NovoCure Ltd 10-Q

Item 1. Financial Statements NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share data) September 30, 2023 December 31, 2022 Unaudited Audited ASSETS CURRENT ASSETS: Cash and cash equivalents $ 154,860 $ 115,326 Short-term investments 766,388 854,099 Restricted cash 1,652 508 Trade receivables, net 65,133 86,261 Receivables and prepaid expenses 23,163 25,959 Inventories 36,806 29,376 Total current assets 1,048,002 1,111,529 LONG-TERM ASSETS: Property and equipment, net 45,564 32,678 Field equipment, net 11,357 12,684 Right-of-use assets 29,014 23,596 Other long-term assets 12,416 11,161 Total long-term assets 98,351 80,119 TOTAL ASSETS $ 1,146,353 $ 1,191,648 The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 Table of Contents NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands (except share data) September 30, 2023 December 31, 2022 Unaudited Audited LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables $ 79,668 $ 85,197 Other payables, lease liabilities and accrued expenses 77,493 73,580 Total current liabilities 157,161 158,777 LONG-TERM LIABILITIES: Long-term debt, net 567,986 565,509 Deferred revenues — 2,878 Long-term leases 22,054 18,762 Employee benefit liabilities 5,373 4,404 Other long-term liabilities 75 148 Total long-term liabilities 595,488 591,701 TOTAL LIABILITIES 752,649 750,478 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Share capital - Ordinary shares no par value, unlimited shares authorized; issued and outstanding: 106,748,270 shares and 105,049,411 shares at September 30, 2023 (unaudited) and December 31, 2022, respectively — — Additional paid-in capital 1,334,120 1,222,063 Accumulated other comprehensive income (loss) ( 1,992 ) ( 2,433 ) Retained earnings (accumulated deficit) ( 938,424 ) ( 778,460 ) TOTAL SHAREHOLDERS' EQUITY 393,704 441,170 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,146,353 $ 1,191,648 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Table of Contents NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except share and per share data) Three months ended September 30, Nine months ended September 30, Year ended December 31, 2023 2022 2023 2022 2022 Unaudited Unaudited Audited Net revenues $ 127,321 $ 130,998 $ 375,554 $ 409,411 $ 537,840 Cost of revenues 32,092 29,749 95,724 85,979 114,867 Gross profit 95,229 101,249 279,830 323,432 422,973 Operating costs and expenses: Research, development and clinical studies 53,623 51,956 168,754 151,265 206,085 Sales and marketing 57,964 41,395 167,621 124,029 173,658 General and administrative 41,887 32,509 124,609 94,683 132,753 Total operating costs and expenses 153,474 125,860 460,984 369,977 512,496 Operating income (loss) ( 58,245 ) ( 24,611 ) ( 181,154 ) ( 46,545 ) ( 89,523 ) Financial income (expenses), net 10,023 1,194 27,948 ( 2,743 ) 7,677 Income (loss) before income tax ( 48,222 ) ( 23,417 ) ( 153,206 ) ( 49,288 ) ( 81,846 ) Income tax 1,263 3,159 6,758 5,943 10,688 Net income (loss) $ ( 49,485 ) $ ( 26,576 ) $ ( 159,964 ) $ ( 55,231 ) $ ( 92,534 ) Basic and diluted net income (loss) per ordinary share $ ( 0.46 ) $ ( 0.25 ) $ ( 1.51 ) $ ( 0.53 ) $ ( 0.88 ) Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per share 106,772,814 104,884,583 106,219,194 104,552,803 104,660,476 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) U.S. dollars in thousands Three months ended September 30, Nine months ended September 30, Year ended December 31, 2023 2022 2023 2022 2022 Unaudited Unaudited Audited Net income (loss) $ ( 49,485 ) $ ( 26,576 ) $ ( 159,964 ) $ ( 55,231 ) $ ( 92,534 ) Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustments 826 541 1,655 1,550 1,425 Unrealized gain (loss) from debt securities 15 ( 127 ) 440 ( 896 ) ( 445 ) Pension benefit plan ( 852 ) ( 625 ) ( 1,654 ) 209 ( 244 ) Total comprehensive income (loss) $ ( 49,496 ) $ ( 26,787 ) $ ( 159,523 ) $ ( 54,368 ) $ ( 91,798 ) NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY U.S. dollars in thousands (except share data) Ordinary shares Additional paid-in capital Accumulated other comprehensive loss Retained earnings (accumulated deficit) Total shareholders' equity Balance as of December 31, 2022 (audited) 105,049,411 $ 1,222,063 $ ( 2,433 ) $ ( 778,460 ) $ 441,170 Share-based compensation to employees — 39,084 — — 39,084 Exercise of options and vested RSUs 1,137,751 5,211 — — 