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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 187 added, 157 removed, 905 unchanged (28% of the section changed)

28 unchanged sentences

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Measuring variable consideration

Description of the Matter As per the Company's consolidated statements of operations, the net revenues recognized during the fiscal year of 2022 amounted to a sum of $538 million, which included variable consideration estimates.

As described in Note 2 to the consolidated financial statements, the transaction price is determined based on the consideration to which the Company will be entitled in exchange for providing Optune solution.

As described in Note 2 to the consolidated financial statements, the transaction price is determined based on the consideration to which the Company will be entitled to in exchange for providing Optune solution.

The company provides certain patients with implicit price concessions, which results in variable consideration.

12 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the board of directors and shareholders of NovoCure Limited

To the Shareholders and the Board of Directors of NovoCure Limited

Opinion on Internal Control over Financial Reporting

100 unchanged sentences

Change in foreign currency translation adjustments 1,425 302 ( 85 )

Unrealized gain (loss) from debt securities ( 445 ) — —

Pension benefit plan ( 244 ) 361 ( 980 )

12 unchanged sentences

Issuance of shares in connection with employee stock purchase plan 66,691 3,370 — — 3,370

Other comprehensive income (loss) net of tax benefit of $( 145 )

Conversion feature of convertible note, net — 132,474 — — 132,474

Other comprehensive income (loss) net of tax expense of $ 0

— — ( 1,065 ) — ( 1,065 )

1 unchanged sentence

Balance as of December 31, 2020 102,334,276 1,111,435 ( 3,832 ) ( 631,077 ) 476,526

Share-based compensation to employees — 75,721 — — 75,721

Share-based compensation — 94,900 — — 94,900

Exercise of options 1,585,617 21,182 — — 21,182

Issuance of shares in connection with employee stock purchase plan 51,370 4,546 — — 4,546

Conversion feature of convertible note, net — 132,474 — 132,474

Cumulative effect adjustment resulting from ASU 2020-06 early adoption (see Note 2(y)) — ( 132,474 ) — 3,502 ( 128,972 )

Other comprehensive income (loss) net of tax expense of $ 0

5 unchanged sentences

Issuance of shares in connection with employee stock purchase plan 86,264 5,224 — — 5,224

Cumulative effect adjustment resulting from ASU 2020-06 early adoption (see Note 2(z)) — ( 132,474 ) — 3,502 ( 128,972 )

Other comprehensive loss, net of tax expense of $ 0

Other comprehensive income (loss), net of tax expense of $ 0

— — 736 — 736

58 unchanged sentences

During the year ended December 31, 2019, the Company implemented changes to its corporate entity operating structure, including transferring certain intellectual property to its Swiss subsidiary, primarily to align corporate entities with the Company’s evolving operations and business model.

As of January 1, 2022, the effective place of daily management and control of the Company moved to Switzerland and the Company has become a Swiss tax resident.

Basis of presentation and significant accounting policies

22 unchanged sentences

Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

Intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

Intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.

Cash equivalents:

2 unchanged sentences

The Company accounts for investments in debt securities in accordance with ASC 320, "Investments—Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date.

For the years ended December 31, 2021 and 2020, all securities are classified as held-to-maturity since the Company has the intent and ability to hold the securities to maturity and, accordingly, debt securities are stated at amortized cost.

The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity and any credit losses.

Such amortization and interest are included in the consolidated statement of operations as financial income or expenses, as appropriate.

For the three years ended December 31, 2021, no credit losses have been identified.

Investments in marketable debt securities can be classified as available-for-sale ("AFS") and held-to-maturity ("HTM") when the Company has the intent and ability to hold the securities to maturity.

As of December 31, 2022 and 2021, all securities are classified as held-to-maturity since the Company has the intent and ability to hold the securities to maturity and, accordingly, debt securities are stated at amortized cost.

Available-for-sale debt securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income (loss) in shareholders’ equity.

Realized gains and losses on sale of investments are included in financial income, net and are derived using the specific identification method for determining the cost of securities sold.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

Such amortization together with interest on securities is included in financial income, net.

Each reporting period, the Company evaluates whether declines in fair value below amortized cost are due to expected credit losses, as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs.

