIBIT 99.2

Exhibit 99.2

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2023 and 2024 and related notes appearing elsewhere in the Form 6-K of which this exhibit forms a part (the “Form 6-K”), our audited consolidated financial statements and other financial information as of and for the year ended December 31, 2023, appearing in our Annual Report on Form 20-F for the year ended December 31, 2023 (the “Annual Report”) and Item 5—“Operating and Financial Review and Prospects” of the Annual Report. Except where the context otherwise requires or where otherwise indicated in this discussion, the terms “CyberArk,” the “Company,” “we,” “us,” “our,” and “our business” refer to CyberArk Software Ltd. and its subsidiaries. Our financial statements have been prepared in accordance with U.S. GAAP.

Company Overview

CyberArk is a global leader in Identity Security, centered on intelligent privilege controls, with a focus on protecting organizations against identity-based cyberattacks. CyberArk applies intelligent privilege controls to all identities – human and machine – with continuous threat detection and prevention across the entire identity lifecycle. With CyberArk, organizations can enable Zero Trust and least privilege with complete visibility, ensuring that every identity can securely access any approved resource, located anywhere, from everywhere – with a single Identity Security Platform.

We secure access for human and machine identities to help organizations secure critical business assets, protect their distributed workforce and customers, and accelerate business in the cloud. CyberArk’s vision is to deliver an Identity Security Platform that contextually authenticates each identity, dynamically authorizes the least amount of privilege required, secures credentials, and thoroughly audits the entire cycle – giving organizations peace of mind to drive their businesses fearlessly forward.

As the category-defining leader in Privileged Access Management, we are uniquely positioned to deliver on Identity Security because our core competency is securing the “keys to the kingdom.” These “keys to the kingdom” enable our customers to control access to sensitive infrastructure and applications, keeping them out of the hands of malicious or careless insiders or external attackers and preventing disruption to the business.

Securing these human and machine identities is now more important than ever. With the rapid rise in mobile workers, hybrid and multi-cloud adoption, AI and, in particular, generative AI, and digitalization of the enterprise, physical and network security barriers are less relevant at securing data and assets than ever before. Compromised identities and their associated privileges represent an attack path to an organization’s most valuable assets. We believe that identity has become the new security perimeter and is at the foundation of Zero Trust security models. Our approach is unique since CyberArk recognizes that every identity can become privileged under certain conditions, and we offer the broadest range of security controls to reduce risk while delivering a high-quality experience to the end user. This includes securing workforce, IT, developer, and machine identities by replacing complex, patchworked, and siloed legacy access management solutions to improve security and operational efficiencies.

On October 1, 2024, we completed the acquisition of Venafi Holdings, Inc. and its subsidiaries (“Venafi”), a leader in machine identity management. This acquisition enables CyberArk to further deliver on its vision to secure every identity – human and machine – with the right level of privilege controls. Together, CyberArk and Venafi will build end-to-end machine identity security solutions that help organizations improve security and stop costly outages.

Prior to 2020, we primarily derived our revenues by licensing our cybersecurity software, selling maintenance and support contracts, and providing professional services. We began executing our transition to a subscription business model in early 2021, and, in 2023, we reached our transition goals of selling primarily through subscriptions, including both SaaS and self-hosted subscriptions. In early 2024, we began selling solutions centered around solving critical customer security challenges for every type of identity: workforce, IT, developers and machines. We have taken our platform capabilities and designed solutions delivered through the CyberArk Identity Security Platform, which includes capabilities around privileged access management, access management, secrets management, endpoint privilege security, secure cloud access and identity governance and administration. The solutions are offered through a simplified packaging and pricing model, facilitating a more efficient buying process and enhancing our ability to secure a broader range of identities within our customers’ employee base. The solutions will also make it easier for our customers to buy the capabilities they need to secure every identity across the organization.

During the six months ended June 30, 2024, we increased our annual recurring revenue (“ARR”) by 33% to $868 million as of June 30, 2024. The growth in ARR was driven by an increase in bookings from SaaS and Self-hosted subscriptions. Our subscription revenues increased by 58% to $314.6 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and recurring revenues increased by 36% to $413.8 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

For the six months ended June 30, 2023 and 2024, our revenues were $337.5 million and $446.2 million, respectively, representing year-over-year growth of 32%. For the six months ended June 30, 2023 and 2024, our net loss was $(60.8) million and $(7.4) million, respectively.

Total number of employees increased from 2,954 as of June 30, 2023 to 3,196 as of June 30, 2024.

We intend to continue to execute our strategy of growing our business to meet the needs of our customers and to pursue opportunities in new and existing verticals, geographies, and products. As part of our strategic growth initiatives, we plan to continue to invest in our sales and marketing teams, with a particular focus on expanding our channel partnerships including managed service providers, targeting new customers, expanding our relationships with existing customers, creating technology partnerships and further building out our customer success operations. We have made, and will continue to make, investments in research and development to broaden our platform capabilities, strengthen our existing solutions, enhance user experience and develop additional automation and AI technologies.

Key Performance Indicators and Recent Business Developments

We are focusing on the following metrics to evaluate the health of our business:

	Six Months Ended June 30,
	2023			2024
	(in thousands)

Total ARR (as of period-end)	$	653		$	868
Subscription Portion of ARR (as of period-end)		451			677
Deferred revenue (as of period-end)		419			518
Remaining Performance Obligations (as of period-end)		752			1,004
Recurring revenues		304			414
Net cash provided by (used in) operating activities		(5	)		113

ARR. ARR is a performance indicator that provides more visibility into the growth of our recurring business. ARR is defined as the annualized value of active SaaS, self-hosted subscriptions and their associated maintenance and support services, and maintenance contracts related to the perpetual licenses in effect at the end of the reported period. ARR should be viewed independently of revenues and total deferred revenue as it is an operating measure and is not intended to be combined with or to replace either of those measures. ARR is not a forecast of future revenues and can be impacted by contract start and end dates and renewal rates. The visibility offered by ARR allows us to make informed decisions about our capital allocation and level of investment.

Subscription Portion of Annual Recurring Revenue. The subscription portion of ARR is a performance indicator that provides visibility into the area of the business that will drive the long-term growth of our recurring business. The subscription portion of ARR is defined as the annualized value of active SaaS and self-hosted subscription contracts in effect at the end of the reported period. The subscription portion of ARR excludes maintenance contracts related to perpetual licenses. The subscription portion of ARR should be viewed independently of revenues and total deferred revenue as it is an operating measure and is not intended to be combined with or to replace either of those measures. The visibility offered by subscription portion of ARR allows management to make informed decisions about our capital allocation and level of investment.

Recurring Revenue. Recurring revenue is defined as revenue derived from SaaS and self-hosted subscription contracts, and maintenance contracts related to perpetual licenses during the reported period. Management monitors the growth of our recurring revenue to evaluate the health of our business.

Total Deferred Revenue. Our total deferred revenue consists of maintenance and support and professional services that have been invoiced and collected but that have not yet been recognized as revenues because they do not meet the applicable criteria, and of self-hosted and SaaS subscription contracts, where there are unconditional rights for a consideration, that have been invoiced but have not yet been recognized. As of June 30, 2024, SaaS deferred revenue grew 52% year-over-year, and represented 61% of total deferred revenue compared to 50% as of June 30, 2023.

Remaining Performance Obligations. Remaining performance obligations (“RPOs”) represent non-cancelable contracts that have not yet been recognized, which include deferred revenues and amounts not yet received that will be recognized as revenue in future periods. Management monitors the value of RPOs to provide visibility into near-term and multi-year revenue streams. This visibility allows us to make informed decisions about our capital allocations and level of investment.

Net Cash Provided by (Used in) Operating Activities. We monitor Net cash provided by (used in) operating activities as a measure of the amount of cash generated by the business and our overall business performance. Our cash provided by (used in) operating activities is driven in part by up-front payments for subscription, maintenance and professional services offerings. Monitoring cash provided by (used in) operating activities enables us to assess our financial performance, excluding non-cash effects of certain items such as share-based compensation costs or depreciation and amortization, which allows us to better understand and manage the cash needs of our business.

Operating Results

Components of Statements of Operations

Revenues

Our revenues consist of the following:

o Subscription Revenues. Subscription revenues include SaaS and self-hosted subscription revenues, as well as maintenance and support services associated with self-hosted subscriptions. Historically, our subscription revenues have been generated primarily from sales of our Privileged Access Manager (Privilege Cloud and self-hosted), Endpoint Privilege Manager, Secrets Manager, Vendor Privileged Access Manager, Workforce and Customer Access, Secure Cloud Access and Identity Management. In 2024, we shifted to selling solutions and began generating revenue from solutions to secure IT identities, workforce identity, Developer identities and Machine identities. An increasing percentage of our business is coming from our SaaS offerings, which have ratable revenue recognition, increasing our total deferred revenue that will be recognized over time. Our SaaS and self-hosted subscriptions represented 71% of our total revenues during the six months ended June 30, 2024, and we expect our subscription revenues to continue to grow in the near and long term. Sale of our IT, Workforce and Developer solutions are licensed per user through standard and enterprise packages. Endpoint Privilege Manager is licensed by target system (workstations and servers). For Machine identities, we have packages, one aimed at being a starting point with a minimum number of workload identities, and the second one with add-on of any additional workload identities. Secrets Manager has two different licensing approaches based on the types of applications being secured. The first is licensed by agent for mission-critical and static applications, and the second is licensed by site/region and number of clusters for more dynamic cloud native applications and DevOps pipelines.

o Perpetual License Revenues. Perpetual license revenues are generated primarily from sales of our Privileged Access Manager. We are seeing a single digit percentage of our business coming from perpetual licenses, which have upfront revenue recognition. We expect revenues from perpetual licenses to continue to decrease as a percentage of total revenue as we continue to operate as a subscription company.

o Maintenance and Professional Services Revenues. Maintenance revenues are generated from maintenance and support contracts purchased by our customers who bought perpetual licenses in order to gain access to the latest software enhancements and updates on an if-and-when available basis and to telephone and email technical support. With the continued decline of new perpetual licenses and related new maintenance contracts, we are expecting our total maintenance revenues to decline in the near and long term in absolute dollars. We also offer advanced services, including professional services and technical account management, for consulting, deployment and training of our customers to fully leverage the use of our products. We increasingly leverage partners to provide services around implementation and ongoing management of our solutions and we are shifting our service delivery team toward higher value services that are often recurring in nature, like technical account management.

Geographic Breakdown of Revenues

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

	Six Months Ended June 30,
	2023					2024
	Amount		% of Revenues			Amount		% of Revenues
	(dollars in thousands)

United States	$	182,549		54	%	$	218,793		49	%
EMEA		96,910		29	%		143,940		32	%
Rest of World		58,089		17	%		83,523		19	%
Total Revenues	$	337,548		100	%	$	446,256		100	%

Cost of Revenues

Our total cost of revenues consists of the following:

o Cost of Subscription Revenues. The cost of subscription revenues consists primarily of personnel costs related to our customer support and cloud operations. Personnel costs consist primarily of salaries, benefits, bonuses and share-based compensation. The cost of subscription revenues also includes cloud infrastructure costs, amortization of intangible assets and depreciation of internal use software capitalization. As we shift more of our sales to SaaS and self-hosted subscription offerings, we expect the absolute cost of subscription revenues to increase.

o Cost of Perpetual License Revenues. The cost of perpetual license revenues consists primarily of appliance expenses and allocated personnel costs to support delivery and operations related to perpetual licenses. Personnel costs consist primarily of salaries, benefits, bonuses and share-based compensation. As we shift more of our sales to SaaS and self-hosted subscription contracts, we expect the absolute cost of perpetual license revenues and the cost of perpetual license revenues as a percentage of total revenues to decrease.

o Cost of Maintenance and Professional Services Revenues. The cost of maintenance related to perpetual license contracts and professional services revenues primarily consists of allocated personnel costs for our global customer support, customer success and professional services organization. Personnel costs consist primarily of salaries, benefits, bonuses, share-based compensation and subcontractors’ fees. As new perpetual licenses and their associated maintenance contracts continue to decrease, we are expecting our total cost of maintenance revenues to decline. Concurrently, we anticipate cost of professional services revenues to increase due to our expanding customer base and ongoing investment in our services teams, aimed at delivering exceptional customer experiences.

Gross Profit and Gross Margin

Gross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Our gross margin has historically fluctuated from period to period as a result of changes in the mix of revenues between SaaS, self-hosted Subscriptions and Perpetual Licenses, as well as maintenance and professional services revenues, cloud infrastructure costs and personnel costs. We expect our gross margin to be relatively consistent in the near term. As our subscription revenue mix continues to increase, we continue to streamline our cloud cost management, which is partially offset by ongoing investments in our services team, which focuses on our customer experience.

Operating Expenses

Our operating expenses are classified into three categories: research and development, sales and marketing and general and administrative. For each category, the largest component is personnel costs, which consist primarily of salaries, employee benefits (including commissions and bonuses) and share-based compensation expenses. Operating expenses also include allocated overhead costs for IT, facilities and office expenses, as well as depreciation and amortization. Allocated costs for facilities and office expenses primarily consist of rent, office maintenance, utilities and office supplies. We expect personnel and all allocated costs to continue to increase in absolute dollars as we hire new employees and add facilities to continue to grow our business.

Research and Development. Research and development expenses consist primarily of personnel costs attributable to our research and development personnel, consultants and contractors, cloud infrastructure and software expenses, and allocated overhead costs. We expect that our research and development expenses will continue to increase in absolute dollars as we continue to grow our research and development headcount to further strengthen our technology platform and invest in the development of both existing and new solutions, products and services. At the same time, we expect our research and development expenses as a percentage of revenue to decline as we recognize the benefits of being a recurring revenue company and as we scale the organization.

Sales and Marketing. Sales and marketing expenses are the largest component of our operating expenses and consist primarily of personnel costs, including commissions, as well as marketing programs and general sales costs, software and related expenses, travel expenses and allocated overhead costs. We continue to invest to extend the reach of our sales organization, which means we continue to invest in both direct and indirect sales channels and related marketing expenses. We expect that sales and marketing expenses will continue to increase in absolute dollars, as we plan to expand our GTM efforts globally. At the same time, we expect our sales and marketing expenses as a percentage of revenue to decline, as we recognize the benefits of being a recurring revenue company and as we scale the organization. We continue to expect sales and marketing expenses will remain our largest category of operating expenses.

General and Administrative. General and administrative expenses consist primarily of personnel costs for our executive, finance, human resources, legal and administrative personnel. General and administrative expenses also include external legal, audit, accounting and other professional service fees, insurance premiums and software and related expenses. We continue to expect that general and administrative expenses will increase in dollars as we grow and expand our operations.

Financial Income (Expense), Net

Financial income (expense), net consists of mainly interest income, impairment of available for sale marketable securities, amortization of debt discount and issuance costs, foreign currency exchange gains or losses and foreign exchange forward transactions expenses. Interest income consists of interest earned on our cash, cash equivalents, short- and long-term bank deposits, marketable securities and money market funds. We expect interest income to vary depending on our average investment balances and market interest rates during each reporting period. Foreign currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the U.S. dollar.

Tax benefit (taxes on income)

Tax benefit (taxes on income) consists of taxes related to our activity in Israel, the United States, and numerous other foreign jurisdictions in which we conduct business.

The ordinary corporate tax rate in Israel is 23.0%. We have been entitled to various tax benefits under Israel’s Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”). As a result, our tax rate to be paid with respect to our eligible Israeli taxable income under these benefits programs is generally 12.0%.

Under the Investment Law and other Israeli legislation, we are entitled to certain additional tax benefits, including accelerated deduction of research and development expenses, accelerated depreciation and amortization rates for tax purposes on certain intangible assets and deduction of public offering expenses in three equal annual installments.

Our non-Israeli subsidiaries are taxed according to the tax laws in their respective jurisdictions of tax residency. Due to our multi-jurisdictional operations, we apply significant judgment to determine our consolidated income tax position.