5,211 Other comprehensive income (loss), net of tax benefit of $ 0 — — ( 258 ) — ( 258 ) Net income (loss) — — — ( 53,061 ) ( 53,061 ) Balance as of March 31, 2023 (Unaudited) 106,187,162 $ 1,266,358 $ ( 2,691 ) $ ( 831,521 ) $ 432,146 Share-based compensation to employees — 32,740 — — 32,740 Proceeds from issuance of shares 81,730 2,883 — — 2,883 Exercise of options and vested RSUs 336,439 4,622 — 4,622 Other comprehensive income (loss), net of tax benefit of $ 0 — — 710 — 710 Net income (loss) — — — ( 57,418 ) ( 57,418 ) Balance as of June 30, 2023 (Unaudited) 106,605,331 $ 1,306,603 $ ( 1,981 ) $ ( 888,939 ) $ 415,683 Share-based compensation to employees — 26,346 — — 26,346 Exercise of options and vested RSUs 142,939 1,171 — — 1,171 Other comprehensive income (loss), net of tax benefit of $ 0 — — ( 11 ) — ( 11 ) Net income (loss) — — — ( 49,485 ) ( 49,485 ) Balance as of September 30, 2023 (Unaudited) 106,748,270 $ 1,334,120 $ ( 1,992 ) $ ( 938,424 ) $ 393,704 5 Table of Contents Ordinary shares Additional paid-in capital Accumulated other comprehensive loss Retained earnings (accumulated deficit) Total shareholders' equity Balance as of December 31, 2021 (audited) 103,971,263 $ 1,099,589 $ ( 3,169 ) $ ( 685,926 ) $ 410,494 Share-based compensation to employees — 25,045 — — 25,045 Exercise of options and vested RSUs 587,825 3,148 — — 3,148 Other comprehensive income (loss), net of tax benefit of $ 0 — — 1,841 — 1,841 Net income (loss) — — — ( 4,647 ) ( 4,647 ) Balance as of March 31, 2022 (Unaudited) 104,559,088 $ 1,127,782 $ ( 1,328 ) $ ( 690,573 ) $ 435,881 Share-based compensation to employees — 25,823 — — 25,823 Proceeds from issuance of shares 46,709 2,759 — — 2,759 Exercise of options and vested RSUs 121,888 1,984 — — 1,984 Other comprehensive income (loss), net of tax benefit of $ 0 — — ( 767 ) — ( 767 ) Net income (loss) — — — ( 24,008 ) ( 24,008 ) Balance as of June 30, 2022 (Unaudited) 104,727,685 $ 1,158,348 $ ( 2,095 ) $ ( 714,581 ) $ 441,672 Share-based compensation to employees — 26,305 — — 26,305 Exercise of options and vested RSUs 215,256 4,211 — — 4,211 Other comprehensive income (loss), net of tax benefit of $ 0 — — ( 211 ) — ( 211 ) Net income (loss) — — — ( 26,576 ) ( 26,576 ) Balance as of September 30, 2022 (Unaudited) 104,942,941 $ 1,188,864 $ ( 2,306 ) $ ( 741,157 ) $ 445,401 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Three months ended September 30, Nine months ended September 30, Year ended December 31, 2023 2022 2023 2022 2022 Unaudited Unaudited Audited Cash flows from operating activities: Net income (loss) $ ( 49,485 ) $ ( 26,576 ) $ ( 159,964 ) $ ( 55,231 ) $ ( 92,534 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,803 2,659 8,246 7,924 10,624 Accrued Interest 480 1 530 ( 822 ) ( 2,216 ) Asset write-downs and impairment of field equipment 112 163 374 514 955 Share-based compensation 26,346 26,305 98,170 77,173 106,955 Foreign currency remeasurement loss (gain) 1,398 ( 141 ) 2,185 1,051 ( 3,256 ) Decrease (increase) in accounts receivables 2,642 11,522 24,094 6,318 2,547 Amortization of discount (premium) ( 6,691 ) 232 ( 15,822 ) 1,743 ( 1,536 ) Decrease (increase) in inventories ( 4,080 ) 2,952 ( 8,250 ) ( 2,061 ) ( 4,342 ) Decrease (increase) in other long-term assets 3,971 1,665 3,585 5,885 7,107 Increase (decrease) in accounts payables and accrued expenses 6,265 5,265 ( 3,992 ) ( 1,895 ) 14,257 Increase (decrease) in other long-term liabilities ( 3,075 ) ( 1,627 ) ( 7,934 ) ( 6,104 ) ( 7,773 ) Net cash provided by (used in) operating activities $ ( 19,314 ) $ 22,420 ( 58,778 ) 34,495 30,788 Cash flows from investing activities: Purchase of property, equipment and field equipment $ ( 7,253 ) $ ( 5,703 ) ( 20,272 ) ( 14,927 ) ( 21,358 ) Proceeds from maturity of short-term investments 275,549 358,729 916,433 1,074,763 1,179,289 Purchase of short-term investments ( 251,038 ) ( 503,270 ) ( 810,513 ) ( 1,071,733 ) ( 1,297,888 ) Net cash provided by (used in) investing activities $ 17,258 $ ( 150,244 ) 85,648 ( 11,897 ) ( 139,957 ) Cash flows from financing activities: Proceeds from issuance of shares, net $ — $ — 2,883 2,759 5,224 Repayment of long-term debt — ( 7 ) ( 10 ) ( 21 ) ( 28 ) Exercise of options 1,171 4,211 11,004 9,343 10,295 Net cash provided by (used in) financing activities $ 1,171 $ 4,204 13,877 12,081 15,491 Effect of exchange rate changes on