NovoCure Ltd 10-K

ITEM 8. FINANCIAL STATEMENTS NovoCure Limited Index to consolidated financial statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 1281 ) 65 Consolidated Balance Sheets as of December 31, 2022 and 2021 68 Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 70 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 71 Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020 72 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 73 Notes to Consolidated Financial Statements 75 64 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of NovoCure Limited Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of NovoCure Limited and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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. 65 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 to in exchange for providing Optune solution. The company provides certain patients with implicit price concessions, which results in variable consideration. According to historical records, the Company expects to receive, in aggregate for a given portfolio, less than the gross revenue net of explicit discounts. Auditing the Company's measurement of variable consideration involved challenging judgment because the calculation involves uncertainty and subjective management assumptions about estimates of expected price concessions. 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. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process to calculate variable consideration, including the underlying assumptions about estimates of expected price concessions. Our audit procedures included, among others, evaluating the methodology used, analyzing the significant assumptions discussed above, and testing the accuracy and completeness of the underlying data used in management's calculation. This included testing inputs of the calculation by reconciliation of the data between the various information systems performing independent recalculation of the Company's estimate and evaluating the historical accuracy of management's estimates by comparing such estimates to subsequent actual results. KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global We have served as the Company‘s auditor since 2003. Tel-Aviv, Israel February 23, 2023 66 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of NovoCure Limited Opinion on Internal Control over Financial Reporting We have audited NovoCure Limited and subsidiaries' internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO Criteria). In our opinion, NovoCure Limited and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss) changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes, and our report dated February 23, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global Tel-Aviv, Israel February 23, 2023 67 NovoCure Limited and subsidiaries Consolidated balance sheets December 31, U.S. dollars in thousands 2022 2021 Assets Current assets: Cash and cash equivalents $ 115,326 $ 208,802 Short-term investments 854,099 728,898 Restricted cash 508 807 Trade receivables, net 86,261 93,567 Receivables and prepaid expenses 25,959 17,025 Inventories 29,376 24,427 Total current assets 1,111,529 1,073,526 Long-term assets: Property and equipment, net 32,678 22,693 Field equipment, net 12,684 12,923 Right-of-use assets 23,596 18,267 Other long-term assets 11,161 12,086 Total long-term assets 80,119 65,969 Total assets $ 1,191,648 $ 1,139,495 The accompanying notes are an integral part of the consolidated financial statements. 68 NovoCure Limited and subsidiaries Consolidated balance sheets December 31, U.S. dollars in thousands, except share and per share data 2022 2021 Liabilities and shareholders’ equity Current liabilities: Trade payables $ 85,197 $ 72,600 Other payables, lease liabilities and accrued expenses 73,580 70,002 Total current liabilities 158,777 142,602 Long-term liabilities: Long-term debt, net 565,509 562,216 Deferred revenues 2,878 6,477 Long term leases 18,762 12,997 Employee benefit liabilities 4,404 4,543 Other long-term liabilities 148 166 Total long-term liabilities 591,701 586,399 Total liabilities 750,478 729,001 Commitments and contingencies Shareholders’ equity: Share capital - Ordinary shares - No par value, Unlimited shares authorized; Issued and outstanding: 105,049,411 shares and 103,971,263 shares at December 31, 2022 and December 31, 2021 respectively; — — Additional paid-in capital 1,222,063 1,099,589 Accumulated other comprehensive income (loss) ( 2,433 ) ( 3,169 ) Retained earnings (accumulated deficit) ( 778,460 ) ( 685,926 ) Total shareholders’ equity 441,170 410,494 Total liabilities and shareholders’ equity $ 1,191,648 $ 1,139,495 The accompanying notes are an integral part of the consolidated financial statements. 69 NovoCure Limited and subsidiaries Consolidated statements of operations Year ended December 31, U.S. dollars in thousands, except share and per share data 2022 2021 2020 Net revenues $ 537,840 $ 535,031 $ 494,366 Cost of revenues 114,867 114,877 106,501 Gross profit 422,973 420,154 387,865 Operating costs and expenses: Research, development and clinical studies 206,085 201,303 132,010 Sales and marketing 173,658 137,057 118,017 General and administrative 132,753 126,127 107,437 Total operating costs and expenses 512,496 464,487 357,464 Operating income (loss) ( 89,523 ) ( 44,333 ) 30,401 Financial (expenses) income, net 7,677 ( 7,742 ) ( 12,299 ) Income (loss) before income taxes ( 81,846 ) ( 52,075 ) 18,102 Income tax 10,688 6,276 ( 1,706 ) Net income (loss) $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Basic net income (loss) per ordinary share $ ( 0.88 ) $ ( 0.56 ) $ 0.20 Weighted average number of ordinary shares used in computing basic net income (loss) per share 104,660,476 103,433,274 100,930,866 Diluted net income (loss) per ordinary share $ ( 0.88 ) $ ( 0.56 ) $ 0.18 Weighted average number of ordinary shares used in computing diluted net income (loss) per share 104,660,476 103,433,274 108,877,648 The accompanying notes are an integral part of the consolidated financial statements. 70 NovoCure Limited and subsidiaries Consolidated statements of comprehensive income (loss) Year ended December 31, U.S. dollars in thousands 2022 2021 2020 Net income (loss) $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Other comprehensive income (loss), net of tax : Change in foreign currency translation adjustments 1,425 302 ( 85 ) Unrealized gain (loss) from debt securities ( 445 ) — — Pension benefit plan ( 244 ) 361 ( 980 ) Total comprehensive income (loss) $ ( 91,798 ) $ ( 57,688 ) $ 18,743 The accompanying notes are an integral part of the consolidated financial statements. 