Comparison of Period to Period Results of Operations

The following table sets forth our results of operations in dollars and as a percentage of total revenues for the periods indicated:

	Six Months Ended June 30,
	2023						2024
	Amount			% of Revenues			Amount			% of Revenues
	(dollars in thousands)
Revenues:
Subscription	$	198,887			58.9	%	$	314,653			70.5	%
Perpetual license		8,972			2.7	%		6,588			1.5	%
Maintenance and professional services		129,689			38.4	%		125,015			28.0	%

Total revenues		337,548			100	%		446,256			100	%

Cost of revenues:
Subscription		33,578			9.9	%		43,563			9.8	%
Perpetual license		531			0.2	%		782			0.2	%
Maintenance and professional services		40,630			12.0	%		43,081			9.7	%

Total cost of revenues		74,739			22.1	%		87,426			19.7	%

Gross profit		262,809			77.9	%		358,830			80.3	%

Operating expenses:
Research and development		105,920			31.4	%		110,470			24.8	%
Sales and marketing		200,517			59.4	%		220,303			49.4	%
General and administrative		42,396			12.6	%		58,411			13.1	%

Total operating expenses		348,833			103.4	%		389,184			87.3	%

Operating loss		(86,024	)		(25.5	)%		(30,354	)		(7.0	)%
Financial income, net		21,488			6.4	%		27,399			6.1	%

Loss before taxes on income		(64,536	)		(19.1	)%		(2,955	)		(0.9	)%
Tax benefit (taxes on income)		3,730			1.1	%		(4,498	)		(1.0	)%

Net loss	$	(60,806	)		(18.0	)%	$	(7,453	)		(1.9	)%

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2024

Revenues

	Six Months Ended June 30,
	2023					2024					Change
	Amount		% of Revenues			Amount		% of Revenues			Amount			%
	(dollars in thousands)
Revenues:
Subscription	$	198,887		58.9	%	$	314,653		70.5	%	$	115,766			58.2	%
Perpetual license		8,972		2.7	%		6,588		1.5	%		(2,384	)		(26.6	)%
Maintenance and professional services		129,689		38.4	%		125,015		28.0	%		(4,674	)		(3.6	)%

Total revenues	$	337,548		100	%	$	446,256		100	%	$	108,708			32.2	%

Revenues increased by $108.7 million, or 32.2%, from $337.5 million for the six months ended June 30, 2023 to $446.3 million for the six months ended June 30, 2024. This increase was primarily due to the growth of SaaS sales as well as the increase in self-hosted subscription sales, partially offset by the decline in perpetual license sales due to the Company’s transition away from the perpetual model to a subscription model. In addition, our strong SaaS and self-hosted subscription renewals further contributed to these results and allowed CyberArk to maintain its base of recurring business and build a foundation for growth. The largest increase in revenue occurred in EMEA, where revenues increased by $47.0 million, while the increase in United States and the rest of the world was $36.3 million and $25.4 million, respectively.

Subscription revenues increased by $115.8 million, or 58.2%, from $198.9 million in the six months ended June 30, 2023 to $314.7 million in the six months ended June 30, 2024, as we increased the mix of our subscription sales and experienced an increase in demand for our SaaS and self-hosted subscription solutions.

Perpetual license revenues declined by $2.4 million, or 26.6%, from $9.0 million in the six months ended June 30, 2023 to $6.6 million in the six months ended June 30, 2024. The decline in perpetual license revenue is consistent with our transition from selling perpetual licenses to selling SaaS and self-hosted subscription solutions.

Maintenance and professional services revenues declined by $4.7 million, or 3.6%, from $129.7 million in the six months ended June 30, 2023 to $125.0 million in the six months ended June 30, 2024. Maintenance revenues declined by $5.6 million from $104.8 million in the six months ended June 30, 2023 to $99.2 million in the six months ended June 30, 2024. Despite our strong renewal rates, as anticipated, the new perpetual license sales did not add enough maintenance business to offset the customers who converted from maintenance to SaaS and self-hosted subscription contracts as well as churn.

Professional services revenues increased by $0.9 million from $24.9 million in the six months ended June 30, 2023 to $25.8 million in the six months ended June 30, 2024. The increase in professional services was also driven by the expansion of our professional services packages, which often include recurring services.

Cost of Revenues and Gross Profit

	Six Months Ended June 30,
	2023					2024					Change
	Amount		% of Revenues			Amount		% of Revenues			Amount		%
	(dollars in thousands)
Cost of revenues:
Subscription	$	33,578		9.9	%	$	43,563		9.8	%	$	9,985		29.7	%
Perpetual license		531		0.2	%		782		0.2	%		251		47.3	%
Maintenance and professional services		40,630		12.0	%		43,081		9.7	%		2,451		6.0	%

Total cost of revenues	$	74,739		22.1	%		87,426		19.7	%		12,687		17.0	%

Gross profit	$	262,809		77.9	%	$	358,830		80.3	%	$	96,021		36.5	%

Cost of subscription revenues increased by $10.0 million, or 29.7%, from $33.6 million in the six months ended June 30, 2023 to $43.6 million in the six months ended June 30, 2024. The increase in cost of subscription revenues was primarily driven by a $6.7 million increase in personnel costs and related expenses, a $2.2 million increase in cloud infrastructure costs to support the growth in our SaaS and self-hosted subscription revenues and a $0.7 million increase in the use of third-party consultants for services rendered.

Cost of perpetual license revenues increased by $0.3 million, or 47.3%, from $0.5 million in the six months ended June 30, 2023 to $0.8 million in the six months ended June 30, 2024. The increase in cost of perpetual license revenues was primarily driven by a $0.3 million increase in appliances expenses.

Cost of maintenance and professional services revenues increased by $2.5 million, or 6.0%, from $40.6 million in the six months ended June 30, 2023 to $43.1 million in the six months ended June 30, 2024. The increase in cost of maintenance and professional services revenues was driven primarily by a $4.3 million increase in personnel costs and related expenses, partially offset by decrease of $1.8 million in the use of third-party consultants for services rendered.

Our headcount related to cost of revenues grew from 530 as of June 30, 2023 to 603 as of June 30, 2024.

Gross profit increased by $96.0 million, or 36.5%, from $262.8 million in the six months ended June 30, 2023, to $358.8 million in the six months ended June 30, 2024. Gross margins increased from 77.9% in the six months ended June 30, 2023 to 80.3% in the six months ended June 30, 2024. This was driven primarily by management of our cloud costs and a relatively higher mix of more mature SaaS products, which benefited gross margin.

Operating Expenses

	Six Months Ended June 30,
	2023					2024					Change
	Amount		% of Revenues			Amount		% of Revenues			Amount		%
	(dollars in thousands)
Operating expenses:
Research and development	$	105,920		31.4	%	$	110,470		24.8	%	$	4,550		4.3	%
Sales and marketing		200,517		59.4	%		220,303		49.4	%		19,786		9.9	%
General and administrative		42,396		12.6	%		58,411		13.1	%		16,015		37.8	%

Total operating expenses	$	348,833		103.4	%	$	389,184		87.3	%	$	40,351		11.6	%

Research and Development. Research and development expenses increased by $4.6 million, or 4.3%, from $105.9 million in the six months ended June 30, 2023 to $110.5 million in the six months ended June 30, 2024. This increase was primarily attributable to a $3.7 million increase in personnel costs and related expenses, and a $1.6 million increase in cloud and software costs, partially offset by decrease of a $0.8 million in expenses related to consultants and contractors.

Our research and development team headcount grew from 913 as of June 30, 2023 to 966 as of June 30, 2024.

Sales and Marketing. Sales and marketing expenses increased by $19.8 million, or 9.9%, from $200.5 million in the six months ended June 30, 2023 to $220.3 million in the six months ended June 30, 2024. This increase was primarily attributable to a $17.7 million increase in personnel costs and related expenses due to increased headcount in all regions to expand our go-to-market organization. The increase was also attributable to a $1.2 million increase in expenses related to consultants and contractors.

Our sales and marketing headcount grew from 1,287 as of June 30, 2023 to 1,367 as of June 30, 2024.

General and Administrative. General and administrative expenses increased by $16.0 million, or 37.8%, from $42.4 million in the six months ended June 30, 2023 to $58.4 million in the six months ended June 30, 2024. This increase was primarily attributable to an increase of $10.6 million in personnel costs and related expenses due to increased headcount, a $3.1 million increase in services fees for external legal counsel, accounting advisors and patent administration and a $2.2 million expense related to consultants. The increase in external legal counsel and consultants expenses is mainly attributable to expenses related to the acquisition of Venafi.

Our general and administrative headcount grew from 223 as of June 30, 2023 to 260 as of June 30, 2024.

Financial Income, Net. Financial income, net increased by $5.9 million, or 27.5%, from $21.5 million in the six months ended June 30, 2023 to $27.4 million in the six months ended June 30, 2024. This increase resulted primarily from an increase of $10.9 million in interest income from investments in marketable securities, short-term and long-term bank deposits and money market funds, partially offset by a $2.7 million impairment of available for sales investments and a $2.2 million exchange rate loss.

Tax benefit (taxes on income). Tax benefit (taxes on income) changed from tax benefit of $3.7 million for the six months ended June 30, 2023 to taxes on income of $4.5 million for the six months ended June 30, 2024. This change was mainly attributed to a decrease in our loss before taxes on income.

Liquidity and Capital Resources

We fund our operations with cash generated from operating activities. We have also raised capital through issuing convertible senior notes, the sale of equity securities in public offerings and, to a lesser extent, through exercised options. Currently, our primary uses of our cash are for ongoing operating expenses and capital expenditures.

As of June 30, 2024 and December 31, 2023, our principal sources of liquidity were cash, cash equivalents, bank deposits and marketable securities of $1.4 billion and $1.3 billion, respectively.

On October 1, 2024, we completed the acquisition of Venafi for acquisition consideration of a combination of $1.02 billion in cash and $0.64 billion in CyberArk ordinary shares. To fund the cash consideration, we liquidated a portion of our marketable securities and deposits that were not intended for working capital needs. Additionally, we have secured a $250 million committed revolving credit line facility, which is fully available for utilization, as needed. Furthermore, in connection with the pricing of the 2019 convertible senior notes, we entered into a capped call transaction that is currently in the money and designated to be settled in cash in conjunction with the maturity of the convertible debt, with estimated proceeds in an amount of up to $260 million, depending on the actual stock price during a prescribed period leading up to the maturities of both the convertible debt and related capped call transaction on November 15, 2024.

We believe that our cash generated from operating activities, along with existing cash, cash equivalents, marketable securities, bank deposits and the $250 million secured revolving credit line facility will be sufficient to fund our working capital and capital expenditures for at least the next 12 months and for the foreseeable future. Our future capital requirements will depend on many factors, including our revenue growth rate, renewal rates and timing of renewals, 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 products and enhancements to existing products and the continuing market acceptance of our offerings.

The following table presents the major components of net cash flows for the periods presented:

	Six Months Ended June 30,
	2023			2024
	($ in thousands)

Net cash provided by (used in) operating activities	$	(5,047	)	$	112,978
Net cash provided by investing activities		41,100			169,372
Net cash provided by financing activities		13,685			6,255

A substantial source of our net cash provided by operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Our deferred revenue consists of maintenance and support and professional services that have been invoiced and collected but that have not yet been recognized as revenues and of self-hosted subscriptions and SaaS contracts that have been invoiced but not yet recognized. We assess our liquidity, in part, through an analysis of our short-term and long-term deferred revenue that has not yet been recognized as revenues together with our other sources of liquidity. Revenues from SaaS contracts and maintenance and support contracts are recognized ratably on a straight-line basis over the term of the related contract which is typically one year or three years, and revenues from professional services are recognized as services are performed. Thus, upfront payments add to the liquidity of our operations since we frequently recognize self-hosted subscription, SaaS, maintenance and support and professional services revenues and expenses in subsequent periods to when the payments may be received. The duration of our contracts also impacts our deferred revenue.

Net Cash Provided by (Used in) Operating Activities

Our cash flow reflects our net loss coupled with changes in our non-cash working capital.

During the six months ended June 30, 2024, operating activities provided $113.0 million in cash as a result of $7.5 million of net loss, adjusted by $78.0 million of non-cash charges related to share-based compensation expense, $8.0 million related to depreciation and amortization expenses, $2.7 million related to impairment of available for sale marketable securities, $1.5 million in non-cash interest expense related to the amortization of debt discount and issuance costs and a net change of $40.8 million in non-cash working capital, partially offset by a $10.2 million net change from other long-term assets and liabilities and a $0.3 million increase in deferred tax assets.

The change of $40.8 million in non-cash working capital was due to a $33.0 million increase in short-term deferred revenue, a decrease of $30.4 million in trade receivables and an increase of $1.4 million in other current liabilities, partially offset by a decrease of $12.4 million in employees and payroll accruals, a $7.0 million net change from other current assets and a decrease of $4.6 million in trade payables.

During the six months ended June 30, 2023, net cash used in operating activities was $5.0 million, as a result of $60.8 million of net loss, adjusted by $64.0 million of non-cash charges related to share-based compensation expense, $8.8 million related to depreciation and amortization expenses, $1.5 million in non-cash interest expense related to the amortization of debt discount and issuance costs and a net change of $9.5 million in non-cash working capital, partially offset by a $19.6 million net change from other long-term assets and liabilities and a $8.4 million increase in deferred tax assets.

The change of $9.5 million in non-cash working capital was due to a $21.9 million increase in short-term deferred revenue, a decrease of $15.3 million in trade receivables and an increase of $0.4 million in trade payables, partially offset by a decrease of $17.9 million in employees and payroll accruals, a $9.9 million net change from other current assets and a decrease of $0.4 million in other current liabilities.

During the six months ended June 30, 2023 and 2024, our days’ sales outstanding (“DSO”) was 57 days and 66 days, respectively.

Net Cash Provided by Investing Activities

Investing activities have consisted of investment in, and proceeds from, short-term and long-term deposits, investment in, and proceeds from sales and maturities of marketable securities, and purchases of property and equipment.

Net cash provided by investing activities was $41.1 million and $169.4 million for the six months ended June 30, 2023 and 2024, respectively.

The increase of $128.3 million in net cash provided by investing activities in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to a net decrease of $129.3 million in investments in short- and long-term deposits, marketable securities and others, partially offset by a decrease of $1.0 million in capital expenditures.

Net Cash Provided by Financing Activities

Our financing activities have consisted of proceeds from shares issued in connection with our ESPP, proceeds from the exercise of share options and payments of withholding tax related to employee share plans.

Net cash provided by financing activities was $13.7 million and $6.3 million for the six months ended June 30, 2023 and 2024, respectively.

The decrease of $7.4 million in net cash provided by financing activities in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to a decrease of $12.6 million in proceeds from (payment of) withholding tax related to employee stock plans, partially offset by an increase of $3.1 million in proceeds from the exercise of stock options and an increase of $2.1 million in proceeds from shares issued in connection with employee stock purchase plan.

Research and Development, Patents and Licenses, etc.

We conduct our research and development activities primarily in Israel as well as other locations such as India and the United States. As of June 30, 2024, our research and development department included 966 employees. In the six months ended June 30, 2024, research and development costs accounted for 24.8% of our total revenues.

For a discussion of our research and development policies, see “—Research and Development” and “—Intellectual Property”, respectively, in Item 4.B. of our Annual Report.

Trend Information

Other than as disclosed elsewhere in this Form 6-K, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2023, that are reasonably likely to have a material adverse effect on our revenue, net income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

Critical Accounting Estimates

We have prepared our condensed consolidated financial statements in conformity with U.S. GAAP, which requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. These estimates are prepared using our best judgment, after considering past and current events and economic conditions. While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third parties. Actual results could differ from these estimates and could have a material adverse effect on our reported results. We believe the critical accounting estimates discussed under Item 5, “Operating and Financial review and Prospects” in our Annual Report reflect our more significant estimates, assumptions, and judgments that have the most significant impact on our condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates as discussed in the Annual Report.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 1 to our condensed consolidated financial statements included in this Form 6-K.