Allowance for credit losses on available-for-sale debt securities are recognized in the Company’s consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders’ equity.

Held-to-maturity debt securities are stated at amortized cost of which is adjusted for amortization of premiums and accretion of discounts to maturity and any credit losses.

Such amortization, interest or credit losses are included in the consolidated statement of operations as financial income or expenses, as appropriate.

For the years ended December 31, 2022, 2021 and 2020, no credit losses have been identified.

Restricted cash

9 unchanged sentences

The Company regularly evaluates its ability to realize the value of inventory.

If the inventories are deemed damaged, if actual demand for the Company’s devices deteriorates, or if market conditions are less favorable than those projected, inventory write-offs may be required.

If the inventories are deemed

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

damaged, if actual demand for the Company’s devices deteriorates, or if market conditions are less favorable than those projected, inventory write-offs may be required.

Inventory write-offs of $ 917 , $ 1,045 and $ 616 , respectively, were recorded for the years ended December 31, 2022, 2021 and 2020.

11 unchanged sentences

Depreciation is calculated using the straight-line method over the estimated useful life of the field equipment, which was determined to be 18 to 36 months.

Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 842 on

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

a monthly basis as an operating lease (see Note 2(x)).

Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 842 on a monthly basis as an operating lease (see Note 2(x)).

The Company records a write-off provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment.

Write-offs for equipment are included in cost of revenues.

During the years ended December 31, 2021, 2020 and 2019, write-offs for $ 639 , $ 409 and $ 327 , respectively, were recorded (see Note 7).

Write-offs for equipment are included in cost of revenues (see Note 7).

Impairment of long-lived assets:

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The evidence of a contract generally consists of a prescription, a patient service agreement and the verification of the assigned payer for the contract and intention to collect.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Identify the performance obligations in the contract.

11 unchanged sentences

ASC 606 requires that the Company recognize this variable consideration as an implicit discount in the billing period.

The implicit discount includes both an estimate of claims that will pay at an amount less than billed and an estimate of claims that

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

will not pay within a given time horizon.

The implicit discount includes both an estimate of claims that will pay at an amount less than billed and an estimate of claims that will not pay within a given time horizon.

The implicit discount adjustments to the transaction price are due to concessions, not collectability concerns driven by payer credit risk.

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The Company accounts for share-based compensation in accordance with ASC 718, "Compensation—Stock Compensation." ASC 718 requires companies to estimate the fair value of share-based compensation awards on the date of grant using an option-pricing model.

The value of the award is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.

The value of the award is recognized as an expense over the

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

requisite service periods in the Company’s consolidated statements of operations.

The Company's policy is to account for forfeitures as they occur.

The Company recognizes compensation costs for the value of awards granted using the accelerated method over the requisite service period of the award, which is generally the restricted share unit vesting term of three years and option vesting term of four years , respectively.

The Company recognizes compensation costs for the value of awards granted using the accelerated method over the requisite service period of the award, which for restricted share units is two or three years and and for option awards, which is two or four years .

The Company recognizes compensation costs for the value of performance stock units ("PSU") over the performance period when the vesting conditions become probable in accordance with ASC 718.

The Company applies the Black-Scholes model as it believes it is the most appropriate fair value method for all equity awards and for the Employee Share Purchase Plan (the "ESPP").

1 unchanged sentence

The Black-Scholes model requires a number of assumptions, of which the most significant are the share price, expected volatility and the expected award term.

Beginning with the first quarter of 2021, the computation of expected volatility is based on a combination of actual historical share price volatility of comparable publicly-traded companies and the historical volatility the Company's shares.

Beginning with the first quarter of 2022, the computation of expected volatility is based on the historical volatility the Company's shares, beginning with the first quarter of 2021 and prior to the first quarter of 2022, the computation of expected volatility is based on a combination of actual historical share price volatility of comparable publicly-traded companies and the historical volatility the Company's shares.

Prior to the first quarter of 2021, due to the lack of sufficient historical information for the Company, the computation was based on actual historical volatility of comparable publicly-traded companies.

4 unchanged sentences

treasury bonds with equivalent terms.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Fair value of financial instruments:

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To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the instrument is categorized as Level 3.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Basic and diluted net loss per share:

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Our trade receivables are due from numerous governments and federal and state agencies that are paid from their respective budgets, and from hundreds of health insurance companies.