cash, cash equivalents and restricted cash $ ( 97 ) $ ( 107 ) ( 69 ) ( 252 ) ( 97 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 982 ) ( 123,727 ) 40,678 34,427 ( 93,775 ) Cash, cash equivalents and restricted cash at the beginning of the period 157,494 367,763 115,834 209,609 209,609 Cash, cash equivalents and restricted cash at the end of the period $ 156,512 $ 244,036 $ 156,512 $ 244,036 $ 115,834 7 Table of Contents NOVOCURE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Supplemental cash flow activities: Cash paid during the period for: Income taxes paid (refunded), net $ 1,202 $ 907 $ 8,745 $ 3,933 $ 5,480 Interest paid $ — $ 1 $ 1 $ 3 $ 41 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 154,860 $ 243,805 $ 154,860 $ 243,805 $ 115,326 Restricted cash 1,652 231 1,652 231 508 Total cash, cash equivalents and restricted cash $ 156,512 $ 244,036 $ 156,512 $ 244,036 $ 115,834 Non-cash activities: Right-of-use assets obtained in exchange for lease liabilities $ 4,693 $ 2,828 $ 10,477 $ 6,687 $ 12,117 The accompanying notes are an integral part of these unaudited consolidated financial statements. 8 Table of Contents NOVOCURE LIMITED AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share data) NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION 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 markets Optune and Optune Lua in multiple countries around the globe with the majority of revenues coming from the use of Optune in the U.S., Germany and Japan. 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"). Financial statement preparation . The accompanying unaudited consolidated financial statements include the accounts of the Company and intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation for the periods presented. The preparation of these unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in these unaudited consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. These unaudited consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 10-K") filed with the Securities and Exchange Commission on February 23, 2023. The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed in the 2022 10-K are applied consistently in these unaudited interim consolidated financial statements. Concentration Risks. The Company's 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 and the total value invested at any one institution is limited pursuant to the Company's investment policy. These investments may be in excess of insured limitations or not insured in certain jurisdictions. Generally, these investments may be redeemed upon demand according to the terms of the securities. The Company's 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. The Company has no off-balance sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. 9 Table of Contents NOTE 2: CASH, 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 September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents and short-term investments were composed of: September 30, 2023 Unaudited Fair value level Adjusted cost basis Unrealized gains Unrealized losses Fair market value Recorded basis Cash and cash equivalents Short-term investments (2) Cash $ 8,636 $ — $ — $ 8,636 $ 8,636 $ 8,636 $ — Money market funds Level 1 141,224 — — 141,224 141,224 141,224 — Certificate of deposits and term deposits Level 2 163,820 — — 163,820 163,820 5,000 158,820 HTM securities (1) U.S. Treasury bills Level 1 $ 109,595 $ 15 $ ( 14 ) 109,596 109,595 $ — $ 109,595 Government and governmental agencies Level 2 $ 24,596 $ — $ ( 15 ) 24,581 24,596 $ — $ 24,596 Corporate debt securities Level 2 $ 473,377 $ 83 $ ( 281 ) 473,179 473,377 $ — $ 473,377 $ 607,568 $ 98 $ ( 310 ) $ 607,356 $ 607,568 $ — $ 607,568 Total $ 921,248 $ 98 $ ( 310 ) $ 921,036 $ 921,248 $ 154,860 $ 766,388 December 31, 2022 Audited 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 10 Table of Contents (1) Changes in fair value of held-to-maturity ("HTM") securities are presented for disclosure purposes as required by ASC 320 "Investments — Debt Securities" and are recorded as finance expenses only if the unrealized loss is identified as a credit loss. (2) Pursuant to a bank guaranty, $ 15,862 of short-term investments are pledged. See Note 4. In November 2022, the Company transferred all of its available-for-sale 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 