EX-99.3 4 exhibit_99-3.htm EXHIBIT 99.3

Exhibit 99.3

Venafi Holdings, Inc. and Subsidiaries

Condensed Consolidated Financial Statements as of June 30, 2024 and December 31, 2023

and for the three and six months ended June 30, 2024 and 2023

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION

	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	2

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2024 and 2023	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	6

	Notes to Condensed Consolidated Financial Statements	7

Venafi Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	June 30, 2024			December 31, 2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	113,298		$	103,653
Restricted cash		—			428
Accounts receivable, net		29,001			39,880
Contract acquisition costs, net		4,410			4,310
Contract assets		13,872			14,886
Prepaid expenses and other		6,456			5,562
Total current assets		167,037			168,719
Property and equipment, net		348			483
Intangible assets, net		236,703			276,561
Contract acquisition costs, noncurrent, net		6,331			7,188
Right-of-use assets		4,176			5,129
Goodwill		550,086			550,086
Other assets		1,115			1,470
Total assets	$	965,796		$	1,009,636
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	9,006		$	3,011
Accrued compensation		9,527			15,807
Note payable, net of issuance costs		249,486			—
Deferred revenue		51,398			53,180
Lease liabilities		1,497			1,767
Other current liabilities		799			1,254
Total current liabilities		321,713			75,019
Deferred revenue, net of current portion		9,837			11,054
Deferred tax liability, net		5,176			6,271
Lease liabilities, net of current portion		2,896			3,595
Note payable, net of issuance costs		—			248,973
Other liabilities		454			376
Total liabilities		340,076			345,288
Commitments and contingencies (Note 10)
Equity:
Class A common shares, $0.001 par value, 100,000 shares authorized, 6,841 shares issued and outstanding as of June 30, 2024 and December 31, 20231		—			—
Class B common shares, $0.001 par value, 11,000,000 shares authorized, 9,296,478 shares issued and outstanding as of June 30, 2024 and December 31, 2023		9			9
Additional paid-in capital		925,465			921,688
Accumulated other comprehensive loss		(696	)		(608	)
Accumulated deficit		(299,058	)		(256,741	)
Total equity		625,720			664,348
Total liabilities and equity	$	965,796		$	1,009,636

1 Represents value less than $1,000

See accompanying notes to condensed consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited, in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenue
Subscription	$	40,876		$	33,976		$	74,785		$	72,772
Professional services and other		2,283			2,423			4,787			5,317
Total revenue		43,159			36,399			79,572			78,089
Cost of revenue (exclusive of amortization of acquired developed technology intangible asset included in general and administrative below):
Subscription		4,534			3,708			8,325			6,960
Professional services and other		2,413			3,225			4,873			6,249
Total cost of revenue		6,947			6,933			13,198			13,209
Gross profit		36,212			29,466			66,374			64,880
Operating expenses:
Research and development		8,856			9,384			17,679			18,744
Sales and marketing		12,333			11,848			24,377			23,880
General and administrative		30,264			25,416			59,095			51,043
Restructuring		—			188			—			459
Total operating expenses		51,453			46,836			101,151			94,126
Operating loss		(15,241	)		(17,370	)		(34,777	)		(29,246	)
Other (expense) income:
Interest expense, net		(4,042	)		(4,315	)		(8,049	)		(8,676	)
Foreign currency loss		(29	)		(148	)		(188	)		(232	)
Other loss		(42	)		—			(42	)		(29	)
Total other expense		(4,113	)		(4,463	)		(8,279	)		(8,937	)
Loss before income taxes		(19,354	)		(21,833	)		(43,056	)		(38,183	)
Benefit (expense) from income taxes		(699	)		(1,939	)		(739	)		(4,368	)
Net loss	$	(18,655	)	$	(19,894	)	$	(42,317	)	$	(33,815	)

See accompanying notes to condensed consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Net loss	$	(18,655	)	$	(19,894	)	$	(42,317	)	$	(33,815	)
Other comprehensive loss:
Foreign currency translation adjustment		(29	)		(22	)		(88	)		5
Unrealized gain on securities		—			1			—			10
Total comprehensive loss	$	(18,684	)	$	(19,915	)	$	(42,405	)	$	(33,800	)

See accompanying notes to condensed consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements Stockholders’ of Equity

(Unaudited, in thousands except share data)

	Class A Shares					Class B Shares
	Shares			Amount		Shares		Amount		Additional Paid- in Capital			Accumulated Other Comprehensive Loss			Retained Earnings Accumulated Deficit			Total Stockholders’ Equity
Balances at December 31, 2023		6,841		$	—		9,296,478	$	9	$	921,688		$	(608	)	$	(256,741	)	$	664,348
Repurchases of Class A Shares		—	2		—		—		—		(2	)		—			—			(2	)
Stock compensation issued by Parent		—			—		—		—		1,975			—			—			1,975
Net loss		—			—		—		—		—			—			(23,662	)		(23,662	)
Foreign currency translation		—			—		—		—		—			(59	)		—			(59	)
Balances at March 31, 2024		6,841		$	—		9,296,478	$	9	$	923,661		$	(667	)	$	(280,403	)	$	642,600
Stock compensation issued by Parent		—			—		—		—		1,804			—			—			1,804
Net loss		—			—		—		—		—			—			(18,655	)		(18,655	)
Foreign currency translation		—			—		—		—		—			(29	)		—			(29	)
Balances at June 30, 2024		6,841		$	—		9,296,478	$	9	$	925,465		$	(696	)	$	(299,058	)	$	625,720

	Class A Shares					Class B Shares
	Shares			Amount		Shares		Amount		Additional Paid- in Capital			Accumulated Other Comprehensive Loss			Retained Earnings Accumulated Deficit			Total Stockholders’ Equity
Balances at December 31, 2022		6,867		$	—		9,296,478	$	9	$	916,365		$	(598	)	$	(182,107	)	$	733,669
Repurchases of Class A Shares		(16	)		—		—		—		(2,033	)		—			—			(2,033	)
Stock compensation issued by Parent		—			—		—		—		2,260			—			—			2,260
Net loss		—			—		—		—		—			—			(13,921	)		(13,921	)
Gain on available-for-sale securities		—			—		—		—		—			9			—			9
Foreign currency translation		—			—		—		—		—			27			—			27
Balances at March 31, 2023		6,851		$	—		9,296,478	$	9	$	916,592		$	(562	)	$	(196,028	)	$	720,011
Repurchases of Class A Shares		(7	)		—		—		—		(862	)		—			—			(862	)
Stock compensation issued by Parent		—			—		—		—		2,220			—			—			2,220
Net loss		—			—		—		—		—			—			(19,894	)		(19,894	)
Gain on available-for-sale securities		—			—		—		—		—			1			—			1
Foreign currency translation		—			—		—		—		—			(22	)		—			(22	)
Balances at June 30, 2023		6,844		$	—		9,296,478	$	9	$	917,950		$	(583	)	$	(215,922	)	$	701,454

2 Amount is a fractional share that does not round to a full share Condensed Consolidated Statements of Cash Flows

See accompanying notes to condensed consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

(unaudited, in thousands)

	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(42,317	)	$	(33,815	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		40,069			40,143
Stock-based compensation		3,779			4,480
Amortization of debt issuance costs		514			623
Change in operating assets and liabilities:
Accounts receivable		10,878			377
Contract acquisition costs		751			87
Contract assets		1,273			2,564
Prepaid expenses and other		(898	)		(132	)
Right-of-use assets		946			502
Other assets		93			7
Accounts payable and accrued liabilities		5,997			(683	)
Accrued compensation		(6,252	)		(5,598	)
Deferred revenue		(3,000	)		4,380
Deferred tax liability, net		(1,094	)		(4,721	)
Lease liabilities		(962	)		(491	)
Other liabilities		49			(191	)
Net cash provided by operating activities		9,826			7,532
Cash flows from investing activities:
Acquisition of business, net of cash and restricted cash acquired		(428	)		—
Purchases of property and equipment		(23	)		(123	)
Purchases of intangible assets		(53	)		(13	)
Sales and maturities of investments		—			1,350
Net cash (used in) provided by investing activities		(504	)		1,214
Cash flows from financing activities:
Repurchases of Class A shares		(2	)		(2,895	)
Payments for debt issuance costs		—			(700	)
Net cash used in financing activities		(2	)		(3,595	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(103	)		(9	)
Net increase in cash, cash equivalents, and restricted cash		9,217			5,142
Cash, cash equivalents, and restricted cash, beginning of period		104,081			71,409
Cash, cash equivalents, and restricted cash, end of period	$	113,298		$	76,551

Supplemental cash flow information:
Cash paid for interest	$	10,279		$	9,546

See accompanying notes to condensed consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Venafi Holdings, Inc. (“the Company,” “Holdings,” “we,” “us,” or “our”) is a cybersecurity company that invented and delivers Machine Identity Management solutions. In the same way people use usernames and passwords for identity and access to the network, machines (devices and applications) use machine identities (such as digital keys and certificates) for identity and access. Venafi developed a platform that manages machine identities, providing visibility, intelligence and automation across our customers’ networks. Venafi has offices in Salt Lake City, Utah; Palo Alto, California; Bulgaria and the United Kingdom.

Thoma Bravo Merger

On December 31, 2020, Venafi, Inc. and its subsidiaries were acquired by Thoma Bravo, LLC, a Delaware limited liability company (“Thoma Bravo”), pursuant to an Agreement and Plan of Merger (the “Merger”). As part of the Merger, several new legal entities that are controlled by Thoma Bravo were created, including Venafi Parent, LP (Parent), a Delaware limited partnership and Venafi Holdings, Inc. Following the completion of the Merger, Venafi, Inc. is a wholly owned subsidiary of Venafi Holdings, Inc. which is a wholly owned subsidiary of Parent.

CyberArk Transaction

On May 19, 2024, Venafi Parent, LP entered into a definitive Agreement and Plan of Merger to sell the entire share capital of the Company to CyberArk Software, Ltd. a cybersecurity software company that helps organizations protect identities and defend against cyber attacks. Completion is subject to various regulatory and anti-trust reviews and approvals.

Basis of Presentation and Principles of Consolidation

The Company prepares the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The condensed consolidated financial statements include the financial statements of Venafi Holdings, Inc. and its wholly owned subsidiaries, Venafi Inc., Venafi Ltd., Venafi U.K., Ltd., Venafi SAS, Venafi Pty Ltd, and Venafi EOOD. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures of assets, liabilities and equity at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Note 2. Summary of Significant Accounting Policies

Business Combinations

We account for business combinations by recognizing the fair value of acquired assets and liabilities. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Determining the fair value of assets and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to intangible assets. While we use our best estimates and assumptions as part of the purchase price allocation to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain. Acquisition-related transaction costs are expensed as incurred.

Revenue Recognition

The Company recognizes revenue under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies judgment in identifying and evaluating terms and conditions in contracts which may impact revenue recognition.

Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. The Company’s software subscriptions that are deployed on premises to customers include both upfront revenue recognition when the Company transfers control of the term-based license to the customer, as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue related to the Company’s cloud native products delivered under a software as a service (“SaaS”) arrangement is recognized ratably over the contract term.

Professional services revenue is recognized as services are performed based on an estimated percentage complete. Revenue from trainings is recognized on the date the trainings are delivered.

Certain of our licensing arrangements allow customers the ability to remix among our products. For these arrangements, we estimate the allocation of the revenue to product categories based upon the expected usage of our products. Remix rights are not an additional promised good or service in the contract.

The Company generates sales directly through its sales team as well as through its channel partners. Where channel partners are involved, the Company has determined that it is the principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price once the revenue recognition criteria have been met.

Concentrations of Risk and Significant Customers

The Company maintains its cash and investment balances at financial institutions which at times may exceed federally insured limits established by the Federal Deposit Insurance Corporation (“FDIC”). As of June 30, 2024, approximately $112.0 million of the Company’s cash and equivalents exceeded insured limits.

The Company had no customers with an accounts receivable balance over 10% of total accounts receivable as of June 30, 2024 and December 31, 2023.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company determines the appropriate classification of our investments at the time of purchase and evaluates such designation at each balance sheet date.

Restricted cash and cash equivalents and other payables

A portion of the funds related to the 2020 Merger were sent to the Company during 2022 by the former transfer agent to be distributed to former shareholders of Venafi, Inc. Some of the cash was not yet distributed as of December 31, 2023 and was therefore held in our bank account. As of December 31, 2023 we classified $0.4 million as “Restricted cash and cash equivalents” in the condensed consolidated balance sheet. Since we did not have rights to the cash, corresponding liabilities were recorded in the “Other current liabilities” line. All of the remaining “Restricted cash and cash equivalents” was distributed in Q1 2024.

Investments

We classify our investments as available-for-sale and record these investments at fair value. We invest in commercial paper, corporate bonds and U.S. Government bonds. Investments with an original maturity of greater than three months at the date of purchase and a maturity date of less than one year from the date of the balance sheet are classified in current assets as short term investments and those with maturities of more than one year from the date of the balance sheet are classified in noncurrent assets as long term investments in the condensed consolidated balance sheets. We do not invest in any securities with contractual maturities greater than 24 months. Unrealized gains and losses that are considered temporary are reported as a component of other comprehensive income or loss. The Company had no available-for-sale investments as of June 30, 2024 and December 31, 2023.

On December 2, 2021, we purchased a 3% ownership interest in Device Authority, a privately held company providing automated Public Key Infrastructure (PKI) for Internet of Things (IoT), which is accounted for under the equity method based on our ability to exercise influence over the company's operating and financial policies. Our investments in this company are classified within the other assets caption on our condensed consolidated balance sheets. The carrying value of our investment was $0.3 million and $0.4 million as of June 30, 2024 and December 31, 2023, respectively.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate for doubtful accounts, when deemed necessary, based on a review of all outstanding amounts. Management estimates an allowance for doubtful accounts by identifying specific troubled accounts and by using historical experience applied to an aging of accounts. Receivables are charged off against the allowance for doubtful accounts when management determines the probability of collection is remote. We did not charge off any amounts as uncollectible during the three and six months ended June 30, 2024 and 2023.

Management determined there were no uncollectible accounts to include in the allowance for doubtful accounts as of June 30, 2024 and December 31, 2023 .

Contract Assets

Contract assets represent amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. Unbilled receivables that will be collected during the succeeding 12-month period are recorded as current contract assets, and the remaining unbilled receivables are recorded as non-current contract assets and are included in the “Other assets” caption in the Company’s condensed consolidated balance sheets.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets or over the related lease terms (if shorter) as follows:

	Useful Lives
Computers and equipment	3 years
Leasehold improvements	3-7 years
Software	3 years
Furniture and fixtures	5 years

Routine maintenance and repairs are expensed as incurred.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition method of accounting, which requires that the assets and liabilities acquired be recorded at the date of acquisition at their respective fair values. We assess goodwill for impairment on an annual basis.

Intangible Assets

Intangible assets with finite lives arising from business combinations are initially recorded at fair value and amortized over their useful lives using the straight-line method. Amortization of purchased intangible assets acquired through business combinations are included in the “General and administrative” line on our condensed consolidated statements of operations and comprehensive loss. The estimated useful life for each acquired intangible asset class is as follows:

Asset Type	Useful Lives
Customer relationships	2-8 years
Trade names	5-8 years
Developed technology	4 years

There were no indicators of impairment related to our intangible assets during any period presented in these condensed consolidated financial statements.

Impairment of Long-Lived Assets

The Company reviews its property and equipment and other long-lived tangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may be impaired. If an indicator of impairment exists and it is determined that the undiscounted future net cash flows are not sufficient to recover the carrying amounts of the assets, impairment losses are recognized in the statements of operations for the difference between the carrying amounts and the fair values of the assets.

There were no indicators of impairment related to our long-lived assets during any period presented in these condensed consolidated financial statements.

Contract Acquisition Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts and additional sales to existing customers are deferred and recorded in contract acquisition costs, current and noncurrent, in the Company’s condensed consolidated balance sheets. Contract acquisition costs are amortized over the period of benefit, which the Company has determined to be generally five years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Contract acquisition costs are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the commissions were earned. The Company includes amortization of contract acquisition costs in sales and marketing expense in the condensed consolidated statements of operations. The Company periodically reviews the carrying amount of contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of contract acquisition costs. The Company did not recognize an impairment of contract acquisition costs during any of the periods presented in the financial statements.

Leases

The Company recognizes leases under Accounting Standards Codification Topic 842, Leases (“ASC 842”). Under ASC 842, leases with a term greater than one year are recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. Lease liabilities are calculated using the effective interest method. The implicit rate within our operating leases is generally not determinable and therefore we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment. We determine our incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization and duration to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives. Certain of our 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 we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.

The Company has elected not to recognize ROU assets and lease liabilities for leases with terms of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component.

Software Development Costs

Development costs for software to be sold externally incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product, are capitalized and, upon general release, are amortized using the greater of either the straight-line method over the expected life of the related products or based upon the pattern in which economic benefits related to such assets are realized. Amortization expense related to software to be sold externally is included in cost of revenue on the condensed consolidated statements of operations. In most instances, the Company believes its current process for developing software is essentially completed and products became available for general use concurrent with the establishment of technological feasibility. The Company capitalized an immaterial amount of software development costs during the three and six months ended June 30, 2024 and 2023.

The Company capitalizes costs incurred to develop or obtain internal-use software, including costs incurred in hosting arrangements that are service contracts. Implementation costs related to a hosting agreement that is a service contract are accounted for as intangible assets and amounts capitalized are amortized over the term of the hosting agreement, including optional renewal periods the Company anticipates exercising. Amortization expense related to internal-use software is included in operating expenses on the condensed consolidated statements of operations. We expense costs incurred to renew or extend the term of internal use software as incurred.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs consist of costs to develop the Company’s software products that do not qualify for capitalization.

Cost of Revenue

Cost of revenue consists of the direct cost of subscriptions software products and professional services and other. These costs of revenue include payroll and other benefits of staff working in the Company’s customer support and professional service departments and contracted third-party vendors of professional services. Other costs include associated travel expenses, computer equipment, allocated overhead, cloud hosting and other general costs necessary to support and maintain the Company’s end users and assist in the implementation of the Company’s products.

Stock Compensation Issued by Parent

During 2021, Venafi Parent, LP implemented a management incentive plan in which it issues Class B units in Parent to certain of the Company’s team members for the performance of services. The Company has applied the guidance of FASB Interpretation 44, which establishes an accounting model whereby equity awards granted by a parent company to employees of a subsidiary are recognized in the financial statements of the subsidiary. See Note 7 for additional details about this plan.