The Company does not believe that there

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

are significant default risks associated with these governments, agencies and health insurance companies based upon the Company's the historical experience with them.

The Company does not believe that there are significant default risks associated with these governments, agencies and health insurance companies based upon the Company's historical experience with them.

The Company has no off-balance sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

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The Company sponsors a defined benefit plan (the "Swiss Plan") for all its employees in Switzerland for retirement benefits, as well as benefits on death or long-term disability, whereby the employee and the Company contribute a portion of the employee's compensation to the plan.

The Swiss Plan is part of a collective pension foundation “Asga Pensionskasse”.

Asga is an autonomous pension foundation, meaning that the underlying investment risk and the all biometrical risks (disability, death, longevity) are born by the pension foundation itself.

The Swiss Plan is part of a collective pension foundation “AXA Foundation for Occupational Benefits”.

This is a semi-autonomous pension foundation, meaning that the underlying investment risk and the longevity are born by the pension foundation itself.

Disability and death risks are reinsured with AXA insurance.

Notwithstanding, the Company and its employees bear the risk of having to pay recovery contributions in a financial distress situation.

4 unchanged sentences

According to Section 14 of Israel Severance Pay Law, the Company makes deposits on behalf of its employees with respect to the Company’s severance liability and therefore no obligation is provided for in the financial statements.

Severance pay liabilities with respect to employees who are not subject to Section 14, are provided for in the financial statements based upon the number of years of service and the latest monthly salary and the related deposits are recorded as an asset based on the cash surrender value.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

the related deposits are recorded as an asset based on the cash surrender value.

Contributions pursuant to these obligations for the years ended December 31, 2022, 2021 and 2020 amounted to $ 1,594 , $ 1,466 and $ 1,130 , respectively.

5 unchanged sentences

Comprehensive income (loss) generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.

The accumulated other comprehensive income (loss), net of taxes, relates to a pension liability and foreign currency translation adjustments.

The accumulated other comprehensive income (loss), net of taxes, relates to a pension liability, unrealized loss from debt securities and foreign currency translation adjustments.

Lessee accounting:

On January 1, 2019, the Company adopted ASU No.

2016-02, Leases (ASC 842).

The Company determines if an arrangement is a lease and the classification of that lease at inception based on:

(1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

of the asset.

The Company elected to not recognize a lease liability or right-of-use ("ROU") asset for leases with a term of twelve months or less.

15 unchanged sentences

The Company's product supply agreements include the right to use the device (lease component), the supply obligation of disposable arrays and technical support for the term of treatment (non-lease component).

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

If the lease component is the predominant component, the Company accounts for all revenues under such lease as a single component in accordance with the new lease accounting standard.

10 unchanged sentences

The Company allocated the total issuance costs incurred to the liability and equity components of the convertible senior notes based on the same proportions as the proceeds from the notes.

Commencing January 1, 2021, the Company early adopted ASU 2020-06, see note 2(z).

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Recently adopted accounting pronouncements:

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

6 unchanged sentences

The Company early adopted ASU 2020-06, effective January 1, 2021 on a modified retrospective basis.

Commencing January 1, 2021, the Company early adopted ASU 2020-06 .

The impact of the Company’s adoption of ASU 2020-06 on the balance sheet as of January 1, 2021 was an increase in long term debt, net of $ 128,972 , a decrease in additional paid-in capital of $ 132,474 , and a decrease in accumulated deficit of $ 3,502 .

1 unchanged sentence

For additional information see Note 10 of these audited consolidated financial statements.

In December 2019, the FASB issued Accounting Standard Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance.

ASU 2019-12 is effective for the Company as of January 1, 2021 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Cash and Cash equivalents and Short-term investments

Cash and cash equivalents:

Cash equivalents include items almost as liquid as cash, such as certificates of deposit and term deposits with maturity periods of three months or less when purchased.

The Company’s cash and cash equivalents were composed of:

Cash equivalents include items almost as liquid as cash with maturity periods of three months or less when purchased, and short-term investments include items with maturity dates between three months and one year when purchased.