71 NovoCure Limited and subsidiaries Statements of changes in shareholders’ equity Ordinary shares U.S. dollars in thousands, except share data (Shares) Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings (accumulated deficit) Total shareholders’ equity Balance as of December 31, 2019 99,528,435 $ 871,442 $ ( 2,767 ) $ ( 650,885 ) $ 217,790 Share-based compensation — 75,721 — — 75,721 Exercise of options 2,739,150 28,428 — — 28,428 Issuance of shares in connection with employee stock purchase plan 66,691 3,370 — — 3,370 Conversion feature of convertible note, net — 132,474 — — 132,474 Other comprehensive income (loss) net of tax expense of $ 0 — — ( 1,065 ) — ( 1,065 ) Net income (loss) — — — 19,808 19,808 Balance as of December 31, 2020 102,334,276 1,111,435 ( 3,832 ) ( 631,077 ) 476,526 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 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 — — 663 — 663 Net income (loss) — — — ( 58,351 ) ( 58,351 ) Balance as of December 31, 2021 103,971,263 1,099,589 ( 3,169 ) ( 685,926 ) 410,494 Share-based compensation — 106,955 — — 106,955 Exercise of options 991,884 10,295 — — 10,295 Issuance of shares in connection with employee stock purchase plan 86,264 5,224 — — 5,224 Other comprehensive income (loss), net of tax expense of $ 0 — — 736 — 736 Net income (loss) — — — ( 92,534 ) ( 92,534 ) Balance as of December 31, 2022 105,049,411 $ 1,222,063 $ ( 2,433 ) $ ( 778,460 ) $ 441,170 The accompanying notes are an integral part of the consolidated financial statements. 72 NovoCure Limited and subsidiaries Consolidated statements of cash flows Year ended December 31, U.S. dollars in thousands 2022 2021 2020 Cash flows from operating activities: Net income (loss) $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 10,624 10,251 9,150 Accrued interest ( 2,216 ) ( 94 ) — Asset write-downs and impairment of field equipment 955 649 429 Share-based compensation 106,955 94,900 75,721 Foreign currency remeasurement loss (gain) ( 3,256 ) 3,231 ( 699 ) Decrease (increase) in accounts receivables 2,547 5,270 ( 30,354 ) Amortization of discount (premium) ( 1,536 ) 3,101 3,260 Decrease (increase) in inventories ( 4,342 ) 2,483 ( 2,935 ) Decrease (increase) in other long-term assets 7,107 4,519 ( 1,366 ) Increase (decrease) in accounts payables and accrued expenses 14,257 27,777 25,470 Increase (decrease) in other long-term liabilities ( 7,773 ) ( 10,980 ) 664 Net cash provided by (used in) operating activities $ 30,788 $ 82,756 $ 99,148 Cash flows from investing activities: Purchase of property, equipment and field equipment ( 21,358 ) ( 24,170 ) ( 14,968 ) Proceeds from maturity of short-term investments 1,179,289 958,000 150,000 Purchase of short-term investments ( 1,297,888 ) ( 1,078,664 ) ( 607,879 ) Net cash provided by (used in) investing activities $ ( 139,957 ) $ ( 144,834 ) $ ( 472,847 ) The accompanying notes are an integral part of the consolidated financial statements. 73 NovoCure Limited and subsidiaries Consolidated statements of cash flows Year ended December 31, U.S. dollars in thousands 2022 2021 2020 Cash flows from financing activities: Proceeds from issuance of shares, net $ 5,224 $ 4,546 $ 3,370 Proceeds from convertible note, net — — 558,439 Repayment of long-term debt ( 28 ) ( 26 ) ( 150,028 ) Exercise of options 10,295 21,182 28,428 Net cash provided by (used in) financing activities $ 15,491 $ 25,702 $ 440,209 Effect of exchange rate changes on cash, cash equivalents and restricted cash $ ( 97 ) $ ( 188 ) $ 247 Increase (decrease) in cash, cash equivalents and restricted cash ( 93,775 ) ( 36,564 ) 66,757 Cash, cash equivalents and restricted cash at the beginning of the year 209,609 246,173 179,416 Cash, cash equivalents and restricted cash at the end of the year $ 115,834 $ 209,609 $ 246,173 Supplemental cash flow activities: Cash paid during the year for: Income taxes paid (refunded), net $ 5,480 $ 3,110 $ ( 3,261 ) Interest paid $ 41 $ 101 $ 8,686 Non-cash activities: Right-of-use assets obtained in exchange for lease liabilities $ 12,117 $ 5,387 $ 5,617 The accompanying notes are an integral part of the consolidated financial statements. 74 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Note 1: Organization NovoCure Limited (including its consolidated subsidiaries, the "Company") was incorporated in the Bailiwick of Jersey and is principally engaged in the development, manufacture and commercialization of Tumor Treating Fields ("TTFields") devices, including Optune and Optune Lua (collectively, our "Products"), for the treatment of solid tumor cancers. The Company currently markets Optune in the United States ("U.S."), Germany, Japan and certain other countries. The Company currently markets Optune Lua in the U.S. and European Union. The Company also has a License and Collaboration Agreement (the "Zai Agreement") with Zai Lab (Shanghai) Co., Ltd. ("Zai") to market Optune in China, Hong Kong, Macau and Taiwan ("Greater China"). See Note 12. 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. Note 2: Basis of presentation and significant accounting policies The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). a. Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, tax liabilities, useful-life of field equipment, right-of-use assets and lease liabilities, convertible notes, pension liabilities, revenue recognition, accrued expenses and share-based compensation 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 at the dates of the consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates. b. Financial statements in U.S. dollars: The accompanying financial statements have been prepared in U.S. dollars in thousands, except for share and per-share data. The Company finances its operations in U.S. dollars and a substantial portion of its costs and revenues from its primary markets is incurred in U.S. dollars. As such, the Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which NovoCure Limited and certain subsidiaries operate. The Company’s reporting currency is U.S. dollars. Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the U.S. dollar are re-measured into dollars in accordance with Accounting Standards Codification (ASC) No. 830-10, "Foreign Currency Matters." All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as applicable. For a subsidiary whose functional currency has been determined to be its local currency, assets and liabilities are translated at year-end exchange rates and statement of operations items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity. 75 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) c. 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. d. Cash equivalents: Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with a maturity of three months or less at the date acquired. e. Short-term investments: 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. 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. f. Restricted cash The Company has restricted cash used as security for the use of Company credit cards and cash management, presented in short-term assets. Additionally, the Company has pledged bank deposits to cover bank guarantees related to facility rental agreements, fleet lease agreements and customs payments presented in other long-term assets (see Note 12). g. Trade receivables: The Company’s trade receivables balance contains billed and unbilled commercial activities. The Company records an allowance for credit losses, if identified. The Company periodically reviews its customers’ credit risk and payment history. To date, the Company has not experienced any material credit losses related to counter-party risk. h. Inventories: Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company regularly evaluates its ability to realize the value of inventory. If the inventories are deemed 76 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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. i. Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates: % Computers and laboratory equipment 15 - 33 Office furniture 6 - 33 Production equipment 20 Leasehold improvements Over the shorter of the term of the lease or its useful life Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that is not yet ready for its intended use. j. Field equipment: Field equipment is stated at cost, net of accumulated depreciation. 