For awards subject to service conditions only, the fair value of the award on the grant date is expensed on a straight-line basis over the requisite service period of the award. For awards subject to both service and performance conditions, we record expense when the performance condition becomes probable. Expense is recognized using the accelerated attribution method (on a tranche-by-tranche basis) for awards with a graded vesting schedule that are subject to both service and performance conditions. Forfeitures are accounted for as they occur. Fair value of the awards is determined using an options pricing model calculated by third-party valuation specialists. The timing of recognition of stock compensation expense may be accelerated if the awards are modified to accelerate the amount of awards vested.

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising costs primarily consist of events such as trade shows and other lead generation activities.

Compensated absences

We recognize liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable. On December 31, 2022, we announced an open paid time off (“PTO”) policy for team members based in the United States effective January 1, 2023. Under the new policy, PTO will no longer vest or accumulate and no payment related to future service will be made. However, when team members leave the Company, they will be paid for PTO earned and accrued as of December 31, 2022 at their current pay rate as of their departure date.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on temporary differences between the financial reporting and tax reporting bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established to reduce deferred income tax assets when it is determined that it is more likely than not that some portion, or all, of the deferred income tax assets will not be realized.

A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions for any related appeals or litigation processes, based on the technical merits. The Company evaluates its uncertain tax positions, if any, on a continual basis through review of its policies and procedures, review of its regular tax filings, and discussions with outside experts.

The Company’s policy is to record tax-related interest and penalties as a component of income tax expense. The Company is subject to routine audits by taxing jurisdictions. Due to the history of U.S. tax losses since inception, the Company's federal and state returns are subject to examination for all years.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosures. The guidance applies on a prospective basis, but retrospective application is permitted. Early adoption is permitted. The guidance is effective for annual periods beginning after December 15, 2025. The guidance will impact the presentation of and disclosures included in our tax footnote, but will not have any other impact on our condensed consolidated financial statements or results of operations.

There are no other recent accounting pronouncements expected to have a material impact on our condensed consolidated financial statements.

Note 3. Revenue from Contracts with Customers

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these products or services.

Subscription

The Venafi Control Plane for Machine Identities includes subscription products for which a customer pays a recurring subscription fee and include term-based on-premises licenses and our term-based cloud-native software offerings (“Software as a Service” or “SaaS”), including TLS Cloud Protect and Jetstack Secure. Software licenses are always sold with maintenance and support. Our on-premises software licenses are distinct performance obligations, and we therefore recognize revenue attributable to licenses upfront at the time of delivery. Subscription revenue for our cloud native offerings is recognized ratably over the applicable subscription term.

Maintenance and support services are sold with our software products as either subscription maintenance with subscription licenses or as software support on perpetual licenses. As maintenance and support services are a separate performance obligation, revenue attributable to maintenance and support services is recognized ratably over the contractual period. Customers may also purchase premium support packages as term-based subscriptions. These additional services are treated as stand-ready obligations and associated revenue is recognized ratably over the contractual period and are included as “other subscription” in the table below.

Professional Services and Other

All our professional services are considered distinct performance obligations when sold on a stand-alone basis or with other products. For most of these contracts, revenue is recognized over time based upon the proportion of work performed to date. One-time sales of perpetual licenses are also included within this revenue caption.

Disaggregation of Revenue

The following table presents revenue by category (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Subscription
Term-based licenses	$	16,018	$	12,952	$	25,796	$	31,641
Maintenance and support		16,918		16,692		33,928		33,052
SaaS		5,830		2,366		10,886		4,268
Other subscription		2,110		1,966		4,175		3,810
Total subscription		40,876		33,976		74,785		72,771
Professional services and other		2,283		2,423		4,787		5,318
Total revenue	$	43,159	$	36,399	$	79,572	$	78,089

Deferred Revenue

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company recognizes deferred revenue for payments received or amounts invoiced in advance of performance under the contract. Such amounts are recognized as revenue for products and services consistent with the above methodology. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

We receive payments from customers based upon contractual billing schedules. Accounts receivable is recorded when the right to consideration becomes unconditional and the amount has been invoiced. Contract assets represent amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. Unbilled receivables that are expected to be collected during the succeeding 12-month period are recorded as current contract assets, and the remaining unbilled receivables are recorded as non-current contract assets.

Costs to obtain a contract

We capitalize commission expenses paid to internal sales personnel and partner referral fees that are incremental to obtaining customer contracts. These costs are recorded as contract acquisition costs in the condensed consolidated balance sheets. Contract acquisition costs in excess of amounts that are commensurate with commissions to be paid on renewals are amortized on a straight-line basis over an estimated period of benefit of five years. We determined the estimated period of benefit by taking into consideration the contractual term, expected renewals of customer contracts, our technology, and other factors. Contract acquisition costs that are commensurate with commissions to be paid on renewals are amortized over the license term and are recorded as amortization expense within sales and marketing in the condensed consolidated statements of operations. We periodically review the carrying amount of contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

Costs to obtain a contract for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements are one year or less.

Contracts with multiple performance obligations

Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are considered distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis, with allocations first made to performance obligations for which we have established observable SSP, followed by a residual allocation based on management’s estimates for performance obligations that do not have observable SSP. We determine SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including selling method (i.e., partner or direct).

Note 4. Fair Value Measurements and Marketable Securities

We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1:

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

Level 2:

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and we consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

Our short-term financial instruments include cash equivalents, accounts receivable, accounts payable and accrued liabilities and are carried on the condensed consolidated financial statements as of June 30, 2024 and December 31, 2023 at amounts that approximate fair value due to their short-term maturity dates.

There have been no transfers between fair value measurement levels during the periods presented. The following table presents our financial assets measured and recorded at fair value on a recurring basis using the above input categories (in thousands):

June 30, 2024

December 31, 2023

Fair Value

Input Level

Fair Value

Input Level

Money market funds

98,716

Level 1

96,359

Level 1

Note 5. Goodwill and Intangible Assets

Goodwill was $550.1 million as of both June 30, 2024 and December 31, 2023. There were no goodwill impairment charges in the three or six months ended June 30, 2024 or 2023.

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs (in thousands):

	As of June 30, 2024							As of December 31, 2023
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Intangible assets subject to amortization
Developed technology	$	121,700	$	(106,488	)	$	15,212	$	121,700	$	(91,275	)	$	30,425
Customer relationships		361,224		(158,104	)		203,120		361,224		(135,535	)		225,689
Tradenames and trademarks		32,437		(14,276	)		18,161		32,437		(12,237	)		20,200
Other intangible assets		706		(496	)		210		652		(405	)		247
Total intangible assets	$	516,067	$	(279,364	)	$	236,703	$	516,013	$	(239,452	)	$	276,561

Amortization expense, included within “General and administrative” in the condensed consolidated statements of operations, was $20.0 million for the three months ended both June 30, 2024 and 2023, and $39.9 million for the six months ended both June 30, 2024 and 2023. All amortization of intangible assets is included within the “General and administrative” caption on the condensed consolidated statement of operations.

The Company did not have material purchases of internal use software licenses during the three and six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, amortization of intangible assets with definite lives is estimated to be as follows (in thousands):

Amortization of intangibles:
Remainder of 2024	$	39,903
2025		49,271
2026		49,201
2027		49,165
2028		49,163
Total	$	236,703

Note 6. Equity

The capital structure of Venafi Holdings, Inc. consists of two classes of common stock, Class A and Class B.

Upon any liquidation, dissolution, merger or winding up of the Company, the Class A common stock will, in priority and preference to all other classes of Venafi Holdings, Inc. stock, entitle the holders thereof to a liquidation value equal to $100,000 per Class A common share plus any accrued and unpaid yield at a rate of 11% per annum, compounded quarterly.

The return on the Class A common shares is capped at the 11% per annum yield and is not guaranteed, nor will it be payable until a liquidity event occurs or a dividend is declared or is otherwise approved by the corporation’s board of directors. Any dividends accruing on the Class A common stock, may be paid, in lieu of cash, by the issuance of additional shares of Class A common stock (including fractional shares) having an aggregate liquidation value at the time of such payment equal to the amount of the dividends to be paid. No dividends for Class A common stock have been declared or paid in cash or issuance of additional shares since incorporation of the corporation.

The holders of Class B common stock will be entitled to the residual value of the Company after repayment of indebtedness and the liquidation value of the Class A common stock.

All holders of Class A and Class B common stock shall be entitled to one vote per share of Class A or Class B common stock on all matters to be voted on by the Corporation's stockholders. As a result of the Merger, the Company is controlled by Thoma Bravo.

None of the shares of common stock are redeemable at the option of the holder. Notwithstanding the foregoing, the Company may redeem or repurchase shares of common stock from present or former team members, directors or other service providers of the Company, usually when their services to the Company terminate, in accordance with the provisions of the equity repurchase agreements entered into with such service providers as approved by the Board. Parent Class A and Class B units related to co-investment or compensatory units are not repurchased directly. Instead, the repurchase agreements outline that Parent units are first sold to Venafi Holdings, Inc. in exchange for Venafi Holdings, Inc. issuing Class A shares to Parent at the Class A stock liquidation value (including any accrued and unpaid yield thereon). Cash for the exchanged Class A shares in Venafi Holdings, Inc. is then distributed to former service provider and the shares are cancelled.

Note 7. Stock Compensation Issued by Parent

Stock-based compensation expense for stock-based awards issued by Parent was classified in the accompanying condensed consolidated statement of operations as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Stock compensation expense:
Cost of revenue - subscription	$	71	$	177	$	141	$	358
Cost of revenue - professional services and other		36		50		76		99
Research and development		247		304		494		627
Sales and marketing		386		648		900		1,314
General and administrative		1,064		1,041		2,168		2,082
Total stock compensation expense	$	1,804	$	2,220	$	3,779	$	4,480

We recognize compensation cost of stock-based awards issued by Parent on a straight-line basis for awards that vest based only on a length of service condition and on an accelerated attribution method for awards that contain both length of service and market or performance conditions.

In March 2021, the Board approved the Venafi Parent, LP Incentive Equity Plan (the “2021 Plan”) to incentivize employees and in June 2021, the Board approved a co-investment plan for Venafi team members to purchase certain units of Venafi Parent, LP (the “Co-Invest Plan”) to align the employees and management with the owners of the business. The Co-Invest Plan offered employees and other service providers the one-time opportunity to co-invest in Venafi Parent, LP by purchasing Units directly from the Company for cash. Under the Co-Invest Plan, the purchase price for one Class A unit and 478 Class B units was $1,000, which is the same price and investment allocation between the two unit classes as the investment made by existing investors at the time of the Merger. The minimum cash investment was $2,500.

The 2021 Plan provides for the grant of incentive stock options, profits interest, equity appreciation rights and other forms of awards to employees and other service providers granted or denominated in Venafi LP’s Units. Under the 2021 Plan, 60,000,000 Class B Units issued by Parent (“Incentive Units”) were reserved for issuance (“Incentive Carry Pool”) and do not have a contractual life. Incentive Carry Pool grants are subject to a length of service and, in some cases, a performance vesting condition based on the achievement of a financial performance metric as established by the Company’s Board at the beginning of each year, over a performance period of four years. The awards with a performance vesting condition are not considered granted until the Board approves each annual financial performance metric.

Venafi Parent, LP granted 1,825,000 Incentive Units to certain members of the Board that are only subject to service-based vesting conditions over four years (“Board Carry Pool”). These Incentive Units are not included in the Incentive Carry Pool previously discussed and there is no contractual life.

Assumptions for Unit-based Awards

The fair value for each unit-based award was estimated at the date of grant using the Black-Scholes option-pricing model, which includes assumptions related to dividend yield, volatility, risk free rate and expected life. The Company has not paid any dividends. Since the Company is not publicly traded, the Company determines volatility by using the historical average volatility of a group of publicly traded companies in the same business sector as the Company. The Company uses a risk-free rate based on the implied yield currently available on U.S. Treasury zero-coupon issues with terms equivalent to the expected term of the options. The Company uses the simplified method to calculate expected life because we do not have information to make a more refined estimate, which is calculated as the midpoint of expected holding periods.

As of June 30, 2024 unrecognized compensation costs related to non-vested restricted stock awards was $13.7 million. The unrecognized compensation expense will be recognized over a weighted-average period of 2.8 years.

Note 8. Debt

In conjunction with the Merger on December 31, 2020, the Company entered into a credit agreement. The credit agreement consists of a term loan facility in the aggregate principal amount of $250.0 million, a revolving loan facility in an aggregate principal amount of $25.0 million, including a letter of credit sub-facility in the aggregate availability amount up to $10.0 million, and a swing-line sub-facility in the aggregate availability amount of $10.0 million. The term loan and any borrowings on the line of credit bear interest at a floating rate of SOFR + 2.75%. During the first quarter of 2023, the maturity date of both the term loan and the revolving loan facility was extended to January 1, 2025.

As of June 30, 2024, outstanding borrowings under the term loan facility were $249.5 million, net of debt issuance costs of $0.5 million. This amount was classified as a current liability as of June 30, 2024 due to the maturity date of January 1, 2025. See Note 11 regarding uses and sources of liquidity for additional detail.

Note 9. Income Taxes

For the three and six months ended June 30, 2024 and 2023, the Company has utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis.

For both the three and six months ended June 30, 2024, the Company recorded a tax benefit of $0.7 million. For the three and six months ended June 30, 2023, the Company recorded a tax benefit of $1.9 million and $4.4 million, respectively.

Note 10. Commitments and Contingencies

Purchase Obligations

As of June 30, 2024, future minimum purchase obligations under multi-year, non-cancellable firm purchase commitments, primarily for purchases of software and services, such as data center operations and sales and marketing activities, by year were as follows (in thousands, exclusive of obligations under our term loan, leases, and amounts already included in accounts payable, accrued expenses and other liabilities in the condensed consolidated balance sheet):

Remainder of 2024	$	2,906
2025		1,417
2026		68
Total	$	4,391

No anticipated payments extend beyond 2026.

Legal Matters

From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. There were no such material matters as of June 30, 2024.

Note 11. Going Concern - Uses and Sources of Liquidity

The condensed consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the satisfaction of liabilities in the ordinary course of business.

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - (Subtopic 205-40), requires the Company to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as a going concern within 12 months from the date of the issuance of the accompanying condensed consolidated financial statements. As discussed in Note 8, the Company’s credit agreement with Truist Bank, matures on January 1, 2025. The Company believes that cash flow from operations will be sufficient to fund the Company’s obligations for at least 12 months from the issuance date of these financial statements, with the exception of the maturing credit agreement. The Company obtained a letter of support from Thoma Bravo Fund XIII, L.P. (“Thoma Bravo”) that states Thoma Bravo’s intent and ability to support the Company by providing funding to satisfy the outstanding balance of the credit agreement between Truist Bank and the Company at maturity, to the extent the Company and its subsidiaries are unable to obtain financing from another source to satisfy the outstanding balance.

Note 12. Subsequent Events

Management has evaluated events occurring subsequent to June 30, 2024 through August 8, 2024, the date these condensed consolidated financial statements were available to be issued.

On July 3, 2024, Venafi used $80.0 million in cash to pay down the term loan.

There were no other subsequent events requiring disclosure.