As of December 31, 2022 and 2021, the Company’s cash and cash equivalents and short-term investments were composed of:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

December 31, 2022

Fair value level Adjusted cost basis Unrealized gains Unrealized losses Fair market value Recorded basis Cash and cash equivalents Short-term investments

Cash $ 9,697 $ — $ — $ 9,697 $ 9,697 $ 9,697 $ —

Money market funds 64,668 214,335

Certificate of deposits, notes and term deposits 140,995 —

Total cash and cash equivalents $ 208,802 $ 234,674

Short-term investments

The following table sets forth the Company’s short-term investments:

Term deposits $ 424,094 $ —

US treasury bills 199,981 607,902

Corporate debt securities 104,823 —

Total short-term investments $ 728,898 $ 607,902

Money market funds Level 1 105,629 — — 105,629 105,629 105,629 —

Certificate of deposits and term deposits Level 2 316,946 — — 316,946 316,946 — 316,946

HTM securities (1)

Treasury bills Level 1 $ 188,030 $ 8 $ ( 540 ) $ 187,498 $ 188,030 $ — $ 188,030

Government and governmental agencies Level 2 $ 44,357 $ 12 $ ( 12 ) $ 44,357 $ 44,357 $ — $ 44,357

Corporate debt securities Level 2 $ 304,766 $ 1,066 $ ( 587 ) $ 305,245 $ 304,766 $ — $ 304,766

$ 537,153 $ 1,086 $ ( 1,139 ) $ 537,100 $ 537,153 $ — $ 537,153

Total $ 969,425 $ 1,086 $ ( 1,139 ) $ 969,372 $ 969,425 $ 115,326 $ 854,099

December 31, 2021

Fair value level Adjusted cost basis Unrealized gains Unrealized losses Fair market value Recorded basis Cash and cash equivalents Short-term investments

Cash $ 3,139 $ — $ — $ 3,139 $ 3,139 $ 3,139 $ —

Money market funds Level 1 64,668 — — 64,668 64,668 64,668 —

Certificate of deposits, notes and term deposits Level 2 565,089 — — 565,089 565,089 140,995 424,094

HTM securities (1)

Treasury bills Level 1 199,981 8 — 199,989 199,981 — 199,981

Corporate debt securities Level 2 104,823 — — 104,823 104,823 — 104,823

Total $ 304,804 $ 8 $ — $ 304,812 $ 304,804 $ — $ 304,804

$ 937,700 $ 8 $ — $ 937,708 $ 937,700 $ 208,802 $ 728,898

(1) Changes in fair value of HTM securities are presented for disclosure purposes as required by ASC 320 and are recorded as finance expenses only if the unrealized loss is identified as a credit loss.

In November 2022, the Company transferred all of its AFS portfolio to HTM as part of the Company's investment strategy.

Such transfers are made at fair value at the date of transfer, The net unrealized loss on these securities at the date of transfer was $ 911 .

These securities continue to be reported in accumulated comprehensive income (loss) and are amortized over the remaining lives of the securities as an adjustment to the yield.

As of December 31, 2022, the unamortized unrealized loss balance was $ 445 and is reported in accumulated other comprehensive income (loss).

In accordance with ASC No.

820, the Company measures its money market funds and marketable securities at fair value.

Money market funds and marketable securities are classified within Level 1 or Level 2.

This is because these

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

The Company invests in marketable U.S.

treasury Bills (“T-bills”), term deposits, notes, and corporate debt securities that are classified as held-to-maturity securities and are presented as cash and cash equivalents and short-term investments according their maturity periods.

The Company measures its cash equivalents and short-term investments at fair value and classifies them within Level 1 or 2.

The Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The fair value of the Company's Level 1 financial assets is based on quoted market prices of the identical underlying security.

The fair value of the Company's level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for the identical underlying security that may not be actively traded.

The estimated fair value of our short-term investments as of December 31, 2021 and 2020 was $ 728,906 and $ 607,905 , respectively.

As of December 31, 2021 and 2020, amounts of $ 624,083 and $ 607,905 , respectively, were categorized as level 1, and the remaining balance as level 2 in accordance with ASC 820, “Fair Value Measurements and Disclosures.”

assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

As of December 31, 2022 and 2021, all investments and equivalents mature in one year or less.