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 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 (see Note 7). k. Impairment of long-lived assets: The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360-10, "Property, Plant and Equipment," whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During the three years ended December 31, 2022, no impairment losses have been identified. l. Other long-term assets: Restricted deposits, long-term lease deposits associated with office rent and vehicles under operating leases, prepaid and vendors down payments are presented in other long-term assets. m. Revenue recognition: Our Products are comprised of two main components: (1) an electric field generator and (2) arrays and related accessories. We retain title to the electric field generator, and the patient is provided replacement arrays and technical support for the device during the term of treatment. The electric field generator and arrays are always supplied and function together and are not sold on a standalone basis. The Company uses the portfolio approach to apply the standard to portfolios of contracts with similar characteristics. To recognize revenue under ASC 606, the Company applies the following five steps: 1. Identify the contract with a patient. A contract with a patient exists when (i) the Company enters into an enforceable contract with a patient that defines each party’s rights regarding delivery of and payment for a Product, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for such Product is probable based on the payer’s intent and ability to pay the promised consideration. 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. 77 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 2. Identify the performance obligations in the contract. Our contracts include the lease of the device, the supply obligation of disposable arrays and technical support for the term of treatment. To the extent a contract includes multiple promised products and/or services, the Company must apply judgment to determine whether those products and/or services are capable of being distinct in the context of the contract. If these criteria are not met the promised products and/or services are accounted for as a combined performance obligation. In the Company’s case, the device, support, and disposables are provided as one inseparable package of monthly treatment for a single monthly fee. For more information, see Note 2(x). 3. Determine the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for providing a Product to the patient. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. The Company has agreements with many payers that define explicit discounts off the gross transaction price. In addition to the explicit discounts negotiated with each payer, the Company expects to receive, in aggregate for a given portfolio, less than the gross revenue net of explicit discounts. 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 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. 4. Allocate the transaction price to performance obligations in the contract. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. As discussed above, there is a combined performance obligation under the Company’s contracts and, therefore, the monthly transaction price determined for the performance obligation will be recognized over time ratably over the monthly term of the treatment. 5. Recognize revenue when or as the Company satisfies a performance obligation. The Company satisfies performance obligations over time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a patient. The patient consumes the benefits of treatment on a daily basis over the monthly term. As this criterion is met, the revenues will be recognized over the monthly term. For more information, see Note 2(x). Revenues are presented net of indirect taxes. Net revenues in the years ended December 31, 2022, 2021 and 2020 also include amounts recognized pursuant to the Zai Agreement. For additional information, see Note 12. n. Charitable care: The Company provides treatment at no charge to patients who meet certain criteria under its charitable care policy. Because the Company does not pursue collection of amounts determined to qualify as charity, they are not reported as revenue. The Company's costs of care provided under charitable care were $ 3,009 , $ 4,204 and $ 3,653 for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts were determined by applying charitable care as a percentage of gross billings to total cost of goods sold. o. Shipping and handling costs: The Company does not separately bill its customers for shipping and handling costs associated with shipping Products to its customers. These direct shipping and handling costs of $ 3,211 , $ 2,958 and $ 3,224 for the years ended December 31, 2022, 2021 and 2020, respectively, are included in Sales and Marketing costs. p. Accounting for share-based compensation: 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 78 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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 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"). For market condition awards, the Company also applies the Monte-Carlo simulation model. 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 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. Beginning with the first quarter of 2021, the expected term of options granted is calculated using the Company's historical and future exercise behavior. Prior to the first quarter of 2021, it was calculated using the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasury bonds with equivalent terms. q. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, short-term investments, restricted cash, receivables and prepaid expenses, trade receivables, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. The Company accounts for certain assets and liabilities at fair value under ASC 820, "Fair Value Measurements and Disclosures." Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of inputs that may be used to measure fair value are as follows: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets; Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data; and Level 3 - Unobservable inputs which are supported by little or no market activity. The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, the liquidity of markets and other characteristics particular to the transaction. 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. 79 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) r. Basic and diluted net loss per share: Basic net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income per share is computed based on the weighted average number of ordinary shares outstanding during the period, plus potential dilutive shares considered outstanding during the period, in accordance with ASC 260-10, as determined under the treasury stock method. s. Income taxes: The Company accounts for income taxes in accordance with ASC 740-10, "Income Taxes." ASC 740-10 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value, if needed. The Company established reserves for uncertain tax positions based on the evaluation of whether or not the Company’s uncertain tax position is "more likely than not" to be sustained upon examination. The Company records interest and penalties pertaining to its uncertain tax positions in the financial statements as income tax expense. t. Concentration of risks: Our cash, cash equivalents, short-term investments and trade receivables are potentially subject to a concentration of risk. Cash, cash equivalents and short-term investments are invested at top tier financial institutions globally. As such, these investments may be in excess of insured limitations or not insured in certain jurisdictions. Generally, these investments may be redeemed upon demand and therefore, bear minimal risk. 