EX-99.4 5 exhibit_99-4.htm EXHIBIT 99.4

Exhibit 99.4

Consolidated Financial Statements

Venafi Holdings, Inc. and Subsidiaries as of and for the years ended December 31, 2023 and December 31, 2022

With Report of Independent Auditors

Venafi Holdings, Inc. and Subsidiaries

Consolidated Financial Statements

As of and for the Years Ended December 31, 2023 and December 31, 2022

Contents

Report of Independent Auditors	1

Consolidated Financial Statements

Consolidated Balance Sheets	3
Consolidated Statements of Operations and Comprehensive Loss	4
Consolidated Statements of Member’s Equity	5
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8

Report of Independent Auditors

The Board of Directors

Venafi Holdings, Inc. and Subsidiaries

Opinion

We have audited the consolidated financial statements of Venafi Holdings, Inc. and Subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, member’s equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ Ernst & Young LLP

Salt Lake City, Utah

July 31, 2024

Venafi Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

	December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	103,653		$	70,849
Restricted cash and cash equivalents		428			560
Short term investments		—			1,344
Accounts receivable, net		39,880			34,999
Contract acquisition costs, net		4,310			2,726
Contract assets		14,886			23,294
Prepaid expenses and other		5,562			5,769
Total current assets		168,719			139,541

Property and equipment, net		483			671
Intangible assets, net		276,561			356,310
Contract acquisition costs, noncurrent, net		7,188			8,480
Right-of-use assets		5,129			6,130
Goodwill		550,086			550,086
Other assets		1,470			3,016
Total assets	$	1,009,636		$	1,064,234

Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	3,011		$	1,999
Accrued compensation		15,807			14,515
Deferred revenue		53,180			40,006
Lease liabilities		1,767			1,496
Other current liabilities		1,254			938
Total current liabilities		75,019			58,954

Deferred revenue, net of current portion		11,054			5,426
Deferred tax liability, net		6,271			11,999
Lease liabilities, net of current portion		3,595			4,860
Note payable, net of issuance costs		248,973			248,537
Other liabilities		376			789
Total liabilities		345,288			330,565

Equity:
Class A common shares, $0.001 par value, 100,000 shares authorized, 6,841 and 6,868 shares issued and outstanding as of December 31, 2023 and 2022, respectively		—			—
Class B common shares, $0.001 par value, 11,000,000 shares authorized, 9,296,478 shares issued and outstanding as of December 31, 2023 and 2022, respectively		9			9
Additional paid-in capital		921,688			916,366
Accumulated other comprehensive loss		(608	)		(598	)
Accumulated deficit		(256,741	)		(182,108	)
Total equity		664,348			733,669
Total liabilities and equity	$	1,009,636		$	1,064,234

See accompanying notes to the consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(in thousands)

	For the Years Ended December 31,
	2023			2022

Revenue:
Subscription	$	143,231		$	147,562
Professional services and other		10,740			11,401

Total revenue		153,971			158,963

Cost of revenue (exclusive of amortization of acquired developed technology intangible asset included in general and administrative below):
Subscription		13,937			12,113
Professional services and other		11,589			9,858

Total cost of revenue		25,526			21,971

Gross profit		128,445			136,992

Operating expenses:
Research and development		37,437			36,391
Sales and marketing		48,592			62,801
General and administrative		102,951			104,945
Restructuring		905			4,675

Total operating expenses		189,885			208,812

Loss from operations		(61,440	)		(71,820	)

Other expense:
Interest expense, net		(17,369	)		(11,982	)
Foreign currency loss		(161	)		(526	)
Other loss		(704	)		(203	)

Total other expense		(18,234	)		(12,711	)

Loss before income taxes		(79,674	)		(84,531	)

Income tax benefit		(5,041	)		(22,204	)

Net loss	$	(74,633	)	$	(62,327	)

Other comprehensive loss:
Foreign currency translation adjustment		(53	)		(457	)
Unrealized gain (loss) on securities		43			(14	)

Total comprehensive loss	$	(74,643	)	$	(62,798	)

See accompanying notes to the consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

	Class A Shares						Class B Shares
	Shares			Amount			Shares		Amount		Additional Paid- in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Equity
Balances at December 31, 2022		6,868		$	—	*		9,296,478	$	9	$	916,366		$	(598	)	$	(182,108	)	$	733,669

Repurchases of Class A Shares		(27	)		—	*		—		—		(3,384	)		—			—			(3,384	)

Stock compensation issued by Parent		—			—			—		—		8,706			—			—			8,706

Net loss		—			—			—		—		—			—			(74,633	)		(74,633	)

Gain on available-for-sale securities		—			—			—		—		—			43			—			43

Foreign currency translation		—			—			—		—		—			(53	)		—			(53	)

Balances at December 31, 2023		6,841		$	—	*		9,296,478	$	9	$	921,688		$	(608	)	$	(256,741	)	$	664,348

* Represents value less than $1,000

See accompanying notes to the consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

(in thousands, except share data)

	Class A Shares						Class B Shares
	Shares			Amount			Shares		Amount		Additional Paid- in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Equity
Balances at December 31, 2021		6,878		$	—	*		9,296,478	$	9	$	911,025		$	(127	)	$	(119,781	)	$	791,126

Repurchases of Class A Shares		(10	)		—	*		—		—		(1,210	)		—			—			(1,210	)

Stock compensation issued by Parent		—			—			—		—		6,551			—			—			6,551

Net loss		—			—			—		—		—			—			(62,327	)		(62,327	)

Loss on available-for-sale securities		—			—			—		—		—			(14	)		—			(14	)

Foreign currency translation		—			—			—		—		—			(457	)		—			(457	)

Balances at December 31, 2022		6,868		$	—	*		9,296,478	$	9	$	916,366		$	(598	)	$	(182,108	)	$	733,669

* Represents value less than $1,000

See accompanying notes to the consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended
	December 31, 2023			December 31, 2022
Cash flows from operating activities:
Net loss	$	(74,633	)	$	(62,327	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		80,246			80,515
Stock-based compensation		8,706			6,551
Amortization of debt issuance costs		1,136			1,463
Impairment of equity-method investment		868			—
Other non-cash items		4			22
Change in operating assets and liabilities:
Accounts receivable		(4,764	)		(166	)
Contract acquisition costs		(237	)		(3,774	)
Contract assets		8,891			(10,624	)
Prepaid expenses and other		229			(910	)
Right-of-use assets		1,012			(1,366	)
Other assets		215			(171	)
Accounts payable and accrued liabilities		1,002			(1,546	)
Accrued compensation		1,178			3,631
Deferred revenue		18,793			350
Deferred tax liability, net		(5,727	)		(22,507	)
Lease liabilities		(1,005	)		1,452
Other liabilities		(100	)		205
Net cash provided by (used in) operating activities		35,814			(9,202	)
Cash flows from investing activities:
Merger related receipts		—			560
Purchases of property and equipment		(204	)		(468	)
Purchases of intangible assets		(106	)		(255	)
Purchases of investments		—			(797	)
Sales and maturities of investments		1,350			4,360
Equity method investment		—			(60	)
Net cash provided by investing activities		1,040			3,340
Cash flows from financing activities:
Repurchases of Class A shares		(3,384	)		(1,210	)
Payment of debt issuance costs		(700	)		—
Net cash used in financing activities		(4,084	)		(1,210	)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(98	)		(356	)

Net increase (decrease) in cash, cash equivalents, and restricted cash		32,672			(7,428	)
Cash, cash equivalents, and restricted cash, beginning of period		71,409			78,837

Cash, cash equivalents, and restricted cash, end of period	$	104,081		$	71,409
Supplemental cash flow information:
Cash paid for interest	$	19,769		$	11,371

See accompanying notes to the consolidated financial statements

Venafi Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Overview and Basis of Presentation

Thoma Bravo Merger

Basis of Presentation and Principles of Consolidation

The Company prepares the consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the financial statements of Venafi Holdings, Inc. and its wholly owned subsidiaries, Venafi Inc., Venafi Ltd., Venafi U.K., Ltd., Venafi SAS, Venafi Pty Ltd, and Venafi EOOD. All intercompany transactions and balances have been eliminated.

Use of Estimates

Note 2. Summary of Significant Accounting Policies

Business Combinations

Revenue Recognition

Professional services revenue is recognized as services are performed based on an estimated percentage complete. Revenue from trainings is recognized on the date the trainings are delivered.

Concentrations of Risk and Significant Customers

The Company maintains its cash and investment balances at financial institutions which at times may exceed federally insured limits established by the Federal Deposit Insurance Corporation (“FDIC”). As of December 31, 2023, approximately $102.9 million of the Company’s cash and investments exceeded insured limits.

The Company did not have any customers with an accounts receivable balance over 10% of total accounts receivable as of December 31, 2023, or December 31, 2022.

Cash and Cash Equivalents

Restricted cash and cash equivalents and other payables

A portion of the funds related to the 2020 Merger were sent to the Company during 2022 by the former transfer agent to be distributed to former shareholders of Venafi, Inc. Some of the cash was not yet distributed as of December 31, 2023 and was therefore held in our bank account. As of December 31, 2023 we classified $0.4 million as “Restricted cash and cash equivalents” in the consolidated balance sheet. Since we did not have rights to the cash, corresponding liabilities were recorded in the “Other current liabilities” line. All of the remaining “Restricted cash and cash equivalents” was distributed in Q1 2024.

Investments

We classify our investments as available-for-sale and record these investments at fair value. We invest in commercial paper, corporate bonds and U.S. Government bonds. Investments with an original maturity of greater than three months at the date of purchase and a maturity date of less than one year from the date of the balance sheet are classified in current assets as short term investments and those with maturities of more than one year from the date of the balance sheet are classified in noncurrent assets as long term investments in the consolidated balance sheets. We do not invest in any securities with contractual maturities greater than 24 months. Unrealized gains and losses that are considered temporary are reported as a component of other comprehensive income or loss.

On December 2, 2021, we purchased a 3% ownership interest in Device Authority, a privately held company providing automated Public Key Infrastructure (PKI) for Internet of Things (IoT), which is accounted for under the equity method based on our ability to exercise influence over the company's operating and financial policies. Our investments in this company are classified within the other assets caption on our consolidated balance sheets. The carrying value of our investments was $0.4 million and $1.3 million as of December 31, 2023 and December 31, 2022, respectively.

During December 2023, Device Authority initiated an investor funding round. Venafi chose not to participate in the round and our ownership was diluted to 1.4%. In addition, during the funding round, all previously issued warrants were cancelled. The valuation of Device Authority decreased significantly in the current funding round. As a result, we recorded an impairment of $0.9 million for the year ended December 31, 2023. The impairment is recorded within the “Other loss” caption on our Consolidated Statement of Operations.

Accounts Receivable

Management determined there were no uncollectible accounts to include in the allowance for doubtful accounts as of December 31, 2023 and there was an immaterial amount as of December 31, 2022.

Contract Assets

Property and Equipment

		Useful Lives
Computers and equipment		3 years
Leasehold improvements		3-7 years
Software		3 years
Furniture and fixtures		5 years

Routine maintenance and repairs are expensed as incurred.

Goodwill

Intangible Assets

Intangible assets with finite lives arising from business combinations are initially recorded at fair value and amortized over their useful lives using the straight-line method. Amortization of purchased intangible assets acquired through business combinations are included in the “General and administrative” line on our consolidated statements of operations and comprehensive loss. The estimated useful life for each acquired intangible asset class is as follows:

Asset Type		Useful Lives
Customer relationships		2-8 years
Trade names		5-8 years
Developed technology		4 years

There were no indicators of impairment related to our intangible assets during either year presented in these consolidated financial statements.

Impairment of Long-Lived Assets

Contract Acquisition Costs

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts and additional sales to existing customers are deferred and recorded in contract acquisition costs, current and noncurrent, in the Company’s consolidated balance sheets. Contract acquisition costs are amortized over the period of benefit, which the Company has determined to be generally five years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Contract acquisition costs are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the commissions were earned. The Company includes amortization of contract acquisition costs in sales and marketing expense in the consolidated statements of operations. The Company periodically reviews the carrying amount of contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of contract acquisition costs. The Company did not recognize an impairment of contract acquisition costs during any of the periods presented in the financial statements.

Leases

Software Development Costs

Development costs for software to be sold externally incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product, are capitalized and, upon general release, are amortized using the greater of either the straight-line method over the expected life of the related products or based upon the pattern in which economic benefits related to such assets are realized. Amortization expense related to software to be sold externally is included in cost of revenue on the consolidated statements of operations. In most instances, the Company believes its current process for developing software is essentially completed and products became available for general use concurrent with the establishment of technological feasibility. For the years ended December 31, 2023 and December 31, 2022, the Company capitalized $0.1 million and $0.3 million, respectively, for software development costs for software to be sold externally.

The Company capitalizes costs incurred to develop or obtain internal-use software, including costs incurred in hosting arrangements that are service contracts. Implementation costs related to a hosting agreement that is a service contract are accounted for as intangible assets and amounts capitalized are amortized over the term of the hosting agreement, including optional renewal periods the Company anticipates exercising. Amortization expense related to internal-use software is included in operating expenses on the consolidated statements of operations. We expense costs incurred to renew or extend the term of internal use software as incurred. Refer to Note 6 for a detailed discussion of accounting policies related to capitalized software acquisition and implementation costs.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs consist of costs to develop the Company’s software products that do not qualify for capitalization.

Cost of Revenue

Stock Compensation Issued by Parent

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising costs primarily consist of events such as trade shows and other lead generation activities. For the years ended December 31, 2023 and December 31, 2022, advertising expense totaled $3.0 million and $5.9 million, respectively.

Compensated absences

Income Taxes

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosures. The guidance applies on a prospective basis, but retrospective application is permitted. Early adoption is permitted. The guidance is effective for annual periods beginning after December 15, 2025. The guidance will impact the presentation of and disclosures included in our tax footnote, but will not have any other impact on our consolidated financial statements or results of operations.

In December 2022, the FASB issued ASU 2020-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The ASU provides an update to the previously issued ASU 2020-04 to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. In conjunction with the amendment to our term loan in January 2023, we have transitioned off of rates subject to reference rate reform without a material impact from such transition.

There are no other recent accounting pronouncements expected to have a material impact on our consolidated financial statements.

Note 3. Going Concern - Uses and Sources of Liquidity

The consolidated financial statements included herein have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and the satisfaction of liabilities in the ordinary course of business.

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - (Subtopic 205-40), requires the Company to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as a going concern within 12 months from the date of the issuance of the accompanying consolidated financial statements. As discussed in Note 9, the Company’s credit agreement with Truist Bank, matures on January 1, 2025. The Company believes that cash flow from operations will be sufficient to fund the Company’s obligations for at least 12 months from the issuance date of these financial statements, with the exception of the maturing credit agreement. The Company obtained a letter of support from Thoma Bravo Fund XIII, L.P. (“Thoma Bravo”) that states Thoma Bravo’s intent and ability to support the Company by providing funding to satisfy the outstanding balance of the credit agreement between Truist Bank and the Company at maturity, to the extent the Company and its subsidiaries are unable to obtain financing from another source to satisfy the outstanding balance.

Note 4. Revenue from Contracts with Customers Subscription includes revenues from our term-based software licenses, term-based maintenance and support, annual maintenance for perpetual licenses, SaaS and other term-based premium support offerings.

Subscription

Our software licenses may be installed on customer premises. On-premises software licenses are generally granted for a specified term (subscription license) but are occasionally sold with perpetual rights to use the software (perpetual license, which are not recognized as subscription revenue). Subscription licenses are always sold with maintenance and support. Subscription licenses are distinct performance obligations, and we therefore recognize revenue attributable to licenses upfront at the time of delivery.

Our software as a service (“SaaS”) products are offered on a term-based subscription model in which our products are cloud hosted rather than delivered on-premises to a customer’s network. All revenue related to our SaaS products is recognized ratably over the contract term.

We also offer access to various term-based premium support services. Revenue for these services is recognized ratably over the contract term.

Professional Services and Other

Revenue related to sales of perpetual licenses is included in professional services and other revenue. Revenue related to perpetual licenses is recognized upon delivery of the license.

Contracts with multiple performance obligations

Disaggregation of Revenue

We view revenue streams as either recurring or non-recurring. We define recurring revenue as revenue recognized in the period that is subject to contracts expected to renew such that we generally expect the same amount of recurring contract value in future periods. The timing of when the revenue will recur for subscription license revenue recognized at a point-in-time in the table below will depend on the when the contract is renewed as those amounts are typically recognized at the inception of the contract. Typical contract terms range from 1-3 years. Revenue recognized ratably in the table below is generally expected to recur in each subsequent year. Revenue that is not recurring in nature is not generally expected to renew. The following table presents the Company’s revenue by category based on the recurring nature of the revenue. The descriptions in parenthesis indicate the pattern of revenue recognition applicable to each row (in thousands):

	Year Ended December 31,
	2023		2022
Recurring revenue
Subscription license (point-in-time)	$	57,293	$	77,121
Subscription maintenance (ratable)		61,255		53,506
Software support on perpetual licenses (ratable)		5,466		6,120
SaaS (ratable)		11,048		3,783
Other services (ratable)		8,169		7,032
Total recurring revenue		143,231		147,562
Non-recurring revenue
Perpetual license (point in time)		312		536
Professional services (as work performed)		10,428		10,865
Total non-recurring revenue		10,740		11,401
Total revenue	$	153,971	$	158,963

The Company’s revenues were sourced in the following geographic locations, based on shipping address (international represents all regions outside of the United States) (in thousands):

	Year Ended December 31,
	2023		2022

United States	$	112,045	$	121,885
International		41,926		37,078
Total Revenue	$	153,971	$	158,963

Deferred Revenue

The timing of revenue recognition may differ from the timing of invoicing to customers. The Company recognizes deferred revenue for payments received or amounts invoiced in advance of performance under the contract. Such amounts are recognized as revenue for products and services consistent with the above methodology. Deferred revenue expected to be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

Changes in deferred revenue were as follows (in thousands):

	Carrying Amount
	Year Ended December 31,
	2023			2022
Beginning balance	$	45,432		$	45,101
Additions to deferred revenue		57,694			39,141
Recognition of deferred revenue		(38,892	)		(38,810	)
Ending balance	$	64,234		$	45,432

We receive payments from customers based upon contractual billing schedules. Accounts receivable is recorded when the right to consideration becomes unconditional and the amount has been invoiced. Contract assets represent amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. Unbilled receivables that will be collected during the succeeding 12-month period are recorded as current contract assets, and the remaining unbilled receivables are recorded as non-current contract assets.