Unrealized losses from debt securities are primarily attributable to changes in interest rates.

The Company does not believe any remaining unrealized losses represent impairments based on the evaluation of available evidence.

Debt securities with continuous unrealized losses for less than 12 months and their related fair values were as follows:

December 31, 2022

Less than 12 months

Fair value Unrealized loss

Treasury bills 162,813 ( 540 )

Government and governmental agencies 38,477 ( 12 )

Corporate debt securities 162,085 ( 587 )

Total $ 363,375 $ ( 1,139 )

As of December 31, 2022, no continuous unrealized losses for 12 months or greater was identified.

Receivables and prepaid expenses

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Depreciation expense was $ 3,105 , $ 2,812 and $ 2,635 for the years ended December 31, 2022, 2021 and 2020, respectively.

Write downs of $ 344 , $ 10 and $ 20 were identified for the years ended December 31, 2022, 2021 and 2020, respectively.

Field equipment, net

5 unchanged sentences

Write downs of $ 611 , $ 639 and $ 409 were identified for the years ended December 31, 2022, 2021 and 2020, respectively.

Other payables and accrued expenses

Other payables, lease liabilities and accrued expenses

The following table sets forth the Company’s other payables and accrued expenses:

Employees and payroll accruals $ 40,778 $ 39,590

Government authorities 5,797 5,340

Deferred revenues 18,028 17,762

Government authorities 8,660 5,797

Other 6,114 6,853

$ 73,580 $ 70,002

Employee benefit obligations

The Company's liability in respect of the Swiss Plan (see Note 2(u)) is the projected benefit obligation calculated using the projected unit credit method.

The projected benefit obligation as of December 31, 2021 represents the

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date.

Employee benefit obligations

The Company's liability in respect of the Swiss Plan (see Note 2(u)) is the projected benefit obligation calculated using the projected unit credit method.

The projected benefit obligation as of December 31, 2022 represents the actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date.

Swiss Plan assets are recorded at fair value.

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The Notes are therefore not convertible as of December 31, 2022 and are classified as long-term liability.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

The net carrying amount of the liability and equity components of the Convertible Notes (see note 2(z) for additional information) as of December 31, 2022 and 2021 are as follows:

1 unchanged sentence

Principal amount $ 575,000 $ 575,000

Unamortized discount — ( 132,797 )

Unamortized issuance costs ( 9,491 ) ( 12,784 )

Net carrying amount of liability component (1) $ 565,509 $ 562,216

Equity component, net:

Conversion feature $ — $ 136,402

Issuance costs

$ — ( 3,928 )

Net carrying amount of equity component $ — $ 132,474

(1) An effective interest rate determines the fair value of the Notes, therefore they are categorized as Level 3 in accordance with ASC 820, "Fair Value Measurements and Disclosures." The estimated fair value of the Net carrying amount of liability component of the Notes as of December 31, 2021 and 2020 were $ 467,469 and $ 450,437 , respectively.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

carrying amount of liability component of the Notes as of December 31, 2022 and 2021 were $ 455,091 and $ 467,469 , respectively.

Finance expense related to the Notes were as follows:

Year ended December 31,

2022 2021 2020

Amortization of debt issuance costs

1 unchanged sentence

Amortization of debt discount

$ — $ — $ 3,605

Total finance expense recognized

9 unchanged sentences

Unrecognized tax benefits (Note 13(e)) 76 154

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Commitments and contingent liabilities

7 unchanged sentences

Future minimum lease payments:

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Thereafter 5,089

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Senior secured revolving credit facility

On November 6, 2020, the Company entered into a new three-year $ 150,000 senior secured revolving credit facility with a syndicate of relationship banks.

The Company may, subject to certain conditions and limitations, increase the

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

revolving credit commitments outstanding under the revolving credit facility or incur new incremental term loans in aggregate principal amount not to exceed $ 250.0 million in total.

The commitments under the revolving credit facility are guaranteed by certain of the Company's subsidiaries and secured by a first lien on the Company's and certain of the Company's subsidiaries’ assets.

On November 6, 2020, the Company entered into a new three-year $ 150,000 senior secured revolving credit facility with a syndicate of relationship banks (the "Credit Facility").