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 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. u. Retirement, pension and severance plans: The Company has a 401(k) retirement savings plan for its U.S. employees. Each eligible employee may elect to contribute a portion of the employee’s compensation to the plan. Company contributions to the plan are at the sole discretion of the Company's Board of Directors. Currently, the Company provides a matching contribution of 50 % of the employee's contributions, up to a maximum of three percent ( 3 %) of the employee's annual salary. The Company began making matching contributions as of January 1, 2019. For the years ended December 31, 2022, 2021 and 2020, the Company had made matching contributions in the amount of $ 2,083 and $ 1,967 and $ 1,589 , respectively, pursuant to the plan. 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 “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. The Company accounts for this risk in accordance with ASC 715, "Compensation – Retirement Benefits" (see Note 9). The pension expense for the years ended December 31, 2022, 2021 and 2020 was $ 2,104 , $ 1,494 and $ 1,588 , respectively. Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company contributes to employee pension plans to fund its severance liabilities. 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 80 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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. v. Contingent liabilities: The Company accounts for its contingent liabilities in accordance with ASC 450, "Contingencies." A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. w. Other comprehensive income (loss): The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income." ASC 220 establishes standards for the reporting and display of comprehensive income (loss) and its components. 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, unrealized loss from debt securities and foreign currency translation adjustments. x. Leases: 1. Lessee accounting: The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use ("ROU") asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases are generally not determinable; therefore, the Company uses the Incremental Borrowing Rate ("IBR") based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option. 2. Lessor accounting - Operating leases: ASC 842 provides lessors with an optional practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (ASC 606) and both of the following criteria are met: a. The timing and pattern of transfer of the lease component and the non-lease component(s) are the same; and b. The lease component would be classified as an operating lease if it were accounted for separately. 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). 81 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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. Conversely, if the non-lease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. The Company's operating leases qualify for the single component accounting, and the non-lease component in each of the Company's leases is predominant. Therefore, The Company accounts for all revenues from its operating leases in accordance with the revenue recognition accounting standard. y. Convertible note: Prior to January 1, 2021, the Company accounted for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options". Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the convertible senior notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The Company allocated the proceeds from issuance between the liability component and the embedded conversion option, or equity component. The liability component at issuance is recognized at fair value, based on the fair value of a similar instrument of similar credit rating and maturity that does not have a conversion feature. The equity component is based on the excess of the principal amount of the convertible senior notes over the fair value of the liability component and is recorded in additional paid-in capital. The equity component, net of issuance costs is presented within additional paid-in-capital and is not remeasured as long as it continues to meet the conditions for equity classification. 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. In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under Accounting Standards Codification ("ASC Topic 815"), Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis. 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 . Interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. For additional information see Note 10 of these audited consolidated financial statements. Note 3: Cash and Cash equivalents and Short-term investments 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: 82 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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 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) U.S. 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) U.S. 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 83 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 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 U.S. 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. Note 4: Receivables and prepaid expenses The following table sets forth the Company’s receivables and prepaid expenses: December 31, 2022 2021 Advances to and receivables from suppliers $ 7,151 $ 3,843 Government authorities 12,389 8,421 Prepaid expenses 6,195 4,711 Others 224 50 $ 25,959 $ 17,025 Note 5: Inventories Inventories are stated at the lower of cost or net realizable value. The weighted average methodology is applied to determine cost. The following table sets forth the Company’s inventories: December 31, 2022 2021 Raw materials $ 4,314 $ 1,485 Work in process 9,321 8,274 Finished goods 15,741 14,668 $ 29,376 $ 24,427 84 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Note 6: Property and equipment, net The following table sets forth the Company’s property and equipment, net: December 31, 2022 2021 Cost: Computers and laboratory equipment $ 24,804 $ 21,135 Office furniture 2,627 3,044 Production equipment 3,513 2,377 Land and building $ 15,988 $ 11,155 Leasehold improvements 9,346 7,076 Total cost $ 56,278 $ 44,787 Accumulated depreciation and amortization ( 23,600 ) ( 22,094 ) Depreciated cost $ 32,678 $ 22,693 The Company capitalized software costs according to FASB's ASC 350-40, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Cumulative capitalization as of December 31, 2022 and 2021 was $ 13,192 and $ 9,979 , respectively. Amortization of capitalized software costs for the years ended December 31, 2022, 2021 and 2020 was $ 1,056 , $ 1,084 and $ 1,398 , respectively. 