Transaction price allocated to the remaining performance obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized ("Contracted not recognized"), which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods and excludes performance obligations that are subject to unexercised contract renewals. Contracted not recognized revenue was approximately $138.7 million as of December 31, 2023, of which we expect to recognize approximately 58% over the next 12 months, and the remainder thereafter.

Costs to obtain a contract

We capitalize commission expenses paid to internal sales personnel and partner referral fees that are incremental to obtaining customer contracts. These costs are recorded as contract acquisition costs in the consolidated balance sheets. Contract acquisition costs in excess of amounts that are commensurate with commissions to be paid on renewals are amortized on a straight-line basis over an estimated period of benefit of 5 years. We determined the estimated period of benefit by taking into consideration the contractual term, expected renewals of customer contracts, our technology, and other factors. Contract acquisition costs that are commensurate with commissions to be paid on renewals are amortized over the license term. We periodically review the carrying amount of contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

The following table summarizes the activity of the contract acquisition costs (in thousands):

Rollforward of contract acquisition costs

	Year Ended December 31,
	2023			2022
Beginning balance	$	11,206		$	7,518
Additions to contract acquisition costs		5,147			8,400
Amortization of contract acquisition costs		(4,855	)		(4,712	)
Ending balance	$	11,498		$	11,206

Note 5. Fair Value Measurements and Marketable Securities

Level 1:

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

Level 2:

Level 3:

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

Our short-term financial instruments include cash equivalents, accounts receivable, accounts payable and accrued liabilities and are carried on the consolidated financial statements as of December 31, 2023 and 2022 at amounts that approximate fair value due to their short-term maturity dates.

	December 31, 2023			December 31, 2022
	Fair Value		Input Level	Fair Value		Input Level

Money market funds	$	96,359	Level 1	$	65,872	Level 1

Marketable securities:
Corporate debt	$	—	Level 1	$	1,344	Level 1

All marketable securities held as of December 31, 2022 matured during 2023 and the Company held no investment securities as of December 31, 2023.

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of the Company’s available for sale marketable securities as of December 31, 2022 (in thousands):

		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Corporate debt		$	1,358			$	—			$	(14	)		$	1,344

All of the Company’s available-for-sale securities had a maturity date of less than one year as of December 31, 2022.

There were no impairments related to these marketable securities during the years ended December 31, 2023 and December 31, 2022.

Note 6. Goodwill and Intangible Assets

Goodwill was $550.1 million as of December 31, 2023 and December 31, 2022. There were no goodwill impairment charges in 2023 or 2022.

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs (in thousands):

			As of December 31, 2023							As of December 31, 2022
	Weighted Average Amortization Period (in years)		Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Intangible assets subject to amortization
Developed technology		4.0	$	121,700	$	(91,275	)	$	30,425	$	121,700	$	(60,850	)	$	60,850
Customer relationships		8.0		361,224		(135,535	)		225,689		361,224		(90,398	)		270,826
Trade names and trademarks		8.0		32,437		(12,237	)		20,200		32,437		(8,157	)		24,280
Other intangible assets		3.8		652		(405	)		247		1,070		(716	)		354
Total intangible assets		7.1	$	516,013	$	(239,452	)	$	276,561	$	516,431	$	(160,121	)	$	356,310

Amortization expense was $79.9 million and $80.1 million for the years ended December 31, 2023 and December 31, 2022, respectively.

We purchased an immaterial amount of internal use software licenses during the years ended December 31, 2023 and December 31, 2022. The weighted average life for internal use software related intangible assets is 3.8 years as of December 31, 2023. Most of the internal use software purchased include renewal or extension terms. The weighted average period before the next renewal or extension was 1.3 year as of December 31, 2023.

As of December 31, 2023, amortization of intangible assets with definite lives is estimated to be as follows (in thousands):

Amortization of intangibles:

2024	$	79,798
2025	$	49,253
2026	$	49,183
2027	$	49,162
2028 and thereafter	$	49,165
Total	$	276,561

Note 7. Leases

The Company leases corporate offices. As of December 31, 2023, our operating leases have remaining lease terms of one to four years. The Company includes lease extension options in the calculations of its right-of-use assets and liabilities related to the leases when the Company is reasonably certain to exercise those options. Short-term leases have a term of less than one year.

The rates implicit in the Company’s leases are not readily determinable. Therefore, in order to value the Company’s lease liabilities, the Company uses an incremental borrowing rate (IBR) which reflects the fixed rate at which the Company could borrow a similar amount in the same currency, for the same term, and with similar collateral as in the lease at the commencement date. As of December 31, 2023, the Company measures its lease liabilities at the net present value of the remaining lease payments discounted at the weighted average discount rates shown in the table below. The Company's IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

The components of lease expense were as follows (in thousands):

	Year Ended December 31,
	2023		2022
Operating lease costs	$	1,959	$	1,925
Short-term lease costs		157		116
Variable lease costs		97		153
Total lease costs	$	2,213	$	2,194

Supplemental balance sheet information related to the operating leases was as follows:

	As of December 31, 2023			As of December 31, 2022

Weighted average remaining lease term (in years) - operating leases		3			3.9
Weighted average discount rate - operating leases		5.8	%		5.5	%

Supplemental cash flow information related to leases was as follows (in thousands):

	Year Ended December 31,
	2023		2022
Operating cash flow amounts included in the measurement of lease liabilities	$	1,949	$	1,952
Operating lease ROU assets obtained in exchange for new lease obligations	$	532	$	3,026

Maturities of operating lease liabilities as of December 31, 2023 were as follows (in thousands):

2024	$	2,174
2025		2,008
2026		889
2027		680
Total lease payments		5,751
Less: Imputed interest		(389	)
Total	$	5,362

As of December 31, 2023, we did not have any additional operating lease commitments for office leases that have not yet commenced.

Note 8. Property and Equipment

Property and equipment consists of the following (in thousands):

	December 31, 2023			December 31, 2022

Computers and equipment	$	1,919			1,909
Leasehold improvements		2,925			2,925
Software licenses		242			242
Furniture and fixtures		319			319

Total property and equipment		5,405			5,395

Accumulated depreciation and amortization		(4,922	)		(4,724	)

Property and equipment, net	$	483		$	671

Total property and equipment depreciation expense was $0.3 million and $0.4 million for the years ended December 31, 2023 and December 31, 2022, respectively.

Note 9. Debt

In conjunction with the merger with Thoma Bravo on December 31, 2020 (“the Merger”), the Company entered into a new credit agreement. The credit agreement consists of a term loan facility in the aggregate principal amount of $250.0 million, a revolving loan facility in an aggregate principal amount of $25.0 million, including a letter of credit sub-facility in the aggregate availability amount up to $10.0 million, and a swing-line sub-facility in the aggregate availability amount of $10.0 million. The term loan and any borrowings on the line of credit bear interest at a floating rate of SOFR + 2.75% as amended from LIBOR +2.75% on January 31, 2023. In connection with the credit agreement, the Company incurred and paid debt issuance costs of $4.4 million, which are recorded as a reduction in the carrying amount of the note payable on the consolidated balance sheets and are being amortized as interest expense over the term of the term loan.

The term loan and revolving line had an original maturity date of December 31, 2023. On March 28, 2023, the maturity date for both was extended to January 1, 2025. The Company incurred an additional $0.7 million of debt issuance costs related this modification, which were added to the previously unamortized debt issuance costs that are recorded as a reduction in the carrying amount of the note payable on the consolidated balance sheets and are being amortized as interest expense over the term of the term loan.

Interest expense is shown net of interest income on the accompanying consolidated statements of operations. Interest expense includes interest payments on loans as well as amortization of debt discounts and prepaid fees. Total interest income for the year ended December 31, 2023 was $3.6 million offset by $21.0 million in interest expense. Total interest income for the year ended December 31, 2022 was $0.9 million offset by $12.9 million in interest expense.

Note 10. Income Taxes

The components of loss before income taxes are as follows (in thousands):

	Year ended December 31,
	2023			2022
U.S.	$	(73,257	)	$	(79,402	)
Foreign		(6,416	)		(5,129	)
Total pre-tax loss	$	(79,673	)	$	(84,531	)

The components of the provision for income tax (benefit) expense are as follows (in thousands):

	Year ended December 31,
	2023			2022
Current:
Federal	$	—		$	—
State		541			228
Foreign		145			73
Total current		686			301

Deferred:
Federal		(3,875	)		(21,130	)
State		(1,877	)		(1,470	)
Foreign		25			95
Total deferred		(5,727	)		(22,505	)

Total income tax benefit	$	(5,041	)	$	(22,204	)

As a result of our history of net operating losses, the provision for income taxes classified as current primarily relates to state income taxes and foreign taxes on profitable foreign entities.

Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recognized for income tax reporting purposes. The tax effects of significant temporary differences that result in deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):

	As of December 31,
	2023			2022
Deferred tax assets:
Federal and foreign net operating loss carryforwards	$	47,414		$	55,368
State net operating loss carryforwards		7,725			8,908
Accrued liabilities		2,551			1,778
Deferred revenue		4,764			3,126
Tax credit carryforwards		10,092			9,410
Transaction costs		247			339
Loan interest		937			1,511
Capitalized R&D		11,223			5,660
Other		970			762
Total deferred tax assets		85,923			86,862

Valuation allowance		(22,893	)		(9,533	)
Deferred tax assets, net of valuation allowance		63,030			77,329

Deferred tax liabilities:
Deferred acquisition costs		(2,758	)		(2,733	)
Intangibles		(66,543	)		(86,595	)
Total deferred tax liabilities		(69,301	)		(89,328	)

Net deferred tax liabilities	$	(6,271	)	$	(11,999	)

As of December 31, 2023, the Company maintains a valuation allowance with respect to certain federal deferred tax assets, California and other states's deferred tax assets and foreign operating losses that we believe are not likely to be realized. The increase in the valuation allowance from the prior year is primarily related to changes in deferred tax assets and liabilities related to capitalized and amortizable R&D expenditures, R&D credits. tax loss of our UK foreign subsidiary, and amortization of intangibles.

As required by the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, we began capitalizing research and development ("R&D") expenses incurred and will amortize them over five years for domestic research and fifteen years for international research. The capitalization resulted in higher cash taxes and deferred tax benefit.

As of December 31, 2023, and 2022, the company had federal net operating loss (NOL) carryforwards of $207.7 million and $254.2 million respectively, and Utah NOL carryforwards of $67.5 million and $67.6 million, respectively. These NOL carryforwards begin to expire in the year ending 2024 for federal and 2024 for state purposes. Federal net operating losses generated in years after 2017 are carried forward indefinitely if not utilized. The Company also has $103.9 million of NOL carryforwards in other states with varying carryover periods. NOLs may be subject to federal restrictions under Section 382 of the Internal Revenue Code, as amended, and similar state provisions.

The Company had federal tax credit carryforwards of $9.0 million at December 31, 2023 which consist of federal R&D credits and foreign tax credits that expire at various dates through 2043. The Company also has Utah and California research and investment credit carryforwards totaling $5.3 million. If not utilized, the Utah credits begin to expire in 2026. The California R&D credits can be carried over indefinitely.

The changes to the Company’s gross unrecognized tax benefits were as follow (in thousands):

	As of December 31,
	2023			2022
Beginning balance	$	3,406		$	3,212
Changes related to prior tax positions		—			309
Changes related to current tax positions		235			(96	)
Lapse of applicable statute of limitations	$	(12	)		(19	)
Ending balance	$	3,629		$	3,406

As of the December 31, 2023 the Company recorded $3.3 million of net cumulative unrecognized tax benefits, which if recognized, would affect the Company's effective tax rate.

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. For the years ended December 31, 2023 and 2022, we had no material interest or penalties.

The Company files income tax returns in the U.S. federal, Utah and many other state jurisdictions, in the United Kingdom, France, Australia and Bulgaria. Due to the history of U.S. and U.K. tax losses since inception, the Company's federal and state and UK returns are subject to examination for all years as the carryforward attributes generated in past years may still be adjusted upon examination if they have been or will be used.

As of December 31, 2023, the Company had no open audits related to prior periods.

Note 11. Equity

The capital structure of Venafi Holdings, Inc. consists of two classes of common stock, Class A and Class B.

The return on the Class A common shares is capped at the 11% per annum yield and is not guaranteed, nor will it be payable until a liquidity event occurs or a dividend is declared or is otherwise approved by the corporation’s board of directors. Any dividends accruing on the Class A common stock, may be paid, in lieu of cash, by the issuance of additional shares of Class A common stock (including fractional shares) having an aggregate liquidation value at the time of such payment equal to the amount of the dividends to be paid. No dividends for Class A common stock were declared or paid in cash or issuance of additional shares during 2023, 2022 or any prior or subsequent period since incorporation of the corporation.

The holders of Class B common stock will be entitled to the residual value of the Company after repayment of indebtedness and the liquidation value of the Class A common stock.

During 2023 and 2022 the Company determined to exercise the option to repurchase equity from former team members who left the Company. Stock was repurchased at the current fair market value and in accordance with repurchase agreements. During the year ended December 31, 2023, the Company repurchased 27 Class A shares for $3.4 million. During the year ended and December 31, 2022, the Company repurchased 10 Class A shares for $1.2 million.

Note 12. Stock Compensation Issued by Parent

Stock-based compensation expense for stock-based awards issued by Parent was classified in the accompanying consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2023		2022

Stock-based compensation expense:

Cost of revenue - subscription	$	383	$	292
Cost of revenue - professional services and other		199		47
General and administrative		4,461		3,319
Sales and marketing		2,543		1,929
Research and development		1,120		964
Total stock-based compensation expense	$	8,706	$	6,551

Share-based compensation is typically allocated to cost of revenue and operating expenses based the services being provided by the respective award-holders.

As of December 31, 2023, unrecognized compensation costs related to non-vested restricted stock awards issued by Parent was $11.2 million. The unrecognized compensation expense will be recognized over a weighted-average period of 2.1 years.

In March 2021, the Board approved the Venafi Parent, LP Incentive Equity Plan (the “2021 Plan”) to incentivize team members and in June 2021, the Board approved a co-investment plan for Venafi team members to purchase certain units of Venafi Parent, LP (the “Co-Invest Plan”) to align the employees and management with the owners of the business. The Co-Invest Plan offered team members and other service providers the one-time opportunity to co-invest in Venafi Parent, LP by purchasing Units directly from the Company for cash. Under the Co-Invest Plan, the purchase price for one Class A unit and 478 Class B units in Parent was $1,000, which is the same price and investment allocation between the two unit classes as the investment made by existing investors at the time of the Merger. The minimum cash investment was $2,500.

The 2021 Plan provides for the grant of incentive stock options, profits interest, equity appreciation rights and other forms of awards to team members and other service providers granted or denominated in Venafi Parent, LP’s Units. Under the 2021 Plan, 60,000,000 Venafi Parent, LP Class B Units (“Incentive Units”) were reserved for issuance (“Incentive Carry Pool”) and do not have a contractual life. Incentive Carry Pool grants are subject to a length of service and, in some cases, a performance vesting condition based on the achievement of a financial performance metric as established by the Company’s Board at the beginning of each year, over a performance period of four years. The awards with a performance vesting condition are not considered granted until the Board approves each annual financial performance metric. As discussed in Note 2, equity awards granted by a parent company to employees of a subsidiary are recognized in the financial statements of the subsidiary.

Additionally, Venafi Parent, LP has granted 5,750,000 Incentive Units to certain members of the Board that are only subject to service-based vesting conditions over four years (“Board Carry Pool”). These Incentive Units are not included in the Incentive Carry Pool previously discussed and there is no contractual life. Although these grants were made to Venafi Parent, LP Board members, those members primarily oversee the operations of Venafi Holdings, Inc. and its subsidiaries. As a result, we have allocated the related stock-compensation expense to Venafi Holdings, Inc. and its subsidiaries.

On March 25, 2021, the Board set and approved performance measures for the year ending December 31, 2021, related to certain executive performance grants (“Performance Incentive Grants”) under the 2021 Plan initially made to thirteen members of the executive leadership team. The plan includes grants for four years. Under the terms of these Performance Incentive Grants, if the first year performance measures were met, 100% of the associated Performance Incentive Grants would vest at the end of that year. Otherwise, the Performance Incentive Grants would roll forward for one additional year and become subject to meeting the performance measures set forth and approved by the Board for the following year.

The 2021 performance measure was not met. However, on January 19, 2022, the Board determined to use its discretion under the 2021 Plan to approve the immediate vesting of 75% of the 2021 Performance Incentive Grants. As a result of the modification, the Company recognized $1.2 million of incremental compensation cost during the year ended December 31, 2022.

The 2022 vesting performance measure was not met. As a result, the Performance Incentive Grants rolled forward to 2023. The 2023 performance measure was met and all 2022 and 2023 Performance Incentive Grants vested on December 31, 2023. In addition, the Board approved a modification of the plan resulting in the vesting of the 25% of the 2021 Performance Incentive Grants that had not vested in 2022 resulting in a combined additional $1.8 million of incremental compensation cost during the year ended December 31, 2023.