The Company may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the revolving credit facility or incur new incremental term loans in aggregate principal amount not to exceed $ 250.0 million in total.

The commitments under the Credit Facility are guaranteed by certain of the Company's subsidiaries and secured by a first lien on the Company's and certain of the Company's subsidiaries’ assets.

Outstanding loans will bear interest per annum at a sliding scale based on the Company's secured leverage ratio from 2.75 % to 3.25 % above the applicable interbank borrowing reference rate for the currency in which the loan is denominated.

Additionally, the facility contains a fee for the unused revolving credit commitments at a sliding scale based on the Company's secured leverage ratio from 0.35 % to 0.45 %.

The facility contains financial covenants requiring maintenance of a minimum fixed charge coverage ratio and specifying a maximum senior secured net leverage ratio, as well as customary events of default which include a change of control.

As of December 31, 2021, the Company had no outstanding balance borrowed under the facility.

The Credit Facility contains financial covenants requiring maintenance of a minimum fixed charge coverage ratio and specifying a maximum senior secured net leverage ratio, as well as customary events of default which include a change of control.

As of December 31, 2022, the Company had no outstanding balance borrowed under the Credit Facility.

On February 17, 2023, the Company gave irrevocable notice to the administrative agent under the Credit Facility that the Company terminated all commitments, effective February 22, 2023.

This effectively terminated the Credit Facility, as the Company's ability to borrow and the Company's obligations to comply with all covenants ended on such date.

The liens and guaranties in favor of the lenders are released.

There was no early termination fee payable and as of February 22, 2023 the Company had no outstanding balance borrowed under the Credit Facility.

Zai License and Collaboration Agreement

On September 10, 2018, the Company entered into the Zai Agreement.

Under the Zai Agreement, the Company granted Zai exclusive rights to commercialize Optune in the field of oncology in China, Hong Kong, Macau and Taiwan ("Greater China").

Under the Zai Agreement, the Company granted Zai exclusive rights to commercialize Optune in the field of oncology in China, Hong Kong, Macau and

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Taiwan ("Greater China").

The Zai Agreement also established a development partnership for Optune in multiple solid tumor indications.

12 unchanged sentences

Tax provision :

As of January 1, 2022, the effective place of daily management and control of the Company moved to Switzerland and the Company has become a Swiss tax resident.

As a result, the income tax disclosures have been presented in accordance with the Company’s current country of tax residency.

Income (loss) before income taxes is as follows:

1 unchanged sentence

2022 2021 2020

United States (U.S.) $ 82,249 $ ( 15,283 ) $ ( 87,925 )

( 134,324 ) 33,385 79,101

Swiss $ ( 269,621 ) $ ( 145,591 ) $ 32,010

Non-Swiss 187,775 93,516 ( 13,908 )

Total income (loss) before income taxes

3 unchanged sentences

2022 2021 2020

$ 65 $ ( 11,898 ) $ ( 6,143 )

6,211 10,192 4,405

Swiss $ 469 $ 281 $ 3,105

Non-Swiss 10,219 5,995 ( 4,811 )

Total current $ 10,688 $ 6,276 $ ( 1,706 )

Swiss $ — — $ —

Non-Swiss — — —

Total deferred — — —

2 unchanged sentences

The Company's effective tax rate is affected by the tax rates in the various jurisdictions in which the Company operates.

For purposes of comparability, the Company used the notional U.S.

federal income tax rate of 21% for the 2021, 2020 and 2019 tax years when presenting the Company's reconciliation of the income tax provision.

A reconciliation of the provision for income taxes compared with the amounts at the notional federal statutory rate was:

Under Swiss law, the Company is subject to income tax at the federal level at a statutory rate of 8.5 %, as well as at the cantonal and communal levels, resulting in an aggregate corporate tax rate of 12.0 %.

For purposes of comparability, the Company used the Swiss federal statutory rate for the 2022, 2021 and 2020 tax years when presenting the Company's reconciliation of the income tax provision.