September 30, 2023 and December 31, 2022, the unamortized unrealized loss balances were $ 5 and $ 445 , respectively, and are reported in accumulated other comprehensive income (loss). In accordance with ASC 820, "Fair Value Measurements and Disclosures," the Company measures its money market funds at fair value. The fair value of the money market funds and HTM securities, which is presented for disclosure purposes, is classified within Level 1 or Level 2. This is because these assets are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. As of September 30, 2023 and December 31, 2022, all investments 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. NOTE 3: INVENTORIES Inventories are stated at the lower of cost or net realizable value. The weighted average methodology is applied to determine cost. As of September 30, 2023 and December 31, 2022, the Company’s inventories were composed of: September 30, 2023 December 31, 2022 Unaudited Audited Raw materials $ 10,382 $ 4,314 Work in progress 7,518 9,321 Finished products 18,906 15,741 Total $ 36,806 $ 29,376 NOTE 4: COMMITMENTS AND CONTINGENT LIABILITIES Operating Leases. The facilities of the Company are leased under various operating lease agreements for periods, including options for extensions, ending no later than 2044. The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2026. Pledged deposits and bank guarantees. As of September 30, 2023 and December 31, 2022, the Company pledged bank deposits of $ 2,643 and $ 2,296 , respectively, to cover bank guarantees in respect of its leases of operating facilities and obtained bank guarantees for the fulfillment of the Company’s lease and other contractual commitments of $ 2,991 and $ 2,459 , respectively. In addition, € 15,000 ($ 15,862 ) of the Company's short term investments are pledged to a bank as guarantee for the Company's due execution of cash concentration agreements. Senior secured revolving credit facility. On November 6, 2020, the Company entered into a three-year $ 150,000 senior secured revolving credit facility ("2020 Credit Facility") with a syndicate of relationship banks. On February 17, 2023, the Company gave irrevocable notice to the administrative agent under the 2020 Credit Facility that the Company terminated all commitments, effective February 22, 2023. This effectively terminated the 2020 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 the Company had no outstanding balance borrowed under the 2020 Credit Facility. 11 Table of Contents The commitments under the 2020 Credit Facility were guaranteed by certain of the Company's subsidiaries and secured by a first lien on the Company's and certain of its subsidiaries’ assets. Outstanding loans bore interest per annum at a sliding scale based on a 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 2020 Credit Facility contained a fee for the unused revolving credit commitments at a sliding scale based on our secured leverage ratio from 0.35 % to 0.45 %. The 2020 Credit Facility contained 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, which are no longer applicable. Legal Proceedings. In June 2023, a putative class action lawsuit was filed against the Company, its Executive Chairman and its Chief Executive Officer. The complaint, which purports to be brought on behalf of a class of persons and/or entities who purchased or otherwise acquired ordinary shares of the Company from January 5, 2023 through June 5, 2023, allege material misstatements and/or omissions in the Company’s public statements with respect to the results from its phase 3 LUNAR clinical trial. The Company believes that the action is without merit and plans to defend the lawsuit vigorously. As of September 30, 2023, the Company has not accrued any amounts in respect of this claim, as it believes liability is not probable and the amount of any potential liability cannot be reasonably estimated. NOTE 5: CONVERTIBLE NOTE On November 5, 2020, the Company issued $ 575,000 aggregate principal amount of 0 % Convertible Senior Notes due 2025 (the “Notes”). The Notes mature on November 1, 2025, unless earlier repurchased, redeemed or converted as set forth in the Notes. As of September 30, 2023, the conditions allowing holders of the Notes to convert were not met. The Notes are therefore not convertible as of September 30, 2023 and are classified as