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. Note 7: Field equipment, net The following table sets forth the Company’s field equipment, net: December 31, 2022 2021 Field equipment $ 36,727 $ 33,789 Accumulated depreciation ( 24,043 ) ( 20,866 ) Field equipment, net $ 12,684 $ 12,923 Depreciation expense was $ 6,463 , $ 6,355 and $ 5,117 for the years ended December 31, 2022, 2021 and 2020, respectively. Write downs of $ 611 , $ 639 and $ 409 were identified for the years ended December 31, 2022, 2021 and 2020, respectively. Note 8: Other payables, lease liabilities and accrued expenses The following table sets forth the Company’s other payables and accrued expenses: December 31, 2022 2021 Employees and payroll accruals $ 40,778 $ 39,590 Deferred revenues 18,028 17,762 Government authorities 8,660 5,797 Other 6,114 6,853 $ 73,580 $ 70,002 85 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Note 9: 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. Pension expense is presented in the payroll expenses in the various functions in which the employees are engaged. Actuarial gains and losses arising from differences between the actual and the expected return on the Swiss Plan assets are recognized in accumulated other comprehensive income (loss) and amortized over the requisite service period. The Swiss Plan is part of a collective pension foundation of pooled investments managed by a top tier insurance company. The Company and the employees pay retirement contributions, which are defined as a percentage of the employees’ covered salaries.The basis for the determination of the interest on employee’s savings account is the return on plan assets, considering legal minimum requirements. The targeted allocation for these funds is as follows: Asset Allocation by Category as of December 31, 2022: Asset allocation (%) Asset Category: Debt Securities 32 % Real Estate 26 % Equity Securities 34 % Others 8 % Total 100 % 86 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) The following table sets forth the Swiss Plan’s funded status and amounts recognized in the consolidated financial statements for the year ended December 31, 2022 and 2021: December 31, 2022 2021 Change in Benefit Obligation Projected benefit obligation at beginning of year $ 29,975 $ 22,753 Interest cost 62 48 Company service cost 2,725 1,915 Employee contributions 1,631 1,167 Prior service cost 484 ( 923 ) Benefits paid 423 2,976 Actuarial loss ( 5,865 ) 2,039 Projected benefit obligation at end of year $ 29,435 $ 29,975 Change in Plan Assets Fair value of plan assets at beginning of year $ 25,967 $ 18,082 Actual return on plan assets ( 4,937 ) 1,992 Employer contributions 2,446 1,750 Employee contributions 1,631 1,167 Benefits paid 424 2,976 Fair value of plan assets at end of year $ 25,531 $ 25,967 Funded Status at End of year Excess of obligation over assets $ 3,904 $ 4,008 Change in Accrued Benefit Liability Accrued benefit liability at beginning of year $ ( 4,008 ) $ ( 4,671 ) Company contributions made during year 2,446 1,750 Net periodic benefit cost for year ( 2,078 ) ( 1,310 ) Net decrease (increase) in accumulated other comprehensive loss ( 264 ) 223 Accrued benefit liability at end of year $ ( 3,904 ) $ ( 4,008 ) December 31, 2022 2021 Non-current plan assets $ 25,531 $ 25,967 Non-current liability 29,435 29,975 Accrued benefit liability at end of year $ ( 3,904 ) $ ( 4,008 ) Projected Benefit Payments Projected year 1 $ 539 $ 567 Projected year 2 744 454 Projected year 3 983 819 Projected year 4 1,065 765 Projected year 5 578 452 Projected years 6-10 16,940 13,816 The fair value of the plan assets is the estimated cash surrender value of the insurance contract at December 31, 2022. The level of inputs used to measure fair value was Level 2. 87 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Year ended December 31, 2022 2021 Net Periodic Benefit Cost Service cost $ 2,725 $ 1,915 Interest cost (income) 62 48 Expected return on plan assets ( 701 ) ( 508 ) Amortization of actuarial (gain) loss 117 133 Amortization of prior service costs ( 99 ) ( 94 ) Total net periodic benefit cost $ 2,104 $ 1,494 Weighted average assumptions: Discount rate as of December 31 2.30 % 0.20 % Expected long-term rate of return on assets 3.50 % 2.50 % Rate of compensation increase 1.50 % 1.00 % Mortality and disability assumptions (*) BVG 2020 GT BVG 2020 GT (*) Mortality data used for actuarial calculation. Note 10: Long-term debt, net The following table sets forth the Company’s long-term debt, net: December 31, 2022 2021 0 % Convertible Senior Notes (a) $ 565,509 $ 562,216 Credit facility (b) — — $ 565,509 $ 562,216 a. Convertible Notes On November 5, 2020, the Company issued $ 575,000 aggregate principal amount of 0 % Convertible Senior Notes due 2025 (the “Notes”). The net proceeds from the offering were approximately $ 558,400 . The Notes are senior unsecured obligations of the Company. The Notes do not bear regular interest, and the principal amount of the Notes will not accrete. Special interest, if any, payable in accordance with the terms of the Notes will be payable in cash semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021. The Notes mature on November 1, 2025, unless earlier repurchased, redeemed or converted. The Notes are convertible into cash, the Company’s ordinary shares or a combination of cash and the Company’s ordinary shares at the Company’s election at an initial conversion rate of 5.9439 ordinary shares per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $ 168.24 per ordinary share. In January 2021, the Company irrevocably elected to settle all conversions of Notes by a combination of cash and the Company's ordinary shares and that the cash portion per $ 1,000 principal amount of Notes for all conversion settlements shall be $ 1,000 . Accordingly, from and after the date of the election, upon conversion of any Notes, 88 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) holders of Notes will receive, with respect to each $ 1,000 principal amount of Notes converted, cash in an amount up to $ 1,000 and the balance of the conversion value, if any, in ordinary shares (the "Conversion Shares"). The Notes are not redeemable prior to November 6, 2023, except in the event of certain tax law changes. The Company may redeem for cash all or any portion of the Notes, at the Company’s option, on or after November 6, 2023 if the last reported sale price of the Company’s ordinary shares has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the Notes. Prior to the close of business on the business day immediately preceding August 1, 2025, the Notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods as described below and if the Company exercises its right to redeem the Notes as permitted or required by the Indenture as described below. On or after August 1, 2025 until the close of the business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions. If holders of at least $ 3,000 aggregate principal amount of the Notes provide the Company with reasonable evidence that the trading price per $ 1,000 principal amount of Notes (the “Note Trading Price”) on any trading day would be less than 98 % of the product of the last reported sale price of the Ordinary Shares on such trading day and the conversion rate on such trading day (the “Trigger Note Price”), the Company shall follow the process for obtaining the Note Trading Price as provided in the