Both pools of Incentive Units issued by Parent are most akin to profits interest awards. The following tables summarize the Incentive Unit activity for both the Incentive Carry Pool and Board Carry Pool, (in thousands, except for unit and per unit amounts):

Incentive Carry Pool

	Class B Incentive Units Issued by Parent			Weighted Average Grant Date Fair Value Per Unit		Aggregate Fair Value
Unvested balance as of December 31, 2022		23,044,375		$	0.54	$	12,421
Granted		8,786,625			0.55		4,843
Vested		(17,691,808	)		0.53		(9,358	)
Forfeited or cancelled		(1,808,567	)		0.54		(969	)
Unvested balance as of December 31, 2023		12,330,625			0.56	$	6,937
Total vested as of December 31, 2023		23,039,363			0.52	$	11,904

Board Carry Pool

	Class B Incentive Units Issued by Parent			Weighted Average Grant Date Fair Value Per Unit		Aggregate Fair Value
Unvested balance as of December 31, 2022		948,438		$	0.50	$	474
Granted		3,925,000			0.56		2,198
Vested		(456,250	)		0.50		(228	)
Forfeited or cancelled		—			—		—
Unvested Balance as of December 31, 2023		4,417,188			0.55	$	2,444
Total vested as of December 31, 2023		1,332,812			0.50	$	666

Assumptions for Unit-based Awards

The fair value for each unit-based award was estimated at the date of grant using the Black-Scholes option-pricing model, with the following assumptions:

	For the Year Ended December 31,
	2023			2022
Expected dividend yield		—	%		—	%
Expected volatility		62.6	%		67.5	%
Risk-free interest rate		4.1	%		1.1	%
Expected life	4 years			4 years

Expected Dividend Yield: The Company has not paid any dividends.

Expected Volatility: Because there is currently no active external or internal market for the Company’s equity, the Company used the historical average volatility of a group of publicly traded companies in the same business sector as the Company.

Risk-Free Interest Rate: The Company based the risk-free interest rate used on the implied yield currently available on U.S. Treasury zero-coupon issues with terms equivalent to the expected term of the options.

Expected Life: The expected life was determined using the simplified method because we do not have information to make a more refined estimate, which is calculated as the midpoint of expected holding periods.

Note 13. Defined Contribution Plan

Under the discretionary employer matching 401(k) contribution plan, Venafi matches 50% on participant deferrals up to 5% of eligible compensation, capped at $3,000 annually. The Plan is subject to a 30 day service requirement for participants. Matching contributions to the 401(k) plan can be made at the Company’s discretion and vest over a three-year period. During both years ended December 31, 2023 and December 31, 2022, we made matching contributions of $1.2 million.

Note 14. Commitments and Contingencies

Purchase Obligations

As of December 31, 2023, future minimum purchase obligations under multi-year, non-cancellable firm purchase commitments, primarily for purchases of software and services, such as data center operations and sales and marketing activities, by year were as follows (in thousands, exclusive of obligations under our term loan, leases, and amounts already included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet):

2024	$	1,994
2025		1,112
2026 and thereafter		8
Total	$	3,114

Letters of Credit

In December 2015, the Company entered into a lease agreement for office space in Palo Alto, California. As part of the lease agreement, the Company obtained a $0.7 million letter of credit from a financial institution. This letter of credit was cancelled in January, 2023 as it was no longer a requirement under the lease.

Legal Matters

Note 15. Restructuring

In November 2022, we initiated a strategic re-prioritization plan designed to reduce operating costs, improve operating margins and shift our focus towards our SaaS offerings, which included a reduction of our global headcount by approximately 17%.

During 2023, we incurred $0.5 million of restructuring charges related to the November 2022 reduction in force of which approximately $0.2 million was for severance related expenses and $0.3 million of cash costs related to marketing event cancellation costs as a result of nonrefundable costs for conferences we did not attend due to the restructuring. The entire remaining restructuring liability of $2.1 million in severance related expenses recorded within the "Accounts payable" line on the consolidated balance sheet as of December 31, 2022 was paid during 2023.

During 2022, we recorded restructuring charges of $4.7 million. Substantially all of these cash charges relate to team member severance and compensation benefits due to the November 2022 reduction in force.

During August 2023, we consolidated our professional services team, which included a reduction of our global headcount by approximately 3%. We recorded restructuring charges of $0.4 million related to this reduction in force for severance related expenses paid. There was no remaining liability related to this restructuring event as of December 31, 2023.

We do not expect to record any material future charges related to these reductions in force.

Note 16. Subsequent Events

Management has evaluated events occurring subsequent to December 31, 2023 through July 31, 2024, the date these consolidated financial statements were available to be issued.

On January, 8 2024, Venafi hired Patrick Dennis as the Company’s new CEO replacing Jeff Hudson, who retired in September, 2023.

On July 3, 2024, Venafi used $80.0 million in cash to pay down the term loan.

There were no other subsequent events requiring disclosure.

EX-99.5 6 exhibit_99-5.htm EXHIBIT 99.5

Exhibit 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined balance sheet as of June 30, 2024, the unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2023 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024. The unaudited pro forma condensed combined financial information includes the historical results of CyberArk Software Ltd. (together with its subsidiaries, “CyberArk”) and Venafi Holdings, Inc. (together with its subsidiaries, “Venafi”) after giving pro forma effect to CyberArk’s acquisition of Venafi (the “Venafi Acquisition”) as described in the following paragraphs and accompanying notes.

The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or consolidated financial condition would have been had the Venafi Acquisition actually occurred on June 30, 2024 for the balance sheet, or January 1, 2023 for the statements of operations, nor does it purport to project the future consolidated results of operations or consolidated financial condition for any future period or as of any future date. Under accounting for business combinations, the assets and liabilities of Venafi are required to be recorded at their preliminary respective fair values as of the date of the Venafi Acquisition, October 1, 2024 (“Acquisition Date”). CyberArk has performed the fair valuation of Venafi’s assets and liabilities. The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained. The unaudited pro forma adjustments are based upon available information and certain assumptions that CyberArk believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. All pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma condensed combined financial information.

The Venafi Acquisition

On May 19, 2024, CyberArk entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among CyberArk and Venafi, a leader in machine identity management. Pursuant to the terms and conditions in the Merger Agreement, the Venafi Acquisition combined Venafi’s machine identity management capabilities with CyberArk’s leading identity security capabilities to establish a unified platform for end-to-end machine identity security at enterprise scale.

CyberArk accounted for the Venafi Acquisition as a business combination in accordance with ASC No. 805, “Business Combinations”. The purchase consideration transferred to Venafi amounted to $1.66 billion, of which $1.02 billion was paid in cash and $0.64 billion was by the issuance of 2.3 million ordinary shares. CyberArk was determined to be the accounting acquirer after taking into account the relative share ownership, the composition of the governing body of the combined entity and the designation of certain senior management positions. The purchase price of the Venafi Acquisition has been allocated to the assets acquired and liabilities assumed based on their fair values at the Acquisition Date.

The unaudited pro forma condensed combined balance sheet as of June 30, 2024 gives effect to the merger as if it had occurred on June 30, 2024. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and the year ended December 31, 2023 give effect to the Venafi Acquisition as if it had occurred on January 1, 2023, the beginning of the earliest period presented, and combines the historical results of CyberArk and Venafi. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024 combines the unaudited condensed consolidated statement of operations of CyberArk for the six months ended June 30, 2024, and Venafi’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2024. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 combines the audited consolidated statement of operations of CyberArk for the year ended December 31, 2023 with Venafi’s audited consolidated statement of operations for the year ended December 31, 2023. The unaudited pro forma condensed combined financial information has been prepared pursuant to Article 11 of Regulation S-X.

This unaudited pro forma condensed combined financial information should be read in conjunction with:

	•		the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information;

	•		the separate historical audited consolidated financial statements of CyberArk for the fiscal year ended December 31, 2023, included in CyberArk’s Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2024;

	•		the separate historical unaudited condensed consolidated financial statements of CyberArk as of and for the six months ended June 30, 2024, included in Exhibit 99.1 of CyberArk’s Report on Form 6-K furnished to the SEC on October 22, 2024;

	•		the separate historical audited condensed consolidated financial statements of Venafi as of and for the fiscal year ended December 31, 2023, included in Exhibit 99.4 of CyberArk’s Report on Form 6-K furnished to the SEC on October 22, 2024; and

	•		the separate historical unaudited condensed consolidated financial statements of Venafi as of June 30, 2024, and December 31, 2023 and for the three and six months ended June 30, 2024, included in Exhibit 99.3 of CyberArk’s Report on Form 6-K furnished to the SEC on October 22, 2024.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

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

	Historical																Pro Forma Combined
	CyberArk as of June 30, 2024		Venafi as of June 30, 2024		Reclassification Adjustments			Note			Transaction Accounting Adjustments			Note			as of June 30, 2024

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	641,014	$	113,298	$	-					$	(572,911	)		5(a	)	$	181,401
Short-term bank deposits		231,037		-		-						-						231,037
Contract acquisition costs, net		-		4,410		-						(4,410	)		5(b	)		-
Contract assets		-		13,872		-						-						13,872
Marketable securities		528,086		-		-						(527,147	)		5(a	)		939
Trade receivables, net		156,049		29,001		-						-						185,050
Prepaid expenses and other current assets		34,983		6,456		-						-						41,439

Total current assets		1,591,169		167,037		-						(1,104,468	)					653,738

LONG-TERM ASSETS:
Marketable securities		30,871		-		-						-						30,871
Property and equipment, net		16,477		348		-						-						16,825
Contract acquisition costs, noncurrent, net		-		6,331		-						(6,331	)		5(b	)		-
Intangible assets, net		16,665		236,703		-						302,511			5(b	)		555,879
Goodwill		153,241		550,086		-						620,252			5(b	)		1,323,579
Right-of-use assets		-		4,176		(4,176	)		3			-						-
Other long-term assets		227,140		1,115		4,176			3			-						232,431
Deferred tax assets		85,021		-		(22,393	)		5(c	)		-						62,628

Total long-term assets		529,415		798,759		(22,393	)					916,432						2,222,213

TOTAL ASSETS	$	2,120,584	$	965,796	$	(22,393	)				$	(188,036	)				$	2,875,951

See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

UNAUDITED PRO FORMA BALANCE SHEETS

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

	Historical																		Pro Forma Combined
	CyberArk as of June 30, 2024			Venafi as of June 30, 2024			Reclassification Adjustments			Note			Transaction Accounting Adjustments			Note			as of June 30, 2024

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables	$	6,189		$	-		$	784			3		$	-					$	6,973
Accounts payable and accrued liabilities		-			9,006			(9,006	)		3			-						-
Employees and payroll accruals		75,909			-			9,527			3			-						85,436
Accrued compensation		-			9,527			(9,527	)		3			-						-
Note payable, net of issuance costs		-			249,486			-						(249,486	)		5(d	)		-
Accrued expenses and other current liabilities		37,979			799			9,719			3			17,302			5(e), 5(f	)		65,799
Convertible senior notes, net		573,824			-			-						-						573,824
Lease liabilities		-			1,497			(1,497	)		3			-						-
Deferred revenues		442,223			51,398			-						-						493,621

Total current liabilities		1,136,124			321,713			-						(232,184	)					1,225,653

LONG-TERM LIABILITIES:
Deferred revenues		75,887			9,837			-						-						85,724
Deferred tax liability, net		-			5,176			(22,393	)		5(c	)		51,742			5(b	)		34,525
Lease liabilities, net of current portion		-			2,896			(2,896	)		3			-						-
Other long-term liabilities		31,601			454			2,896			3			-						34,951

Total long-term liabilities		107,488			18,363			(22,393	)					51,742						155,200

TOTAL LIABILITIES		1,243,612			340,076			(22,393	)					(180,442	)					1,380,853

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.01 par value		113			-			-						6			5(g	)		119
Class B common shares of $0.001 par value		-			9			-						(9	)		5(g	)		-
Additional paid-in capital		918,948			925,465			-						(286,335	)		5(g	)		1,558,078
Accumulated other comprehensive loss		(1,440	)		(696	)		-						696			5(g	)		(1,440	)
Retained earnings (accumulated deficit)		(40,649	)		(299,058	)		-						278,048			5(h	)		(61,659	)

Total shareholders' equity		876,972			625,720			-						(7,594	)					1,495,098

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,120,584		$	965,796		$	(22,393	)				$	(188,036	)				$	2,875,951

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2023

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

	Historical																	Pro Forma Combined
	CyberArk Year Ended December 31, 2023			Venafi Year Ended December 31, 2023			Reclassification Adjustments			Note		Transaction Accounting Adjustments			Note			Year Ended December 31, 2023
Revenues:
Subscription	$	472,023		$	143,231		$	(13,635	)		3	$	-					$	601,619
Perpetual license		21,037			-			-					-						21,037
Maintenance and professional services		258,828			-			24,375			3		-						283,203
Professional services and other		-			10,740			(10,740	)		3		-						-

		751,888			153,971			-					-						905,859

Cost of revenues:
Subscription		74,623			13,937			(4,550	)		3		75,726			6(a), 6(b	)		159,736
Perpetual license		1,873			-			-					-						1,873
Maintenance and professional services		79,635			-			16,139			3		1,420			6(b	)		97,194
Professional services and other		-			11,589			(11,589	)		3		-						-

		156,131			25,526			-					77,146						258,803

Gross profit		595,757			128,445			-					(77,146	)					647,056

Operating expenses:

Research and development		211,445			37,437			-					6,471			6(b	)		255,353
Sales and marketing		405,983			48,592			-					22,317			6(a), 6(b), 6(c	)		476,892
General and administrative		94,801			102,951			905			3		(61,092	)		6(a), 6(b), 6(d	)		137,565
Restructuring		-			905			(905	)		3		-						-

Total operating expenses		712,229			189,885			-					(32,304	)					869,810

Operating loss		(116,472	)		(61,440	)		-					(44,842	)					(222,754	)
Financial income, net		53,214			-			(18,234	)		3		21,023			6(e	)		56,003
Interest expense, net		-		(17,369)				17,369			3		-						-
Foreign currency loss		-			(161	)		161			3		-						-
Other loss		-			(704	)		704			3		-						-

Loss before taxes on income		(63,258	)		(79,674	)		-					(23,819	)					(166,751	)
Tax benefit (taxes on income)		(3,246	)		5,041			-					6,043			6(f	)		7,838

Net loss	$	(66,504	)	$	(74,633	)	$	-				$	(17,776	)				$	(158,913	)


Basic net loss per ordinary share	$	(1.60	)															$	(3.62	)
Diluted net loss per ordinary share	$	(1.60	)															$	(3.62	)
Shares used in computing net loss per ordinary shares, basic		41,658,424											2,285,076			6(g	)		43,943,500
Shares used in computing net loss per ordinary shares, diluted		41,658,424											2,285,076			6(g	)		43,943,500

See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2024

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

	Historical																	Pro Forma Combined
	CyberArk Six Months Ended June 30, 2024			Venafi Six Months Ended June 30, 2024			Reclassification Adjustments			Note		Transaction Accounting Adjustments			Note			Six Months Ended June 30, 2024
Revenues:
Subscription	$	314,653		$	74,785		$	(6,843	)		3	$	-					$	382,595
Perpetual license		6,588			-			-					-						6,588
Maintenance and professional services		125,015			-			11,630			3		-						136,645
Professional services and other		-			4,787			(4,787	)		3		-						-

		446,256			79,572			-					-						525,828

Cost of revenues:
Subscription		43,563			8,325			(2,609	)		3		37,925			6(a), 6(b	)		87,204
Perpetual license		782			-			-					-						782
Maintenance and professional services		43,081			-			7,482			3		760			6(b	)		51,323
Professional services and other		-			4,873			(4,873	)		3		-						-

		87,426			13,198			-					38,685						139,309

Gross profit		358,830			66,374			-					(38,685	)					386,519

Operating expenses:

Research and development		110,470			17,679			-					3,425			6(b	)		131,574
Sales and marketing		220,303			24,377			-					7,929			6(a), 6(b), 6(c	)		252,609
General and administrative		58,411			59,095			-					(40,957	)		6(a), 6(b	)		76,549

Total operating expenses		389,184			101,151			-					(29,603	)					460,732

Operating loss		(30,354	)		(34,777	)		-					(9,082	)					(74,213	)
Financial income, net		27,399			-			(8,279	)		3		10,817			6(e	)		29,937
Interest expense, net		-			(8,049	)		8,049			3		-						-
Foreign currency loss		-			(188	)		188			3		-						-
Other loss		-			(42	)		42			3		-						-

Loss before taxes on income		(2,955	)		(43,056	)		-					1,735						(44,276	)
Tax benefit (taxes on income)		(4,498	)		739			-					(440	)		6(f	)		(4,199	)

Net loss	$	(7,453	)	$	(42,317	)	$	-				$	1,295					$	(48,475	)


Basic net loss per ordinary share	$	(0.17	)															$	(1.08	)
Diluted net loss per ordinary share	$	(0.17	)															$	(1.08	)
Shares used in computing net loss per ordinary shares, basic		42,689,375											2,285,076			6(g	)		44,974,451
Shares used in computing net loss per ordinary shares, diluted		42,689,375											2,285,076			6(g	)		44,974,451

See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

Note 1—Basis of Presentation

The accompanying unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of SEC Regulation S-X. The unaudited pro forma condensed combined balance sheet as of June 30, 2024 was prepared using the historical unaudited condensed consolidated balance sheet of CyberArk and historical unaudited condensed consolidated balance sheet of Venafi as of June 30, 2024, and presents the unaudited pro forma combined financial position of CyberArk and Venafi as if the Venafi Acquisition occurred on June 30, 2024.