long-term liability. The net carrying amount of the liability of the Notes as of September 30, 2023 and December 31, 2022 are as follows: September 30, 2023 December 31, 2022 Unaudited Audited Liability component, net: Principal amount $ 575,000 $ 575,000 Unamortized issuance costs ( 7,014 ) ( 9,491 ) Net carrying amount of liability component (1) $ 567,986 $ 565,509 (1) An effective interest rate determines the fair value of the Notes, therefore they are categorized as Level 3 in accordance with ASC 820. The estimated fair value of the net carrying amount of liability component of the Notes as of September 30, 2023 and December 31, 2022 were $ 480,791 and $ 455,091 , respectively. The net carrying amount of the liability is represented by the principal amount of the Notes, less total issuance costs plus any amortization of issuance costs. The total issuance costs upon issuance of the Notes were $ 16,561 and are amortized to interest expense using the effective interest rate method over the contractual term of the Notes. Interest expense is recognized at an annual effective interest rate of 0.59 % over the contractual term of the Notes. Finance expense related to the Notes was as follows: Three months ended September 30, Nine months ended September 30, Year ended December 31, 2022 2023 2022 2023 2022 Unaudited Unaudited Audited Amortization of debt issuance costs 836 831 2,477 2,461 3,293 Total finance expense recognized $ 836 $ 831 $ 2,477 $ 2,461 $ 3,293 12 Table of Contents NOTE 6: SHARE OPTION PLANS AND ESPP In September 2015, the Company adopted the 2015 Omnibus Incentive Plan (the “2015 Plan”). Under the 2015 Plan, the Company can issue various types of equity compensation awards such as share options, restricted shares, performance shares, restricted share units (“RSUs”), performance-based share units (“PSUs”), long-term cash awards and other share-based awards. Options granted under the 2015 Plan generally have a two-year or four-year vesting period and expire ten years after the date of grant. Options granted under the 2015 Plan that are canceled or forfeited before expiration become available for future grants. RSUs granted under the 2015 Plan generally vest over a three-year period. PSUs granted under the 2015 Plan generally vest between a three - and six-year period as performance targets are attained. RSUs and PSUs granted under the 2015 Plan that are canceled before expiration become available for future grants. As of September 30, 2023, 18,729,954 ordinary shares were available for grant under the 2015 Plan. A summary of the status of the Company’s option plans as of September 30, 2023 and changes during the period then ended is presented below: Nine months ended September 30, 2023 Unaudited Number of options Weighted average exercise price Outstanding at beginning of year 8,786,364 $ 37.27 Granted 942,643 66.90 Exercised ( 787,569 ) 13.94 Forfeited and canceled ( 321,556 ) 73.09 Outstanding as of September 30, 2023 8,619,882 $ 41.31 Exercisable options 6,810,232 $ 31.18 For the nine months ended September 30, 2023, options to purchase 787,569 ordinary shares were exercised, resulting in the issuance of 787,569 ordinary shares. A summary of the status of the Company’s RSUs and PSUs as of September 30, 2023 and changes during the period then ended is presented below. Nine months ended September 30, 2023 Unaudited Number of RSU/PSUs Weighted average grant date fair value Unvested at beginning of year 5,377,459 $ 66.87 Granted 1,457,681 70.39 Vested ( 829,560 ) 84.94 Forfeited and cancelled ( 178,399 ) 86.51 Unvested as of September 30, 2023 (1) 5,827,181 64.60 (1) Includes PSUs that have a mix of service, market and other milestone performance vesting conditions which are vested upon achievements of performance milestones that are not probable as of September 30, 2023, in accordance with ASC 718 "Compensation — Stock Compensation" as follows: 13 Table of Contents September 30, 2023 Number of PSUs Fair value at grant date per PSU Total fair value at grant date 2,703,852 $ 48.16 $ 130,218 220,533 76.97 16,974 249,402 80.59 20,099 15,210 87.66 1,333 10,532 94.94 1,000 161,912 114.26 18,500 3,361,441 $ 188,127 These PSUs will be expensed over the performance period when the vesting conditions become probable in accordance with ASC 718. In September 2015, the Company adopted an employee share purchase