Indenture on a daily basis until the Note Trading Price exceeds the Trigger Notice Price. During this time, if during any five consecutive trading day period (the “Measurement Period”) the Note Trading Price is less than 98 % of the Trigger Notice Price, the Company must notify the holders and the trustee of such an event and the holders may convert their Notes into Ordinary Shares at any time during the five business day period immediately after. If the Company intends to (i) issue warrants/rights/options to existing shareholders with an exercise price less than the ten -day trailing last trading price average or (ii) distribute to shareholders assets, securities or rights with a value per share greater than 10 % of the last reported trading price, then the Company must give holders of the Notes thirty-five ( 35 ) trading days’ notice of such event, at which time a holder may convert their Notes during such 35 trading day period (or until the Company revokes its decision to issue/distribute the securities, whichever comes sooner). In addition, upon the occurrence of a fundamental change (as defined in the indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. As of December 31, 2022, the conditions allowing holders of the Notes to convert were not met. The Notes are therefore not convertible as of December 31, 2022 and are classified as long-term liability. 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: December 31, 2022 2021 Liability component, net: Principal amount $ 575,000 $ 575,000 Unamortized issuance costs ( 9,491 ) ( 12,784 ) Net carrying amount of liability component (1) $ 565,509 $ 562,216 (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 89 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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 $ 3,293 $ 3,339 $ 333 Amortization of debt discount $ — $ — $ 3,605 Total finance expense recognized $ 3,293 $ 3,339 $ 3,938 b. Loan and Security Agreement On February 7, 2018, the Company and certain of its subsidiaries entered into a Loan and Security Agreement ("2018 Loan Agreement") with BioPharma Credit PLC pursuant to which such lender made a term loan to the Company in the principal amount of $ 150,000 (the "2018 Credit Facility"). The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bore interest at 9.0 % per annum, payable quarterly in arrears. On August 18, 2020, the Company terminated the 2018 Credit Facility. The prepayment included $ 150,000 in principal repayment and $ 3,000 in prepayment premium, plus accrued and unpaid interest and expenses payable through the payoff date. The un-amortized issuance costs in the amount of $ 478 that were fully amortized upon the repayment and the prepayment premium were reported in the Company’s finance expenses. Note 11: Other long-term liabilities December 31, 2022 2021 Leasehold improvements financing and other $ 72 $ 12 Unrecognized tax benefits (Note 13(e)) 76 154 $ 148 $ 166 Note 12: Commitments and contingent liabilities a. Operating leases The facilities of the Company are leased under various operating lease agreements for periods ending no later than 2044. The Company also has the option to extend the term of certain facility lease agreements and these are included in the calculation of right-of-use assets. The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2025. Under ASC 842, all leases with durations greater than 12 months, including non-cancelable operating leases, are recognized on the balance sheet. The aggregated present value of lease payments is recorded as a long-term asset titled right-of-use assets. The corresponding lease liabilities are split between other payables and long-term lease liabilities, and as of December 31, 2022, are as follows: December 31, 2022 Future minimum lease payments: 2023 $ 6,228 2024 5,254 90 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 2025 4,484 2026 4,085 2027 3,272 Thereafter 5,089 Total future minimum lease payments $ 28,412 Less imputed interest ( 3,846 ) Net present value of future minimum lease payments $ 24,566 Current year end Short-term lease liabilities $ 5,804 Long-term lease liabilities 18,762 Net present value of future minimum lease payments $ 24,566 Weighted average of remaining operating lease term (years) 5.66 Weighted average of operating lease discount rate 5.38 % Lease and rental expense for the years ended December 31, 2022, 2021 and 2020 was $ 7,108 , $ 7,349 , and $ 5,950 , respectively. b. Bank guarantee and pledges As of December 31, 2022 and 2021 the Company pledged bank deposits of $ 2,296 and $ 2,350 , respectively, to cover bank guarantees in respect of its leases of operating facilities and obtained guarantees by the bank for the fulfillment of the Company’s lease commitments of $ 2,459 and $ 2,698 , respectively. c. 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 "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 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. d. 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 91 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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. In partial consideration for the license grant to Zai for Greater China, the Company was entitled to a non-refundable, up-front license fee in the amount of $ 15,000 (the "License Fee"). The Zai Agreement also provides for certain development, regulatory and commercial milestone payments totaling up to $ 78,000 . Furthermore, pursuant to the Zai Agreement, Zai will pay the Company tiered royalties at percentage rates from 10 up to the mid-teens on the net sales of the licensed products in Greater China. Zai is purchasing licensed products for commercial use exclusively from the Company at the Company’s fully burdened manufacturing cost. The Company recognizes revenue pursuant to the License Agreement with Zai in accordance with ASC 606, "Revenue Recognition from Customers." The License Fee is deferred and recognized over related six year performance period commencing September 10, 2018 ("Zai Performance Period"). Revenue from commercial milestone payments will be recognized upon the achievement of such milestones and future clinical or regulatory milestone payments will be recognized in a straight line over the applicable performance period, in accordance with ASC 606. Revenue from royalty payments are recognized in accordance with ASC 606 in the period accrued. Revenues from sales of product or rendering services are recognized upon shipping the products or rendering the services and satisfying the performance obligation. During the year ended December 31, 2020, the Company triggered an aggregate $ 10,000 of milestone payments, which, with the License Fee, are deferred and recognized over the remainder of the Zai Performance Period ending in September 2024 on a straight-line basis, resulting in revenue of $ 4,389 $ 6,308 and $ 3,981 for the years ended December 31, 2022, 2021 and 2020, respectively. 92 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Note 13: Income taxes a. 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: Year ended December 31, 2022 2021 2020 Swiss $ ( 269,621 ) $ ( 145,591 ) $ 32,010 Non-Swiss 187,775 93,516 ( 13,908 ) Total income (loss) before income taxes $ ( 81,846 ) $ ( 52,075 ) $ 18,102 The provision (benefit) for income taxes from continuing operations is comprised of: Year ended December 31, 2022 2021 2020 Current: Swiss $ 469 $ 281 $ 3,105 Non-Swiss 10,219 5,995 ( 4,811 ) Total current $ 10,688 $ 6,276 $ ( 1,706 ) Deferred: Swiss $ — — $ — Non-Swiss — — — Total deferred — — — Total income tax provision $ 10,688 $ 6,276 $ ( 1,706 ) b. Theoretical tax The Company's effective tax rate is affected by the tax rates in the various jurisdictions in which the Company operates. 