The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2023 and for the six-month period ended June 30, 2024 gives effect to the Venafi Acquisition as if it had occurred on January 1, 2023. The unaudited pro forma condensed combined statement of operations combines the historical results of the fiscal periods of CyberArk and Venafi.

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with the provisions of ASC 805, Business Combinations, with CyberArk determined to be the acquirer under this guidance. In the unaudited pro forma condensed combined balance sheet, CyberArk purchase consideration associated with the Venafi Acquisition has been allocated to the assets acquired and liabilities assumed, based upon their respective fair values as of the Acquisition Date.

Any excess of the purchase consideration over the fair value of identified tangible and intangible assets acquired and liabilities assumed is recognized as goodwill. Management believes the estimated fair values utilized for the assets acquired and liabilities assumed are based on reasonable estimates and assumptions. The fair values are subject to adjustment for up to one year after the Acquisition Date as additional information is obtained.

The determination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated useful lives of amortizable identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows related to the business acquired. Although the Company believes the fair values assigned to the assets acquired and liabilities assumed from the acquisition are reasonable, new information may be obtained about facts and circumstances that existed as of the date of the acquisition during the twelve-month period following the acquisition which could cause actual results to differ materially from the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information reflects transaction accounting adjustments management believes are necessary to present fairly CyberArk’s pro forma financial position and results of operations following the closing of the Venafi Acquisition as of and for the periods indicated. The unaudited pro forma condensed combined financial information does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the Venafi Acquisition or of any integration costs of CyberArk and Venafi or the costs necessary to achieve any synergies, operating efficiencies or cost savings.

Supplemental Information

To provide additional insights into Venafi’s and CyberArk's financial information, the following table presents expenses for share-based compensation, amortization, acquisition related expenses, and impairment of capitalized software development costs for the respective periods.

	Year Ended December 31, 2023 (USD in thousands)
	CyberArk		Venafi		Transaction Accounting Adjustments		Note			Pro Forma Combined
Share-based compensation	$	140,101	$	8,706	$	6,514		6(b	)	$	155,321
Amortization of share-based compensation capitalized in software development costs		393		-		-					393
Amortization of intangible assets		7,364		79,641		22,173		6(a	)		109,178
Acquisition related expenses		-		-		21,010		6(d	)		21,010
Impairment of capitalized software development costs	$	2,067	$	-	$	-				$	2,067

	Six Months Ended June 30, 2024 (USD in thousands)
	CyberArk		Venafi		Transaction Accounting Adjustments		Note			Pro Forma Combined
Share-based compensation	$	78,030	$	3,779	$	4,078		6(b	)	$	85,887
Amortization of share-based compensation capitalized in software development costs		153		-		-					153
Amortization of intangible assets		3,659		39,821		7,572		6(a	)		51,052
Acquisition related expenses	$	5,281	$	7,204	$	-				$	12,485

Note 2 —Significant Accounting Policies

The accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in CyberArk’s audited financial statements as of and for the year ended December 31, 2023. Management has completed the review of Venafi’s accounting policies and has determined that no significant adjustments are necessary to conform Venafi’s historical consolidated financial statements to the accounting policies used by CyberArk in the preparation of the unaudited pro forma condensed combined financial information. Certain reclassification adjustments have been reflected in the pro forma financial information to conform Venafi’s presentation to CyberArk’s presentation in the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations. These reclassifications have no effect on previously reported total assets, total liabilities, stockholders’ equity, or income from continuing operations of CyberArk or Venafi.

Following the completion of the Venafi Acquisition, CyberArk will perform a comprehensive review of Venafi’s accounting policies. As a result of the review, CyberArk may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.

Note 3—Reclassifications

The following reclassification adjustments were made to conform the presentation of Venafi’s financial information to CyberArk’s presentation as indicated in the table below:

Balance Sheet as of June 30, 2024

Amount (USD in thousands)		Presentation in Venafi’s Historical Financial Statements	Presentation in Unaudited Pro Forma Condensed Combined Financial Information
$	4,176	Right-of-use assets	Other long-term assets
	784	Accounts payable and accrued liabilities	Trade payables
	8,222	Accounts payable and accrued liabilities	Accrued expenses and other current liabilities
	9,527	Accrued compensation	Employees and payroll accruals
	1,497	Lease liabilities	Accrued expenses and other current liabilities
$	2,896	Lease liabilities, net of current portion	Other long-term liabilities

Statement of Operations for the Fiscal Year Ended December 31, 2023

Amount (USD in thousands)		Presentation in Venafi’s Historical Financial Statements	Presentation in Unaudited Pro Forma Condensed Combined Financial Information
$	13,635	Subscription (Revenues)	Maintenance and professional services (Revenues)
	10,740	Professional services and other (Revenues)	Maintenance and professional services (Revenues)
	4,550	Subscription (Cost of revenues)	Maintenance and professional services (Cost of revenues)
	11,589	Professional services and other (Cost of revenues)	Maintenance and professional services (Cost of revenues)
	905	Restructuring	General and administrative
	17,369	Interest expense, net	Financial income (expense), net
	161	Foreign currency loss	Financial income (expense), net
$	704	Other loss	Financial income (expense), net

The reclassification adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and reflective of adjustments necessary to report CyberArk’s financial condition and results of operations shortly after the completion of the Venafi Acquisition.

Statement of Operations for the Fiscal Six Months Period Ended June 30, 2024

Amount (USD in thousands)		Presentation in Venafi’s Historical Financial Statements	Presentation in Unaudited Pro Forma Condensed Combined Financial Information
$	6,843	Subscription (Revenues)	Maintenance and professional services (Revenues)
	4,787	Professional services and other (Revenues)	Maintenance and professional services (Revenues)
	2,609	Subscription (Cost of revenues)	Maintenance and professional services (Cost of revenues)
	4,873	Professional services and other (Cost of revenues)	Maintenance and professional services (Cost of revenues)
	8,049	Interest expense, net	Financial income (expense), net
	188	Foreign currency loss	Financial income (expense), net
$	42	Other loss	Financial income (expense), net

Note 4—Purchase Consideration and Allocation

Purchase Consideration

The purchase consideration amounted to $1.66 billion, based on the closing price of CyberArk ordinary shares on Nasdaq of $279.70 on October 1, 2024. The purchase consideration is as follows:

	Amount (USD in thousands)
Cash	$	1,020,608
CyberArk ordinary shares (2,285,076 shares at $279.70 per share)		639,136
Total purchase price	$	1,659,744

Purchase Price Allocation

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Venafi are recorded at their fair values as of the Acquisition Date and added to those of CyberArk. The purchase price allocation shown below is based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and has been prepared to illustrate the estimated effect of the Venafi Acquisition. CyberArk has performed the preliminary fair valuation of Venafi’s assets and liabilities. The fair values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained.

The following table sets forth the allocation of the total purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, based on Venafi’s balance sheet on June 30, 2024, with excess recorded as goodwill:

	Amount (USD in thousands)
Preliminary Aggregate Purchase Consideration Allocation
Cash and cash equivalents	$	33,848
Accounts receivables		29,001
Contract Assets		13,872
Prepaid expenses and other current assets		6,456
Property and equipment		348
Right-of-Use Assets		4,176
Acquisition-related intangible assets		539,067
Other Assets		1,262
Total assets		628,030
Accounts Payable and Accrued Liabilities		5,516
Accrued Compensation		9,527
Deferred revenues, current and non-current		61,235
Deferred Tax Liability, net		56,918
Lease Liabilities, current and non-current		4,176
Other Liabilities		1,252
Total Liabilities		138,624
Fair value of net assets acquired		489,406
Goodwill		1,170,338
Total	$	1,659,744

Goodwill represents the excess of acquisition consideration over the fair value of the underlying net assets acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill is not amortized. Instead, it is tested for impairment at least once a year, unless there are indicators of impairment. Goodwill is attributable to the assembled workforce of Venafi, planned growth in new markets and synergies expected to be achieved from the combined operations of CyberArk and Venafi. Goodwill recorded in the Venafi Acquisition is not deductible for tax purposes.

The fair value adjustments are further described below in Notes 5 and 6.

Deferred Tax Liability, net

Deferred tax liabilities principally represent the deferred tax impact associated with the incremental differences in book and tax basis created from the purchase price allocation. Deferred taxes associated with estimated fair value adjustments are computed using a blended statutory U.S. federal and state tax rate. For balance sheet purposes, each jurisdiction’s enacted tax rates were based on the applicable tax laws. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-acquisition activities, cash needs, the geographical mix of income and changes in tax law.

Intangible Assets

Identifiable acquisition-related intangible assets in the unaudited pro forma condensed combined financial information consist of the following:

	Fair Value (USD in thousands)		Estimated Useful Life (In Years)		Amortization based upon preliminary fair values for the six months ended June 30, 2024		Amortization based upon preliminary fair values for the year ended December 31, 2023
Technology - On-Premise	$	181,911		5	$	18,191	$	36,382
Technology - SaaS		195,165		5		19,517		39,033
Customer Relationships – On Premise		150,005		8		9,375		18,751
Customer Relationships - SaaS		4,957		8		310		620
Trademark		7,029		1		-		7,029
Total	$	539,067			$	47,393	$	101,815

The fair value for all identifiable intangible assets is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use).

The amortization related to the identifiable intangible assets is reflected as a pro forma adjustment in the unaudited pro forma condensed combined statements of operations based on the estimated useful lives above.

Note 5—Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

Adjustments included in the Transaction Accounting Adjustments column in the accompanying unaudited pro forma condensed combined balance sheet as of June 30, 2024:

(a)

Reflects $1.02 billion in cash paid as consideration of the acquisition, of which $527 million was funded from the sale of marketable securities. Included as part of the entire purchase consideration is $170 million that was used to repay Venafi indebtedness. Additionally, reflects $79 million cash paid by Venafi to partially settle the indebtedness subsequent to June 30, 2024 and prior to the acquisition date of October 1, 2024.

(b)

Reflect the adjustments of fair value of assets acquired and liabilities assumed as a result of acquisition accounting. Refer to Note 4 for details.

Goodwill

	USD in thousands
Elimination of Venafi’s historical goodwill	$	(550,086	)
Goodwill from Venafi Acquisition		1,170,338
Total adjustment to goodwill	$	620,252

Acquisition-related Intangible Assets, net

	USD in thousands
Elimination of Venafi’s historical acquisition-related intangible assets	$	(236,556	)
Acquisition-related intangible assets from the Venafi Acquisition		539,067
Total adjustment to acquisition-related intangible assets – see note 4	$	302,511

Contract acquisition costs, net

		USD in thousands
Elimination of Venafi’s historical current and long-term Contract acquisition costs, net		$	(10,741	)

Deferred Tax Liability, net

	USD in thousands
Deferred tax impact associated with the incremental differences in book and tax basis created from the purchase price allocation	$	(77,179	)
Elimination of Venafi’s historical deferred tax asset valuation allowance		25,437
Total adjustment to deferred tax liability, net	$	(51,742	)

(c)

Represents the reclassification adjustment of $22.4 million from deferred tax assets to deferred tax liability related to CyberArk Subsidiaries in certain jurisdictions.

(d)

To adjust the loan settlement on the transaction closing date due to a change of control event.

(e)

Represents the accrual of additional transaction costs of $21 million incurred by CyberArk subsequent to June 30, 2024, and elimination of transaction costs of $3.5 million accrued by Venafi on June 30, 2024, and paid as part of the consideration.

(f)

Reflects the fair value adjustment of $217 thousand to Venafi’s historical lease liabilities.

(g)

Reflects the elimination of Venafi’s historical Class B Units, additional paid in capital and accumulated other comprehensive loss as well as adjustment to reflect the value of shares issued as consideration to Venafi’s stockholders.

Additional Paid-in Capital

	USD in thousands
Elimination of Venafi’s historical additional paid in Capital	$	(925,465	)
Value of CyberArk ordinary shares issued as consideration to Venafi’s stockholders		639,130
Total adjustment to additional Paid-in Capital	$	(286,335	)

(h)

Reflect the adjustments to eliminate Venafi’s historical accumulated deficit after pro forma adjustments and record transaction costs.

Retained earnings (accumulated deficit)

	USD in thousands
Elimination of Venafi’s historical accumulated deficit	$	299,058
Adjustment for CyberArk’s transaction costs due at closing		(21,010	)
Total adjustment to accumulated deficit	$	278,048

Note 6—Unaudited Pro Forma Condensed Combined Statements of Operations Adjustments

Adjustments included in the Transaction Accounting Adjustments column in the accompanying unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and for the year ended December 31, 2023:

(a)

Represents the adjustments to record (i) the elimination of Venafi’s historical amortization expense and (ii) recognition of new amortization expense related to identifiable intangible assets acquired. The amortization of all finite-lived intangible assets is based on the periods over which the economic benefits of the intangible assets are expected to be realized, which are subject to further adjustment as additional information becomes available. The amortization finite-lived identifiable intangible assets is on a straight-line basis.

(i)

Elimination of Venafi’s historical intangible asset amortization (in thousands):

		Pro Forma Six Months Ended June 30, 2024				Pro Forma Year Ended December 31, 2023
General and administrative		$	(39,821	)		$	(79,641	)

The elimination of Venafi’s historical intangible asset amortization does not include amortization for other intangible assets that are not related to the business combination.

(ii)

Amortization of Acquisition-related intangible assets (in thousands):

	Pro Forma Six Months Ended June 30, 2024		Pro Forma Year Ended December 31, 2023
Cost of revenues- subscription	$	37,708	$	75,415
Sales and marketing	$	9,685	$	26,399

(b)

The adjustment for share-based awards represents the difference between Venafi’s historical share-based compensation expenses and the estimated share-based compensation expense related to a new awards issued to continuing employees (in thousands):

	Pro Forma Six Months Ended June 30, 2024			Pro Forma Year Ended December 31, 2023
Cost of revenue - subscription	$	217		$	311
Cost of revenue - professional services and other		760			1,420
Research and development		3,425			6,471
Sales and marketing		812			773
General and administrative	$	(1,136	)	$	(2,461	)

(c)

To eliminate amortization of contract acquisition costs (in thousands):

		Pro Forma Six Months Ended June 30, 2024				Pro Forma Year Ended December 31, 2023
Sales and marketing		$	(2,568	)		$	(4,855	)

(d)

Represents the accrual of additional transaction costs of $21 million incurred by CyberArk subsequent to June 30, 2024.

(e)

To eliminate the historical interest expenses related to Venafi’s debt, settled at closing due to a change of control event.

(f)

Reflects the income tax effect of unaudited pro forma adjustments. CyberArk assumed a tax rate of 25.4% for the pro forma adjustments for the year ended December 31, 2023 and for the six months ended June 30, 2024, representing the federal and state tax rate. CyberArk’s effective tax rate following the Venafi Acquisition may be affected by various factors, including tax planning, and therefore may differ materially.

(g)

Represent the pro forma weighted average shares outstanding that have been calculated using the historical weighted average ordinary shares of CyberArk outstanding and the additional ordinary shares of CyberArk issued in conjunction with the Venafi Acquisition, assuming those ordinary shares were outstanding for the fiscal year ended December 31, 2023 and for the six months ended June 30, 2024.

The following table sets forth the computation of pro forma basic and diluted earnings per share

	Pro Forma Six Months Ended June 30, 2024			Pro Forma Year Ended December 31, 2023
Pro forma loss attribute to stockholders (in thousands)	$	(48,475	)	$	(158,913	)

Historical CyberArk weighted average ordinary shares outstanding- Basic and diluted		42,689,375			41,658,424
CyberArk ordinary shares issued to Venafi stockholders pursuant to the Merger Agreement		2,285,076			2,285,076
Basic and diluted weighted average ordinary shares outstanding used in computing pro forma net earnings per share		44,974,451			43,943,500

Pro forma loss per ordinary share, basic and diluted	$	(1.08	)	$	(3.62	)