plan (“ESPP”) to encourage and enable eligible employees to acquire ownership of the Company’s ordinary shares purchased through accumulated payroll deductions on an after-tax basis. In the United States, the ESPP is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code and the provisions of the ESPP are construed in a manner consistent with the requirements of such section. As of September 30, 2023, 4,787,003 ordinary shares were available to be purchased by eligible employees under the ESPP. The fair value of share-based awards was estimated using the Black-Scholes model for all equity grants. For market condition awards, the Company also applied the Monte-Carlo simulation model. The Company assessed fair value using the following underlying assumptions: Nine months ended September 30, Year ended December 31, 2022 2023 2022 Unaudited Audited Stock Option Plans Expected term (years) 5.50 - 6.00 5.33 - 5.83 5.33 - 5.83 Expected volatility 63 %- 67 % 60 %- 62 % 60 %- 62 % Risk-free interest rate 3.48 %- 4.16 % 1.58 %- 3.04 % 1.58 %- 4.23 % Dividend yield 0.00 % 0.00 % 0.00 % ESPP Expected term (years) 0.50 0.50 0.50 Expected volatility 56 %- 122 % 51 %- 77 % 51 %- 77 % Risk-free interest rate 4.76 %- 5.38 % 0.19 %- 2.52 % 0.19 %- 2.52 % Dividend yield 0.00 % 0.00 % 0.00 % The total non-cash share-based compensation expense related to all of the Company’s equity-based awards recognized for the three and nine months ended September 30, 2023 and 2022, and the year ended December 31, 2022 was: 14 Table of Contents Three months ended September 30, Nine months ended September 30, Year ended December 31, 2022 2023 2022 2023 2022 Unaudited Unaudited Audited Cost of revenues $ 1,511 $ 1,013 $ 5,540 $ 2,994 $ 4,690 Research, development and clinical studies 6,683 7,430 26,999 21,855 30,790 Sales and marketing 8,973 7,686 30,830 21,143 28,826 General and administrative 9,179 10,176 34,801 31,181 42,649 Total share-based compensation expense $ 26,346 $ 26,305 $ 98,170 $ 77,173 $ 106,955 NOTE 7: Basic and diluted net income (loss) per ordinary 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 "Earnings Per Share", as determined under the if-converted method. The following table sets forth the computation of the Company’s basic and diluted net income (loss) per ordinary share: Three months ended September 30, Nine months ended September 30, Year ended December 31, 2022 2023 2022 2023 2022 Unaudited Unaudited Audited Net income (loss) attributable to ordinary shares as reported used in computing basic and diluted net income (loss) per share $ ( 49,485 ) $ ( 26,576 ) $ ( 159,964 ) $ ( 55,231 ) $ ( 92,534 ) Weighted average number of ordinary shares used in computing diluted net income (loss) per share 106,772,814 104,884,583 106,219,194 104,552,803 104,660,476 Potentially anti-dilutive shares that were excluded from the computation of basic net income (loss) per share: Options 6,250,189 6,440,190 6,354,627 6,695,719 6,387,275 RSUs and PSUs 2,590,322 827,789 1,470,542 920,364 822,421 ESPP 96,444 21,462 150,930 52,601 62,910 Weighted anti-dilutive shares outstanding which were not included in the diluted calculation 8,936,955 7,289,441 7,976,099 7,668,684 7,272,606 Basic and diluted net income (loss) per ordinary share $ ( 0.46 ) $ ( 0.25 ) $ ( 1.51 ) $ ( 0.53 ) $ ( 0.88 ) 15 Table of Contents NOTE 8: SUPPLEMENTAL INFORMATION The Company operates in a single reportable segment. The following table presents long-lived assets by location: September 30, 2023 December 31, 2022 Unaudited Audited United States $ 38,482 $ 30,012 Israel 8,100 7,180 Switzerland 6,327 5,084 Japan 965 1,063 Germany 1,039 762 Others 2,008 1,261 Total long lived assets $ 56,921 $ 45,362 The Company’s revenues by geographic region, based on the customer’s location, are summarized as follows: Three months ended September 30, Nine months ended September 30, Year ended December 31, 2022 2023 2022 2023 2022 Unaudited Unaudited Audited United States $ 86,243 $ 102,651 $ 258,429 $ 308,270 $ 406,894 Germany 14,683 6,780 45,547 36,366 46,120 Japan 7,588 7,865 24,118 24,887 32,781 Greater China (1) 6,756 6,164 18,822 16,465 21,332 Others 12,051 7,538 28,638 23,423 30,713 Total net revenues $ 127,321 $ 130,998 $ 375,554 $ 409,411 $ 537,840 (1) For additional information, see Note 12 to the Consolidated Financial Statements in the 2022 10-K. 16 Table of Contents