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. 93 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. 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, 2022 2021 2020 Income (loss) before income taxes $ ( 81,846 ) $ ( 52,075 ) $ 18,102 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 Change in valuation allowance ( 14,238 ) 11,643 6,821 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 ) Return to provision true-ups ( 1,020 ) 2,416 — Withholding taxes 548 273 2,366 Other 538 1,621 603 Income tax $ 10,688 $ 6,276 $ ( 1,706 ) Effective tax rate ( 13.1 ) % ( 12.1 ) % ( 9.4 ) % c. Deferred income tax Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: December 31, 2022 2021 Deferred tax assets: Unamortized intangible assets $ 153,450 $ 138,978 Impact of revenue recognition $ 82,972 $ 112,251 Net operating loss carryforwards $ 65,472 $ 77,664 Share based compensation $ 30,009 $ 25,644 Capitalized research and development $ 16,730 $ — Research and development credits $ 8,992 $ 12,146 Lease liabilities $ 5,846 $ 4,836 Interest limitations $ — $ 7,948 Other temporary differences $ 7,089 $ 3,032 Total gross deferred tax assets $ 370,560 $ 382,499 Less: valuation allowance ( 361,358 ) ( 375,717 ) Total deferred tax assets 9,202 6,782 Deferred tax liabilities: Right of use assets 5,785 4,559 Fixed assets 1,730 2,214 Other liabilities 1,687 9 Total gross deferred tax liabilities $ 9,202 $ 6,782 Net deferred taxes assets (liability) $ — $ — d. Carryforward loss: 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 94 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 2029. 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. e. Uncertain tax benefits: A reconciliation of the beginning and ending balances of uncertain tax benefits is as follows: December 31, 2022 2021 2020 Balance at beginning of the year $ 154 $ 297 $ 116 Additions (reductions) for taxes positions related to prior years ( 78 ) ( 143 ) 181 Balance at the end of the year $ 76 $ 154 $ 297 The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. 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 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 2016 to 2021 remain subject to examination by Swiss, U.S. and other tax authorities . Note 14: Share capital Share capital is composed as follows: Issued and outstanding Number of shares December 31, 2022 2021 Ordinary shares no par value 105,049,411 103,971,263 Equity incentive plans: Stock option plan Until the IPO in October 2015, the Company maintained and granted option awards under the 2003 Share Option Plan (the "2003 Plan") and the 2013 Equity Incentive Share Option Plan (the "2013 Plan") for the Company’s officers, directors, employees and advisors. The 2003 Plan and the 2013 Plan terminated as of the IPO as to future awards, but they continue to govern option awards previously granted thereunder. In September 2015, the Company adopted the 2015 Omnibus Incentive Plan (the "2015 Plan"). The Company’s shareholders approved the 2015 Plan in September 2015. 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 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. Options, RSUs and PSUs granted under the 2015 Plan that are canceled before expiration become available for future grants. On December 31, 2022, in accordance with the terms of the 2015 Plan, the number of shares available for issuance under the 2015 Plan automatically increased by 4 % of the Company’s outstanding ordinary shares as of December 30, 2022. As a result, the number of shares available for issuance under the 2015 Plan increased from 39,264,853 shares to 43,465,227 shares. As of December 31, 2022, 20,630,323 ordinary shares are available for grant under the 2015 Plan. 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 95 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 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 section. The Company began its offerings under the ESPP on August 1, 2016. The Company issued 86,264 ordinary shares for the plan period from January 1, 2022 through December 31, 2022. The terms of the ESPP provide that on December 31 of each year, the number of shares available for purchase by eligible employees who participate in the ESPP automatically increases by 1 % of the Company’s outstanding ordinary shares outstanding, unless the Company determines that such an increase is not necessary. The Company determined that an such increase was not necessary and no such increase took place. As of December 31, 2022, 4,868,733 ordinary shares are available for offering under the ESPP. The fair value of share-based awards was estimated using the Black-Scholes model for all equity grants and for market condition awards. The Company also applied the Monte-Carlo simulation model, with the following underlying assumptions: Year ended December 31, 2022 2021 2020 Stock Option Plans Expected term (years) 5.33 - 5.83 5.50 - 6.00 5.50 - 6.00 Expected volatility 60 %- 62 % 60 %- 63 % 54 %- 56 % Risk-free interest rate 1.58 %- 4.23 % 0.78 %- 1.27 % 0.30 %- 0.86 % Dividend yield 0.00 % 0.00 % 0.00 % ESPP Expected term (years) 0.50 0.50 0.50 Expected volatility 51 %- 77 % 54 %- 81 % 47 %- 66 % Risk-free interest rate 0.19 %- 2.52 % 0.05 %- 0.09 % 0.17 %- 1.57 % Dividend yield 0.00 % 0.00 % 0.00 % A summary of the status of the Company’s options to purchase ordinary shares as of December 31, 2022 and changes during the year ended on that date is presented below: Year ended December 31, 2022 Number of options Weighted average exercise price Aggregate intrinsic value Outstanding at beginning of year 8,549,322 $ 33.09 Granted 857,077 78.69 Exercised ( 474,116 ) 21.55 Forfeited and cancelled ( 145,919 ) 86.79 Outstanding at end of year 8,786,364 $ 37.27 $ 355,931 Exercisable options 7,103,058 $ 25.53 $ 350,025 A summary of the status of the Company’s RSUs and PSUs as of December 31, 2022 and changes during the year ended on that date is presented below: 96 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) Year ended December 31, 2022 Number of RSUs/PSUs Weighted average grant date fair value price Aggregate intrinsic value Unvested at beginning of year 4,459,107 $ 65.56 Granted 1,572,203 79.45 Vested ( 517,768 ) 86.56 Forfeited and cancelled ( 136,083 ) 94.21 Unvested at end of year (1) 5,377,459 $ 66.87 $ 394,437 (1) Includes PSUs that have a mix of service, market and other milestone performance vesting conditions which are vested upon achievements of market and performance conditions which are not probable, as of December 31, 2022, in accordance with ASC 718 as follows: December 31, 2022 Number of PSUs Fair value at grant date per PSU Total fair value at grant date 2,703,852 $ 48.16 $ 130,218 108,113 69.37 7,500 124,701 80.59 10,050 17,712 84.68 1,500 7,605 $ 87.66 $ 667 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. The total equity-based compensation expense related to all of the Company’s equity incentive plans recognized for the years ended December 31, 2022, 2021 and 2020, was comprised as follows: Year ended December 31, 2022 2021 2020 Cost of revenues $ 4,690 $ 3,471 $ 2,221 Research, development and clinical studies 30,790 27,597 18,125 Sales and marketing 28,826 22,673 17,672 General and administrative 42,649 41,159 37,703 Total share-based compensation expense $ 106,955 $ 94,900 $ 75,721 As of December 31, 2022, unamortized share-based compensation costs amounted to $ 125,600 and are expected to be recognized over a weighted average period of approximately 2.38 years. 