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

A reconciliation of the provision for income taxes compared with the amounts at the Swiss rate was:

Year ended December 31,

1 unchanged sentence

Income (loss) before income taxes $ ( 81,846 ) $ ( 52,075 ) $ 18,102

statutory income tax rate 21.0 % 21.0 % 21.0 %

Notional U.S.

federal income taxes at statutory rate $ ( 10,936 ) $ 3,801 $ ( 1,853 )

Swiss federal statutory rate 8.5 % 8.5 % 8.5 %

Income tax at federal Swiss rate $ ( 6,957 ) $ ( 4,426 ) $ 1,539

Foreign taxes rate differential 25,716 1,601 2,517

Share based compensation ( 12,669 ) ( 6,190 ) ( 26,528 )

Change in valuation allowance ( 14,238 ) 11,643 6,821

Return to provision true-ups 2,416 654 ( 5,204 )

Effect of tax law change 5,681 — ( 8,694 )

Share based compensation 5,318 ( 4,636 ) ( 1,615 )

Research and development credits ( 4,898 ) ( 2,216 ) ( 5,243 )

State income taxes 1,572 607 ( 16,679 )

Return to provision true-ups ( 1,020 ) 2,416 —

Withholding taxes 548 273 2,366

Non-deductible expenses ( 147 ) 260 357

Unamortized intangible assets — — ( 189,410 )

2020 Cares Act — ( 8,694 ) —

Other 538 1,621 603

1 unchanged sentence

Effective tax rate ( 13.1 ) % ( 12.1 ) % ( 9.4 ) %

NovoCure Limited and subsidiaries

Notes to consolidated financial statements

dollars in thousands (except share and per share data)

Deferred income tax

6 unchanged sentences

Share based compensation $ 30,009 $ 25,644

Research and development $ 12,146 $ 9,186

Capitalized research and development $ 16,730 $ —

Research and development credits $ 8,992 $ 12,146

Lease liabilities $ 5,846 $ 4,836

Interest limitations $ — $ 7,948

Lease liability $ 4,836 $ 1,006

Other temporary differences $ 7,089 $ 3,032

9 unchanged sentences

Carryforward loss:

The Company had $ 790,668 of gross non-U.S net operating carryforwards (NOLs) as of December 31, 2021 of which $ 1,968 carry forward indefinitely.

The remainder expires from 2026 through 2038.

Approximately $ 783,347 of these NOLs are attributable to Novocure Switzerland with $ 405,553 available at the Federal level and $ 377,794 available at the cantonal level.

In the U.S., the Company had $ 98,120 of U.S.

federal NOLs and $ 124,146 of U.S.

federal NOLs carry forward indefinitely.

Also, approximately $ 24,263 in U.S.

state NOLs carry forward indefinitely, with the remainder expiring from 2023 through 2040.

In Switzerland, the Company had $ 525,131 of net operating carryforwards (NOLs) available at the Federal level, of which $ 497,371 are available at the cantonal and communal level as well.

These NOLs expire from 2026 through

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

Additionally, the Company had $ 37,105 of non-Swiss NOLs as of December 31, 2022, of which $ 4,942 carry forward indefinitely.

The remainder expire from 2026 through 2041.

Uncertain tax benefits:

6 unchanged sentences

During the years ended December 31, 2022, 2021 and 2020, the Company accrued $ 2 , $ 5 and $ 21 , respectively, for interest and penalties expenses related to uncertain tax positions.

The Company files income tax returns in the U.S.

and various state and foreign jurisdictions.

The Company files income tax returns in the Switzerland and various foreign jurisdictions.

Currently, the Company is under examination by the tax authorities in Israel for the tax years 2018, 2019 and 2020 and is not under examination by any other tax authority.

Additional tax years within the period 2015 to 2020 remain subject to examination by the U.S.

Internal Revenue Service.

Furthermore, tax years 2015 to 2020 remain subject to examination in other U.S.

state and municipal jurisdictions, as well as foreign jurisdictions.

Additional tax years within the period 2016 to 2021 remain subject to examination by Swiss, U.S.

and other tax authorities .

Share capital

10 unchanged sentences

Under the 2015 Plan, the Company can issue various types of equity compensation awards such as restricted shares, performance shares, restricted stock units ("RSUs"), performance share units ("PSUs"), long-term cash award and other share-based awards.

Options granted under the 2015 Plan generally have a vesting period of four years and expire ten years after the date of grant.

RSUs granted under the 2015 Plan vest in equal installments over three years .

Options granted under the 2015 Plan generally have a vesting period of two or four years and expire ten years after the date of grant.

RSUs granted under the 2015 Plan vest in equal installments over two or three years .

PSUs granted under the 2015 Plan generally vest have a vesting period between three and six years , as performance targets are attained.

4 unchanged sentences

Employee Stock Purchase Plan

In September 2015, the Company adopted an ESPP to encourage and enable eligible employees to acquire ownership of the Company’s ordinary shares purchased through accumulated payroll deductions on an after-tax basis.

The ESPP is intended to be an "employee stock purchase plan" within the meaning of Section 423 of the Code and the provisions of the ESPP will be construed in a manner consistent with the requirements of such

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

The Company began its offerings under the ESPP on August 1, 2016.

48 unchanged sentences

10,532 94.94 1,000

189,626 $ 114.26 $ 21,667

3,162,141 $ 172,602

These PSUs will be expensed over the performance period when the vesting conditions become probable in accordance with ASC 718.

9 unchanged sentences

The weighted average grant date exercise price of the Company’s options granted during the years ended December 31, 2022, 2021 and 2020 were $ 78.69 , $ 149.96 and $ 71.87 per share, respectively.

The weighted average grant date fair value of the Company’s options granted during the years ended December 31, 2022, 2021 and 2020 were $ 44.70 , $ 81.93 and $ 37.12 per share, respectively.

The weighted average grant date fair values of the Company’s options forfeited and cancelled during the years ended December 31, 2022, 2021 and 2020 were $ 86.79 , $ 62.77 and $ 22.98 , respectively.

The aggregate intrinsic values for the options exercised during the years ended December 31, 2021, 2020 and 2019 were $ 143,695 , $ 156,910 and $ 266,626 , respectively.

The aggregate intrinsic value is calculated as the difference between the per share exercise price and the deemed fair value of the Company’s ordinary shares for each share subject to an option multiplied by the number of shares subject to options at the date of exercise.

NovoCure Limited and subsidiaries

1 unchanged sentence

dollars in thousands (except share and per share data)

deemed the fair value of the Company’s ordinary shares to be $ 75.08 , $ 173.04 and $ 84.27 per share as of December 31, 2021, 2020, and 2019, respectively.

The aggregate intrinsic values for the options exercised during the years ended December 31, 2022, 2021 and 2020 were $ 26,436 , $ 143,695 and $ 156,910 , respectively.

The Company deemed the fair value of the Company’s ordinary shares to be $ 73.35 , $ 75.08 and $ 173.04 per share as of December 31, 2022, 2021, and 2020, respectively.

Options outstanding as of December 31, 2022 are as follows:

17 unchanged sentences

8,786,364 5.4 7,103,058 4.7

Financial expenses, net

Financial (expenses) income, net

The following table sets forth the Company’s total financial expenses, net:

5 unchanged sentences

Amortization of discount and issuance costs ( 3,293 ) ( 3,339 ) ( 4,514 )

Foreign currency transaction losses ( 4,032 ) — ( 431 )

Foreign currency translation losses ( 3,523 ) ( 4,032 ) —

Others ( 698 ) ( 779 ) ( 389 )

2 unchanged sentences

Amortization of investments premium $ 4,829 $ 306 $ 1,316

Foreign currency transaction gains — 2,648 —

Foreign currency translation gains — — 2,648

Interest income 10,961 791 1,787

$ 15,790 $ 1,097 $ 5,751

Total financial expenses, net $ ( 7,742 ) $ ( 12,299 ) $ ( 7,910 )

Total financial (expenses) income, net $ 7,677 $ ( 7,742 ) $ ( 12,299 )

Basic and diluted net income (loss) per share

29 unchanged sentences

Switzerland 5,084 4,085

Germany 1,020 1,075

Japan 1,063 799

Germany 762 1,020

Others 1,261 1,152

42 unchanged sentences

Weighted average number of ordinary shares used in computing diluted net income (loss) per share 110,604,714 108,643,814 107,647,802 108,100,623

Subsequent Event

On February 17, 2023, the Company gave irrevocable notice to the administrative agent under the Credit Facility that the Company terminated all commitments, effective February 22, 2023.

See Note 12c.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data