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. 97 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) 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 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. 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: Exercise price Number of options outstanding Weighted average remaining contractual term Number of options exercisable Weighted average remaining contractual term $ (years) (years) 0.00 - 10.00 971,356 3.68 971,356 3.68 10.01 - 20.00 2,570,427 3.97 2,570,427 3.97 20.01 - 30.00 1,773,039 4.51 1,773,039 4.51 30.01 - 40.00 263,141 5.54 263,141 5.54 40.01 - 60.00 1,148,810 6.29 984,817 6.30 60.01 - 100.00 1,620,734 8.23 417,461 7.01 100.01 - 160.00 429,595 8.21 114,879 8.06 160.01 - 220.00 9,262 8.42 7,938 8.44 8,786,364 5.4 7,103,058 4.7 Note 15: Financial (expenses) income, net The following table sets forth the Company’s total financial expenses, net: Year ended December 31, 2022 2021 2020 Financial expenses: Interest expense $ ( 41 ) $ ( 101 ) $ ( 13,068 ) Revolving credit facility fee ( 558 ) ( 588 ) ( 79 ) Amortization of discount and issuance costs ( 3,293 ) ( 3,339 ) ( 4,514 ) Foreign currency translation losses ( 3,523 ) ( 4,032 ) — Others ( 698 ) ( 779 ) ( 389 ) $ ( 8,113 ) $ ( 8,839 ) $ ( 18,050 ) Financial income: Amortization of investments premium $ 4,829 $ 306 $ 1,316 Foreign currency translation gains — — 2,648 Interest income 10,961 791 1,787 $ 15,790 $ 1,097 $ 5,751 Total financial (expenses) income, net $ 7,677 $ ( 7,742 ) $ ( 12,299 ) Note 16: Basic and diluted net income (loss) per share Basic net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income per share is computed based on the weighted average number of ordinary shares outstanding during the period, plus potential dilutive shares (deriving from options, RSUs, PSUs, convertible notes and the ESPP) considered outstanding during the period, in accordance with ASC 260-10, as determined under the treasury stock method. 98 Table of Contents NovoCure Limited and subsidiaries Notes to consolidated financial statements U.S. dollars in thousands (except share and per share data) The following table sets forth the computation of the Company’s basic and diluted net loss per ordinary share: Year ended December 31, 2022 2021 2020 Net income (loss) attributable to ordinary shares as reported $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Net income (loss) used in computing basic net income (loss) per share $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Adjustment needed in calculating diluted net income (loss) per share — — — Net income (loss) used in computing diluted net income (loss) per share $ ( 92,534 ) $ ( 58,351 ) $ 19,808 Weighted average number of ordinary shares used in computing basic net income (loss) per share 104,660,476 103,433,274 100,930,866 Potentially dilutive shares that were excluded from the computation of basic net income (loss) per share: Options — — 6,967,554 Restricted share units — — 945,612 ESPP — — 33,616 Weighted average number of ordinary shares used in computing diluted net income (loss) per share 104,660,476 103,433,274 108,877,648 Weighted anti-dilutive shares outstanding which were not included in the diluted calculation 7,272,606 8,524,922 1,307,762 Basic net income (loss) per ordinary share $ ( 0.88 ) $ ( 0.56 ) $ 0.20 Diluted net income (loss) per ordinary share $ ( 0.88 ) $ ( 0.56 ) $ 0.18 Note 17: Subcontractor In certain markets and for certain key components, the Company is currently dependent upon sole source suppliers used in its devices. The Company’s management believes that in most cases other suppliers could provide similar components at comparable terms. A change of suppliers which requires FDA or other regulatory approval, however, could cause a material delay in manufacturing and a possible loss of sales, which could adversely affect the Company’s operating results and financial position. 99 Note 18: Supplemental information The following table presents long-lived assets by location: December 31, 2022 2021 United States $ 30,012 $ 23,263 Israel 7,180 5,297 Switzerland 5,084 4,085 Japan 1,063 799 Germany 762 1,020 Others 1,261 1,152 Total long-lived assets $ 45,362 $ 35,616 The Company’s net revenues by geographic region, based on the patient’s location are summarized as follows: Year ended December 31, 2022 2021 2020 United States $ 406,894 $ 353,110 $ 340,782 EMEA: Germany 46,120 93,939 93,264 Other EMEA 30,713 30,577 18,654 Japan 32,781 34,640 29,076 Greater China (1) 21,332 22,765 12,590 Total net revenues $ 537,840 $ 535,031 $ 494,366 (1) For additional information, see Note 12. Note 19: Selected quarterly financial information (Unaudited) The following table sets forth selected financial information for the Company: 2022 Three months ended December 31 September 30 June 30 March 31 Net revenues $ 128,429 $ 130,998 $ 140,866 $ 137,547 Gross profit 99,541 101,249 112,363 109,820 Operating income (loss) ( 42,978 ) ( 24,611 ) ( 21,128 ) ( 806 ) Net income (loss) ( 37,303 ) ( 26,576 ) ( 24,008 ) ( 4,647 ) Basic net income (loss) per ordinary share $ ( 0.36 ) $ ( 0.25 ) $ ( 0.23 ) $ ( 0.04 ) Weighted average number of ordinary shares used in computing basic net income (loss) per share 105,026,945 104,884,583 104,627,789 104,186,120 Diluted net income (loss) per ordinary share $ ( 0.36 ) $ ( 0.25 ) $ ( 0.23 ) $ ( 0.04 ) Weighted average number of ordinary shares used in computing diluted net income (loss) per share 105,026,945 104,884,583 104,627,789 104,186,120 100 2021 Three months ended December 31 September 30 June 30 March 31 Net revenues $ 133,213 $ 133,606 $ 133,517 $ 134,695 Gross profit 103,526 103,400 104,918 108,310 Operating income (loss) ( 23,398 ) ( 8,552 ) ( 12,295 ) ( 88 ) Net income (loss) ( 26,458 ) ( 13,124 ) ( 14,641 ) ( 4,128 ) Basic net income (loss) per ordinary share $ ( 0.25 ) $ ( 0.13 ) $ ( 0.14 ) $ ( 0.04 ) Weighted average number of ordinary shares used in computing basic net income (loss) per share 103,884,288 103,731,147 103,484,866 102,633,545 Diluted net income (loss) per ordinary share $ ( 0.25 ) $ ( 0.13 ) $ ( 0.14 ) $ ( 0.04 ) Weighted average number of ordinary shares used in computing diluted net income (loss) per share 103,884,288 103,731,147 103,484,866 102,633,545 2020 Three months ended December 31 September 30 June 30 March 31 Net revenues $ 143,953 $ 132,660 $ 115,925 $ 101,828 Gross profit 115,817 104,265 90,451 77,332 Operating income (loss) 12,092 15,022 6,668 ( 3,381 ) Net income (loss) 4,917 9,284 1,655 3,952 Basic net income (loss) per ordinary share $ 0.05 $ 0.09 $ 0.02 $ 0.04 Weighted average number of ordinary shares used in computing basic net income (loss) per share 101,945,085 101,234,306 100,718,893 99,877,567 Diluted net income (loss) per ordinary share $ 0.04 $ 0.09 $ 0.02 $ 0.04 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 Note 20: 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. 101 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.